UAE consumer spending set to pick up in Q3

Dubai has the second-highest density of malls in the world, ranking behind New York.

The initial psychological impact of value-added tax (VAT) on UAE residents is wearing off and it is expected that spending by consumers will be back to normal in the third quarter of this year, according to industry executives.

"In totality, the retail sector is not going down but the challenge is that in the last 2 to 3 months, the impact of VAT was felt more psychologically. This impact has started dying down now. By the third quarter, things should normalise," said Deepak J. Babani, executive vice-chairman of Eros Group.

"We are already seeing an improvement in sales. January and February were a bit tough, March was getting easier and April was even better. With the World Cup coming up, this will give an impetus to businesses," he added.

Babani revealed that big malls are faring well but small malls are suffering due to competition and losing their retailer client base.

"Big malls are doing better because the general tendency of the people is to go to one place where they can get everything. But small malls are struggling. In fact, small malls are dying unless it is a community mall where rents are reasonable. Hence, small malls have opened educational institutes and healthcare centres," he noted.

With more than 60 shopping centres and major international brands, Dubai has the second-highest density of shopping malls in the world, ranking only behind New York, thanks to its high visitor-to-resident ratio, according to a study released by the Dubai Chamber of Commerce and Industry.

Dubai's retail market is projected to grow 5.6 per cent during 2018 to 2021, with retail sales reaching Dh160.7 billion ($43.8 billion) by 2021, according to a study by the Dubai Chamber.

The growth in the retail industry will be driven by growing tourists, high per capita income, a strong presence of international brands and a consumer base that likes to spend on retail, food and beverages and leisure activities.

Hamad Buamim, president and CEO of Dubai Chamber, said the size of the Dubai retail market grew to Dh128.45 billion ($35 billion) in 2017, accounting for around 67 per cent share of the UAE's total retail market size. Dubai accounted for around 49 per cent of all shopping malls in the UAE, followed by Abu Dhabi with 36 per cent.

Dubai will also host The Retail Summit on February 13 to 14 in 2019, with billionaire entrepreneur Richard Branson announced as keynote speaker at the summit. Over 800 C-level executives, industry experts and professionals from around the world are expected to attend.

Eros Group chief Babani said big malls have taken retail for granted. "It is very important that malls should have a good tenant mix. Unfortunately, in the race to show results, a lot of malls have raised their rents very high, especially the big ones. Now, it is hurting them because the luxury brands were giving them high returns. But when that got cut, they are feeling the pinch," Babani said.

The Eros Group chief said retailers typically used to increase prices in line with rent hikes imposed by malls until a few years ago. But that is not the case anymore.

"They used to say that if malls increase the rents, we will increase our prices too. That tone has changed now because the customer is reluctant to buy. However, some of the malls [big ones] are not willing to reduce rates because they have a long waiting list of prospective tenants."

- waheedabbas@khaleejtimes.com