UAE equities posted a mixed performance on Tuesday (September 29) with DFM in the red by 0.37 per cent while ADX closed lower by 0.06 per cent.
A survey by Standard Chartered on UAE retail spending trends confirms what analysts have widely believed. The COVID-19 pandemic has accelerated digital transformation with 73 per cent of UAE shoppers now feeling extremely positive about online shopping. It must be noted that before the pandemic, 72 per cent still preferred to shop in-person.
The findings have ramifications for UAE retail sector and it heightens the need for all manner of businesses to have an online presence. Among the listed firms, Emaar Malls is the one that will have to go through an arduous transformation.
Last year, out of Emaar Mall’s total revenues of Dh4.67 billion, almost 78 per cent was contributed by offline retail. The Dubai Mall and Dubai Marina Mall accounted for 66 per cent of total revenue amounting to Dh3.08 billion. Online retail contributed Dh1.02 billion.
The numbers indicate the importance of brick-and-mortar retail for Emaar Malls. Even though a lot of luxury shoppers might still prefer physical retail, there will be a gradual shift in their preferences as well. This is especially evident in the case of millennials.
Nevertheless, occupancy levels across key assets like The Dubai Mall, Dubai Marina Mall, Souk Al Bahar, Gold and Diamond Park and community retail centres have remained stable at 92 per cent. This was possible due to the flexible rent payment plans.
The good thing about Emaar Malls is the rise in online sales contribution, and in the second quarter of this year, it touched Dh405 million. When compared to the same quarter last year, online sales were up 58.7 per cent. The rise was driven by Namshi, the lifestyle and fashion platform, which is omnichannel in nature.
Exponential growth in Saudi market also helped Namshi record revenues of Dh664 million in the first-half of the year which is 57 per cent higher than in 2019. The company has a total debt of Dh5.24 billion and cash of Dh893 million. Interest expenses seem manageable at approximately Dh50 million per quarter.
Emaar Malls' shareholders will be rewarded when online sales account for a major part of revenue, and the share becomes more of a proxy for online sales. Last quarter, online sales surpassed offline, but that was an aberration since UAE had a lockdown and customers were fearful of venturing outside.
Emaar Mall’s shares are not for the faint of heart. Nonetheless, it might be worth it in the long term.
- Vijay Valecha is Chief Investment Officer at Century Financial.