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When Rabih Gandour decided to become one of the UAE's hippest e-tailers in 2012, the cost-effectiveness of going online was a big factor. It was a move that has defined Wamli and helped the young company find its niche, pioneering a reliable and fast online service in the creative e-commerce world.
Wamli's communications spokesperson Musad Afzal says the growth of e-commerce in the region and the large market gap were part of the reasons for opening up. Clearly, their success is backed by sound homework.
E-commerce is on a rapid upward trajectory in the UAE, growing by about 40 per cent last year. But it is still lagging behind in terms of global trends, say experts.
Renting a store in the country is exceptionally expensive on an international scale and retail space is at a premium, with waiting lists in many of the country's exclusive malls. Afzal says the high rents played a minor role in structuring the business model. ''We felt we could attract a wider region, more diverse customer profile and fill a larger market gap by going online.''
Going online allowed Wamli to target a bigger market, reduce overheads and give shoppers the convenience of buying from their homes. ''The largest advantage of the online model is visibility,'' says Afzal. However, he adds, ''A lot of our products would be more attractive [if] showcased [in a physical retail environment] and even with the growth of e-commerce in the region, the majority of customers are shopping in-store.''
This could explain why retail rents in the UAE have remained steady despite the rise of e-commerce. Faisal Durrani, Research and Business Development Manager of Cluttons, says the global picture is confusing. In the US, for example, malls are struggling. ''People have changed their shopping habits and decided to shop online, [which] means some malls [are facing] challenges,'' he says.
Retail vs online
In the UAE, however, the retail property business is better than ever. Cluttons' figures show that rental prices rose from 5-38 per cent across different categories in the year to December.
''The growth and demand for retail space have been absolutely tremendous year on-year,'' says Durrani. ''In most cases whenever a new shopping mall has been developed it's been pre-let well before it's completed.''
The country has guaranteed high yields from shopping malls by marketing itself internationally as a shopping destination and merging retail with leisure. ''There are huge waiting lists to get into these key shopping centres and there isn't enough retail space to cater to everyone at the moment, which is why we're seeing so [many] malls in the pipeline,'' says Durrani.
In contrast the slow uptake of e-commerce in the UAE is perplexing, says Nikola Kosutic, Research Manager at Euromonitor Middle East. ''We are a little puzzled [about] why e-retailing is so low. We have everything here. There is fertile soil in the UAE for [it] to skyrocket in the future.''
Furthermore, the UAE also has one of the highest penetrations of internet-connected devices in the world. ''What's driving [e-retailing] is convenience, price and offering. There's also an entertainment factor — it's fun to shop online,'' says Kosutic.
All this means online shopping should be a much more attractive option in the UAE than it currently is. ''Driving to the mall, finding parking, walking around three kilometres is not fun,'' says Kosutic. ''Secondly, prices here are ridiculous compared to Europe, North America and Asia. There are huge holes across the board.''
A diverse market
Because UAE customers are some of the most diverse in the world, Kosutic says it is hard to draw conclusions about why uptake is slow, but residents seem to be reluctant to make online transactions. Malls and retailers also offer incentives through shopping festivals and other promotions. But it can be very hard for small or medium-size retailers to get into mall stores in the UAE, Kosutic adds.
Rents are very high and retailers must give a nominal amount of revenue — usually about 3 per cent — to the mall, with stiff penalties if they fall short of turnover targets. ''Retail rental is much higher than the global average and comparable to some of the most expensive markets,'' says Kosutic.
While internet retail sales are increasing — estimated to jump an unprecedented 43 per cent this year — Kosutic says experts do not expect the rise of online retail to have material impact on rent. Durrani agrees. Firstly, there are significant logistical challenges to be ironed out, such as the lack of a formal addressing system that hampers delivery of goods. Secondly, Dubai has ambitious targets to draw an increasing number of tourists to planned centres such as Mall of the World.
Durrani says the UAE retail property market is currently on an upswing that will eventually cool, but not anytime soon. ''There is nothing to suggest there will be a decline in retail rents in the short term,'' he says. ''Ecommerce will only supplement the growth of the retail sector as a whole. I don't see it having a significant impact on shops in malls or souqs because there are people, tourists in particular, who value [these] experiences.''
Kosutic explains what is more likely to have a significant impact on the rental market — the rise of unconventional stores, which is already being felt across the region. Pop-up and mobile stores are becoming increasingly popular options for retailers, drawing them away from mainstream retailing.
There has also been a rise in the development of community malls, with industry insiders witnessing a desire from residents to do much of their shopping in conveniently located, smaller malls. For example, the Carrefour store with the highest returns in the country is in Deerfields Mall, a community shopping centre in Abu Dhabi.
Developer Nakheel has been quick to adapt to the trend, with six community malls either recently built or under construction. ''There has been a great response to our first two, and we look forward to opening more in the future,'' says Rebecca Rees, Nakheel's spokesperson.
More retail space
Kosutic explains that with the emergence of more community malls, the pressure on retail space will ease.
''There will be more supply and rents will be cheaper. [Smaller] retailers will be able to find luck at community malls.''
But Durrani is not sure that even these malls will make much of a dent in retail rents in certain quarters.
''Whether or not the rents the city is commanding are sustainable remains to be seen, particularly given the thickening pipeline [of mall developments],'' he says. ''But there is a list of retailers who are still working hard to gain access to the market, particularly from the US.''
Many American food and beverage outlets bypass Europe and choose to make their first international foray into the Middle East and Dubai instead. ''I think that speaks volumes about the level of trust in [this] market,'' says Durrani.
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Source: Amanda Fisher, Special to Property Weekly