More than in any other sector, the UAE's service industry could be thrown into an immediate state of flux if, as expected, major revisions are brought into the Commercial Agency Law. And that's not necessarily a bad thing.
Looking at the UAE's retail and service spaces, it would be difficult to imagine there are international brands yet to find representation here. That would be true of the big and mid-sized labels, but the nature of this industry is such that new names with a global following are being created at a frenetic pace.
But these brands are less likely to agree to a commercial practice where they would have to part with a sizable chunk of any future revenues here to a local partner. More so as many of them don't feel the need to have a partner in the first place.
"International brands may either come and set up a subsidiary office in the country and acquire complete management control," said Ritu Marya of Franchise India, which organises the annual Franchising Middle East exhibition in Dubai.
"This may be seen more at global department stores or luxury brands. On the ground level, there would be the closing down of the old stores and their replacement with new locations."
Even then, "the majority of mid-market retailers would still like to enter — or remain in — the market through strategic tie-ups that could be franchising, licensing or a joint venture where both parties bring equal strengths to the table," said Marya.
More competitive
The retail industry would thus get more competitive as brands aim for faster growth through multiple operators with the right amount of initial capital. This, according to some observers, would even make retailing more profitable as ‘individual store economics' become the key rather than having all of the emphasis on multiple store openings.
Also, "the local partner would need to be more competitive in brand expansion," said Marya. "This may lead to a shake-up at existing retail conglomerates and a decrease in multi-brand deals because most brands usually feel they do not get due positioning within a bouquet of brands."
Even then, rather than a slew of new market entrants, the revised Agency Law would facilitate existing agreements getting re-defined or completely overhauled.
That's actually happening already … even without the benefit of the law being changed. In the last two years, there were a couple of high-profile instances of international brands opting to go with a new partner after exiting their arrangements with the previous one.
Change of fortunes
"It wasn't a long drawn-out process as we feared initially," said the head of international operations at one of the fashion labels from Europe. "We felt the brand was not achieving the expected level of growth and wanted a change of fortune by going with a more aggressive partner.
"At some point in the negotiating process both parties agreed that parting was mutually more beneficial than remaining together. It made good commercial sense than going through a long-running legal wrangle."
As of now, such amicable partings are more the exception. According to John Martin St. Valery, CEO of The Links Group, "We were instrumental in the recent restructure of some significant fast food and retail conglomerates that needed to break away — a very difficult undertaking — from longstanding and restrictive agency agreements to a more open, market-friendly and flexible model.
"This was driven in the main by ownership changes of the brands in question following venture capital or private equity involvement. The agency partner was then replaced with a nominee corporate partner fulfilled by Links Group."
Such changes would get repeated even more frequently once the Agency Law is revised.
"There would be more of need-driven partnerships than those based on policy compulsions and in turn create better market opportunities," said Marya.
Even brand principals with proven track records realise the wisdom in that.
