Will brands survive the GCC mall boom?

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With many new malls planned for the region, how can brands survive, yet alone beat the extra competition?

According to MEED projects and Knight Frank research,  there are approximately 110 malls in the execution phase across the GCC including the UAE. This number includes extensions projects for current malls, as well as larger community retail centres. In addition, smaller community retail centres are not included in this list, these are forming a focus point in the master planning of residential communities.

Besides, the research adds, there are approximately 45 malls under execution in the UAE that are expected to be completed from now until 2020.

With many malls being built in the region from now until 2020, competition between malls and brands is expected to sky rocket. Can brands and mall operators survive? How will these additions change the Gulf’s retail landscape?

 

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On March 10, The Dubai Mall unveiled Fashion Avenue, an avenue that will accommodate a further 150 luxury brands to the 1200 retail stores already showcased in the 3.7m sq ft mall.

This is just one example of mall expansion in the region.

There are also entire malls that are being built in the GCC region, with 20 new malls planned in Dubai, opening their doors in 2020. These include the Nakheel Mall, Palm Jumeriah, Dubai Hills Mall, MBR City and Cityland Mall near Global Village.

Neighbouring Abu Dhabi is busy building malls too, with Reem Mall and Al Maryah Central slated for completion soon.

 

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However, as data from Sapience Consultancy show, signs of a slowdown in the region’s brick-and-mortar retail sector are showing, something that is illustrated by Dubai Holding’s recent announcement that it is to scale down its original $20bn plan for the proposed Mall of the World project.

Dubai Holdings cited low crude oil prices and geopolitical instability as the reason. Add to this, the region’s bourgeoning e-commerce sector and there seems there are a few concerns to be explored.

Further, research reports have pointed towards emerging signs of saturation in the brick-and-mortar retail in the region.

 

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The overhang of upcoming supply and existing high mall density levels indicate retail market saturation, says a report by Core Savills. “As one of the most penetrated retail markets in the region, Dubai, despite its modest population, has the second highest mall density in the world of 1,214 GLA sqm/1,000 people, trailing marginally behind New York,” it reads.

So does the region really need more malls? And if so, how will brands survive the GCC mall boom?

“Brands will have to slowly shift their focus to online channels as footfall in malls are predicted to go down in the future, with consumers starting to prefer the convenience of purchasing online,” MR Raghu, MD Marmore Mena Intelligence, tells GMR.

“However,” he added, “brick and mortar stores would still play an important role in the short-term as many consumers, especially tourists give significance to the ‘look and feel’ factor while making specific purchases like clothing and footwear.”

 

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Differentiate consumer offering

A report by McKinsey, ‘The future of the shopping mall’ notes, “Malls need to move in a different direction, away from commoditized shopping experiences and toward a broadened value proposition for consumers.”

Innovative malls are incorporating value-added elements that attempt to recast the mall as the new downtown, including concerts, arts centers, spas, fitness clubs, and farmer’s markets.

These services provide a level of leisure and entertainment that can never be satisfied online.

And as the McKinsey report adds, malls are overcoming the commoditization problem by focusing on specific consumer segments and/or creating specific zones within the mall that allow consumers to find an area that caters to them.

In the Dubai Mall, for instance, the new Fashion Avenue is an area dedicated to luxury brands and services tailored to the upscale customer, including a separate outside entrance and parking area.

“The brick-and-mortar can stay relevant only as long as they really offer an experience. Traditional retail will have to go into retail-tainment. There has to be a story, there has to be an experience for sure, comments Deputy CEO of ABC Group Frank-Matthias Kuntermann.

 

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So the ability of brick-and-mortar retailers to put the customer front and centre for their business will determine the industry’s future success.

“With rising levels of new stock coming to market over the next three to four years and the first signs of market saturation starting to show, it’s to be seen if demand can continue to match up, [hoping] the strength doesn’t become a threat instead,” As Core Savills CEO, David Godchaux tells GMR.

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