Dubai: The downturn offered a much needed breather for Dubai's retail space. Just when things looked to be in danger of overheating, the recession intervened and forced retailers to ease off the accelerator. And the reason why the local retail space is a much happier place to be in right now than, say, the property sector.
The downtime gave retailers the space to tweak priorities, come out with new concepts, and prepare themselves for a future upturn. And cast the net wide for opportunities, which are very much out there… still.
Abhay Nadkarni, executive director at Al Aqili Group — which holds the rights for an eclectic retail mix that features Laura Ashley and The Society Shop — tells Gulf News about the marketplace and what could lie ahead.
Gulf News: There's been talk of a revival of interest in possible franchising opportunity in the local retail space. But are there that many international brands out there which are yet to find representation here?
Abhay Nadkarni: There are certainly quite a few good brands yet to gain representation here, primarily from North America, and a few from Europe as well. Quite a few are not present yet because:
• they have not got their franchising act together as yet,
• their supply chain to the region is not organized,
• they do not understand our region as yet - route to market, potential, etc.,
• they are currently engrossed in issues of their domestic or existing markets or have enough growth and opportunity in their present markets and therefore do not want to venture out to newer ones.
Such brands can be persuaded to accelerate their entry into the region.
Which would throw up quite a few franchising possibilities for local retailers over the next three to five years?
Opportunities for local retailers will come from the following sources:
• New brands entering the region,
• Existing brands not satisfied with performance of present retail partners in the region,
• Local retailers going out of business or being put up for sale along with their franchise relationships or contracts.
Some brands may also exit the region, particularly those that came in towards the end of the boom and could not establish themselves after the downturn.
Of late, there have been comments in some quarters that international brands are becoming even more stringent in their contractual agreements. Do you feel this is getting to be the case?
Not universally so. The big brands always had good and reasonably elaborate contracts.
The smaller regional retail brands who sought to get international did have reasonably loose contracts, which are now being straightened out. In a way, that is not a bad thing.
In the final analysis, the only sustainable contract or arrangement is one that is fair to both sides, commensurate with what each party brings to the table.
On the subject of contracts, I think there is likely to be a reverse shake-out of contracts between malls and tenants. Gone are the days of "take-it-or-leave-it" contracts that malls thrust down retailers throats.
Today, profitability issues and lower sales have forced retailers to become quite choosy about picking sites and malls, and more particularly, rents and exit terms.
The majority opinion is that Dubai is not going to witness the addition of more premium retail space for the foreseeable future. How would brands or franchises operate in such an environment?
Reactions will happen only when the market picks up, and retailers have the appetite to expand — when there will again be more takers than space available. Until then, there will be pressure on non-performing brands to exit retail spaces, to make room for either expansion of existing brands into a wider footprint or for new entrants to the region.
There is also the role of the malls jockeying for position, as they compete for the incremental retail dirham which will affect the businesses of smaller brands having smaller footprints in the local market (that is, brands located in only one mall in Dubai will be affected if business moves away from that mall).
One forecast being made in the market is that some brands currently represented here would seek new franchise partners to "better" grow their business. Do you see such opportunities emerging?
Yes indeed this is likely to happen, but not for "better" growth.
Typically, franchise contracts have performance clauses, and such clauses need to come into play for a move to be initiated. Also, the disruption of a move to another franchiser is not desirable for franchise owners, and they will try and make it work as far as possible with the existing partner.
Another significant point is that the mood in Europe and North America is quite sympathetic to the present situation, and ... the principals are supportive.
Apart from Bahrain, are you looking at any other Gulf markets for the brands that you represent?
Our footprint is the GCC and the Levant, with options on other Middle East countries as well.
Market sources say the Society Shop has had a rather difficult initiation because of the tough retail sentiments. Your comments.
The retail sentiment was well known when we opened. Our business model incorporates the revised market conditions.
We had a soft opening in July (for obvious reasons), the formal opening was mid-October. Sales since then are increasing every month, and sale base is not small. The brand is just beginning to get known, except among the Benelux expat community for whom the brand is a household name in their home countries.
You need to note that we are a late entrant, and we are pleased to see that our weight of purchase is quite high (Dirham per transaction) and we have a lot of repeat customers — both signs of brand sustainability.
