How GCC malls can survive uncertain dynamics of the future?
Malls have become a dominant force in the GCC economy over the past decade. Mall revenues in the region are expected to grow at a Compound Annual Growth Rate (CAGR) of more than nine percent in 2017, while a report by Alpen Capital reveals that GCC retail sales are set to increase annually by more than seven percent, reaching approximately $285 billion by 2018. High levels of disposable incomes, a growing expat population, an increased influx of tourists from far-East Asian nations and mega events such as Expo 2020 and FIFA World Cup 2022 have helped in further increasing mall revenues, making GCC countries a paradise for both shoppers and retailers.
The power of two
The two main cities leading the GCC’s mall revolution are Dubai and Doha. In the UAE, Dubai alone houses more than 40 malls, catering to different kinds of customers. Home to the largest mall in the world by area – The Dubai Mall – the emirate has further strengthened its position recently, with the announcement of upcoming mega mall Meydan One (its foundation was laid in March 2017) adding to its reputation as a major retail hub.
One of the main factors behind the rapid expansion of the UAE’s mall industry is the high level of consumer spending. According to the Dubai Chamber of Commerce and Industry, UAE consumer spending will continue to increase in the medium term, with growth rates projected to stabilize at approximately four percent on average per year, leading to a total spend of more than AED750 billion by 2017.
Reports indicate that the UAE has one of the highest per capita mall offerings in the world. Recent statistics from Frank Knight, a global real estate consultancy firm, reveal that the existing malls in the UAE, combined with the ones that are in the pipeline, will together account for ten million square meters of retail space by 2020, promising a bright future for malls.
Sharmila Murat, country manager – UAE at Chalhoub Group, which has a network of more than 650 retail stores, tells TRENDS: “Dubai is a very strong market for us. We are getting a good number of tourists every year, giving us the confidence to expand our operations and make new investments in the market.”
Qatar is another GCC city that is making great moves ahead in the mall race. A strong economy and a rapidly expanding population together make for a buoyant retail sector in the country, despite the challenging regional and global economic conditions. Virgin Megastore, which has more than 40 stores in nine markets across the MENA region, says it is planning to explore Qatar’s mall industry in the future.
“Qatar is the market we are looking to tap in the coming months, as it offers massive opportunities for mall operators and retailers. We do not go by the speculations that the mall industry is not doing well in Qatar; [we] expect it to be the next silver lining of the industry,” Nisreen Shocair, president of Virgin Megastore, Middle East, tells TRENDS.
Notably, in Qatar, the supply of retail space is expected to nearly double to reach 1.5 million square meters of GLA (gross leasable area) in 2017, states the GCC Real Estate Market report by Global Cityscape. The report also mentions that the number of malls in Doha alone will increase to 14 from the present 11. This is expected to almost double the current GLA in the city, increasing it by approximately 1.1 million square meters by 2019.
Kareem Shamma, the CEO of Bawabat Al-Shamal Real Estate Company, the developer and owner of the upcoming $1.6 billion Doha Festival City project, tells TRENDS: “We consider our new offering as not just a shopping center, but an entire destination in itself. The idea is to turn around the whole concept to subdue any negative force. To beat the competition and the negative connotations of the market, we are bringing many firsts to the Qatar market, such as the first IKEA store, the first ‘Angry Birds’ theme park in the region and the very first Harvey Nichols store in Qatar. The idea is to innovate and make the mall more customer-oriented.”
Mall over the GCC
Meanwhile, the malls business is thriving in Oman, Bahrain and Saudi Arabia, and work is already underway on many projects in these countries.
According to Savills, a global real estate service provider, there are approximately 345,000sqm of prime mall space in Oman’s capital city Muscat, where 280,000sqm of confirmed projects will be completed by 2020. These will include the Mall of Oman, a $467.5 million project being developed by Majid Al Futtaim Group, and The Palm Mall, developed by Al Jarwani Group in Muscat.
Pursuing an economic diversification drive, Bahrain is also sprucing up its mall business. According to a 2016 report by Cityscape Global, the mall market in the country is expected to emerge as a key contributor to the national economy. Bahrain has seen significant retail openings in recent months, including Galleria in Zinj, closely followed by the $40 million Wadi Al Sail Retail Mall in Riffa.
Like its neighbors, the Kingdom of Saudi Arabia is also overseeing a number of mall projects, with completions expected in the next two to five years. These include City Center of Ishbiliyah, Riyadh (expected to be completed in 2018), which shares a budget with the Mall of Saudi (expected to be completed in 2022), at approximately $3.7 billion. Also, the Al Diriyah Festival City Mall in Riyadh, a $1.6 billion project being developed by Majid Al Futtaim Group, is expected to be completed in the next few years.
Slowdown: a blessing in disguise?
The era of abundance in the GCC is over, thanks to the recent economic slowdown brought about primarily by the fall in oil prices. However, this has only made mall operators keener to adopt innovative measures to beat financial volatility.
“We have been experiencing a slowdown in the retail business for the past several years. This was really bad in 2009 and 2010, when there was flat growth and it also went slightly negative in some places,” says Chalhoub Group’s Murat. “But there is also a bright side, as this is giving many retailers a chance to clean up, innovate and come out stronger.”
In keeping with this statement, many GCC retailers have taken this new reality as a challenge to restructure their operations and they are making full use of the technology to make malls more than just a shopping experience
Immersive technology, including digital signage; audio and lighting; interactive mirrors; virtual kiosks; smart technologies and more are now providing an advantage for GCC malls, enabling them to attract and retain shoppers, according to the Middle East Council of Shopping Centers (MECSC), the industry body that helps to promote the MENA region’s shopping center development. “In order to meet the demands of highly connected shoppers, GCC retailers can leapfrog many European retailers in using professional technology to bring innovations into the in-store experience,” says David Macadam, the CEO of MECSC.
What’s in store
The Gulf’s mall industry is clearly booming. The UAE and Qatar are likely to remain the leaders, as both countries are investing heavily in new infrastructure and real estate projects to service major events. However, experts believe that the future of malls depends on the level of innovation, customer engagement and connectivity that developers will be able to imbibe into the basic DNA of the concept behind malls.
Bart Denolf, CEO of lifestyle brand Sacoor Brothers Franchise, which is present in 13 countries, including the UAE, Qatar, Bahrain, Kuwait, Saudi Arabia and Lebanon, tells TRENDS: “Today, a lot of [mall operators] are complaining that they are losing sales. But instead of complaining, we need to be realistic and challenge ourselves every day. We have to find out how we (brands, retailers, and mall developers) can compete in a market where we have to try very hard to win a market share.”
Some mall developers and retailers in the region have already started thinking in this direction and have changed their business models accordingly. For the rest, it is imperative to embrace the new reality at the earliest to be able to survive the unpredictable market dynamics of the future