Outlet centre sector still in its infancy in the Middle East

If the retail market is dependent on trends, and the trends that shape this industry are global, then there is one such trend that the Middle East is yet to truly explore.

As performance in most of the traditional retail formats has plummeted over the past six months, along with decline in household income and worsening consumer confidence, the inevitable store closures have at best led to those that are still in business, posting negative or flat growth.

However, one such sector has seen nothing but continued support from a consumer base that is growing in loyalty and continuing to spend; this is the outlet centre sector.

However, this trend which is forming the new social, commercial and economic backbone of the retail markets in most of the other dominant global markets is really in its infancy here in the Middle East.

In the US, where the outlet centre sector is generally considered to be at its most mature, foot traffic to all retail establishments fell by 19.3 per cent in the fourth quarter.

However, during the same period, footfall at one of the leading owners of outlet centres were up by 8.3 per cent, which means that in real terms the normal retail centres are losing over a quarter of their expected foot traffic.

Additionally, over the same time period, these outlet centres have been posting increases in their net operating income (NOI); a financial benchmark that has been in decline in nearly all other areas of the retail sector since the second half of 2008.

Aside from the obvious attractiveness to consumers because of the reduced prices, one of the key reasons for the success of outlet centres is their ability to weather economic and financial storms.

Retailers typically use outlet centres to offload recently out-of-date stock at heavily discounted prices to consumers that are happy to hunt for a bargain.

In the main, these stores drive healthy profits but even if some struggle and are forced to close, there is always another waiting to take their place, not something that is still happening in the malls or on the high streets.

Moreover, during these leaner times, those retailers that struggle and close some of their doors at full price locations, will eye opportunities at the outlet centres even more eagerly, supporting the statement of one recently interviewed analyst who said, "outlet centres are good in the good times, but great in the bad times".

So in a region whose markets are growing as eagerly as those in the Middle East, the obvious question is why this sector is still so relatively unexplored? The answer may lie partly in the fact that these markets do take a while to implement change, especially because they have been so strong in recent years.

Having grown so aggressively and so rapidly there is definitely room to argue that, if it ain't broke don't fix it. But outlet centres didn't emerge elsewhere because of a lack of market liquidity they were borne out of a necessity for new, easily accessible retail space that offers a unique draw - permanent discounts; and this maybe the other reason for the lack of real growth here.

Dubai (and the Middle East generally) long ago left behind any pretence of being bargain orientated. The regional retail sector has gained strength in depth through new malls that have played on the availability of luxury, with the result being that there really wasn't a need or therefore a desire for many new outlet centres.

However, with flattening rents, a slowdown in sales performance and forecasts of waning foot traffic, now maybe the time for the region to join this global trend.

- The writer is Head of Retail Services, GRMC Advisory Services.