UAE malls fine-tuning retail mix to cope with increasing supply

At this time of year, there are some malls in the UAE that one can wander through and wonder how any of the shops manage to stay open, such is the lack of shoppers.

Wafi Mall in Dubai is one such retail space. While the height of summer and Ramadan are real tests for any mall’s drawing power, a recent visitor felt feel very alone while striding through its brightly lit avenues and smiling at the shop assistants standing idly at the doors of their shops.

But just like in life, problems can be overcome only once they are accepted – and so Wafi is changing itself into a mid-range destination mall focused on its core clientele with a new outlook, value offerings and community at its heart.

Traditionally, Wafi was home to high-end products and upmarket outlets, but found its retail mix increasingly out of kilter with the demographics of its Bur Dubai location.

Occupancy fell to just over 60 per cent two years ago as newer malls moved in. And so as well as altering its retail mix, Wafi is changing its marketing from the traditional avenues of radio and print to focus online, forging relationships with bloggers.

“We were struggling as other malls offered similar products and a broader shopping experience,” said David May, managing director of MKM Group, the holding company for Wafi.

“We will be 98 per cent occupied by August, with the UK’s value brand Matalan, a mid- range department store, Safeer and Sino Links, a Chinese emporium, joining us. We will also have a full Carrefour hypermarket, a multi-screen cinema and a new four-star, 500-room Rotana hotel.

“We have not increased rents for the past two years, but we have doubled the footfall. We will still have Rolex and other high-end brands but our mix now suits a market with a disposable income that has a lot of options.”

While the retail environment in the UAE is bucking the trend of many other places, where e-commerce is eating into the profits of brick and mortar operations, its challenges are arguably tougher. While mall space in the UAE is increasing, mall management is having to fine-tune the retail mix to maximise the revenues of the changing catchment areas. The more crowded a field gets, the harder it is to stand out.

With the UAE being such a valuable retail market, the stakes for malls are high – and rising.

The average retail rent per square metre in Dubai’s primary regional malls reflects the returning confidence in the market, increasing from Dh5000 per square metre in the third quarter of 2013 to Dh7,700 per sq metre (up 54 per cent) in the same period last year. Rents grew from Dh1,725 per sq metre to Dh2,400 per sq metre (39.1 per cent) in the secondary regional malls during the same period, according to JLL’s real estate market overview 2014.

Dubai’s retail space stands at 2.9 million sq metres, with another 194,00 sq metres expected to be delivered this year, according to the property consultants JLL. That figure is dwarfed by the 373,000 sq metres expected to be delivered in 2016 bringing a grand total of .5 million sq metres of retail space available in Dubai in the next 18 months.

Abu Dhabi has 2.6 million sq metres available of retail space today with another 87,000 sq metres expected to be delivered this year, plus another 85,000 sq metres in 2016. By the end of next year, the capital will be offering nearly 2.8 million sq metres of retail space.

While a mall’s retail mix is crucial to its bottom line, the ease and accessibility of its outlets is equally important. Dubai Festival City is currently halfway through a Dh1.2 billion expansion. It has filled in the canal that split the mall, thereby creating another 350,000 sq feet of air-conditioned retail space for 120 new brands.

However rather than adding value brands – the strategy Wafi Mall is pursuing in another part of town – Festival City is aiming for higher revenues from mid- market brands.

“We are moving forward in the price position of the mall,” said Brad Merchant, general manager of Festival City. “We are altering the profile to mirror the catchment of our trade area. We are not abandoning the value end but we will be solidly in the middle. We see huge opportunity there and will be unveiling new international brands to the UAE. We have halved our food court space and will have 22 full service restaurants, when finished, with a 70,000 sq ft family entertainment area.”

Industry experts suggest that malls need to focus on the mix of outlets and that the rents charged have to be in keeping with the likely footfall and differing demands of shopping sectors.

“If you have high-end brands a large footfall is not necessarily needed as their margins are that much greater,” said Matthew Jay, associate director for the retail and commercial agency, CBRE.

“If you are selling electronics, where the margins are wafer- thin, then footfall is key. Malls are now mini-town centres where the social experience is just as important as retail. The balance of commercial and social outlets has to be right. Dubai Mall, a very successful operation, has created adjacencies within its commercial outlets so that rents and footfall coexist and spread the social environment throughout.”

With the season of giving gifts as part of the Eid Al Fitr holidays almost upon us, the country’s malls will have a well-earned bonanza after the summer has taken its toll, with residents’ annual migration to cooler climes.

The true test of a mall’s popularity and profitability comes in the following months when the investments into family themed areas, four-star hotels, filling in canals and the all important retail mix starts to bear fruit – or gives way to another bout of restructuring.

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Andrew Scott

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