Special Report: Retail - Gulf boom attracts retail giants

08 August 2008

With annual growth in GCC consumer spending over the coming five years projected at 10-20 per cent, it is easy to see why the region is witnessing a boom in the construction of shopping malls.

Not only do these iconic developments allow property developers to tap into the increased spending power of Gulf residents, they also provide landmark attractions aimed at driving residents, businesses and tourists to stay at a particular development.

Unsurprisingly, the Gulf retail boom is attracting the attention of international retail chains such as Marks & Spencer, Carrefour, Debenhams and Toys R Us. But it is the indigenous businesses that are set to gain the most.

As well as leading the development of the malls, many are heavily involved in retailing activity through franchise agreements with international retail brands.

However, the arrangement leaves the local companies extremely exposed to the performance of the malls.

While this may appear to be a small risk amid the current boom, it is not. The abundance of mall projects under development raises the threat of imminent overcapacity.

Gulf investors should look and learn from the experience of China, where a mall construction boom in the late 1990s was not followed by the expected growth in spending and has left many malls standing empty.

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