Sector needs growth for both digital and physical retail to thrive
With major new shopping malls planned at Dubai Creek Harbour, Dubai Hills, Deira Islands, and the Dubai Expo site, it appears that Dubais retail sector could not be any more competitive.
Emaar Properties chairman Mohamed Alabbar disagrees. On 13 November, he launched a $1bn e-commerce venture that aims to dominate the future of retail in the region and challenge existing and planned shopping malls for business.
With heavyweight backing, the threat is real. Alabbar represents a group of GCC investors that owns 50 per cent of the company, and the remaining 50 per cent is owned by Saudi Arabias Public Investment Fund (PIF) the kingdoms sovereign wealth fund, which recently set up a $100bn investment fund with Japans Softbank, and is expected to be the owner of Saudi Aramcos non-listed shares when the company goes public.
Known as Noon, the new e-commerce venture will start operating in January and plans to cover the entire Middle East and grow online sales in the region from 2 per cent of the total market ($3bn) to 15 per cent ($70bn) within a decade.
The company plans to do this by offering same-day delivery for an initial 20 million items, and it expects the total to quickly grow to hundreds of millions of items a typical mall stocks about 1.5 million items.
While these targets seem big, it is important to remember online retail is still very much in its infancy in the region.
According to US consultancy AT Kearney, the e-commerce market in the region is much smaller compared with other markets: With an estimated market size of $5.3bn in 2015, e-commerce contributes only about 0.4 per cent to the regions GDP a miniscule amount that is four to eight times lower than other comparable markets.
This latent growth is crucial for a region that is busy building new shopping malls at a time when consumption across the region has softened.
The weakening of the regional economy since mid-2014 has dampened the performance of retail properties. According to US property consultancy JLLs third-quarter 2016 Dubai Property report: Average rents have remained unchanged in the Dubai retail market on both a quarter-on-quarter and year-on-year basis. While rents have not actually declined in many centres, this stability suggests market saturation. The flat rents indicate competition for units is thin and tenants are not competing for locations that become available within either regional malls or community centres. Given the overall slowdown in the regional economy that drives retail demand in Dubai, this is not a surprise.
With retail appearing saturated, the concern is that e-commerce will take customers away from the malls. Alabbar says the retail sector is growing enough for both physical and online retailers to grow. The reality is that we live in two worlds. Total retail is increasing anyway, he says. If we want to sustain our physical retail, it has to be complemented with a business like this.
Ultimately, Alabbar says shopping malls will remain important places for people to visit and socialise. The physical will always be there, but we need to reinvent it, and digital is the future, he says.
Alabbars confidence in the prospects for retail does not mean the way traditional retail is built will stay the same. As chairman of Emaar Properties, he is developing the worlds largest shopping mall at Dubai Creek Harbour, and he says the digital paradigm will be reflected in the design of the mall. What we are building is a completely different animal. You will never see one piece of marble or one piece of granite. You will see digital and a lot of social places. And by the way, there will be some shops there.
The designs for the mall are still being prepared and it will then take a few years to build. By the time it is completed, if all goes to plan, Noon should already be a dominant force in the regions retail sector. If digital and physical retail complement each other as Alabbar expects, then the mall, along with other retail centres in Dubai, should be a success. If overall growth is weak and they end up competing for the same customers then any tough times ahead for mall operators could be even tougher.
Emaar works on new designs for Dubai Creek Harbour Retail District
Dubai creek harbour tower
Local developer Emaar Properties is working on new designs for the Retail District in Dubai Creek Harbour, which, along with the worlds tallest tower, will be one of the key attractions at the new masterplanned development.
The concept for the project is understood to be a challenging one as sources within Emaar say they want to create a new experience and are keen to avoid replicating the existing Dubai Mall in the Downtown district. Read more
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