Dubai Gold
Waiting for the glitter days to return... Gold prices at $1,740 an ounce levels is another factor putting off shoppers. Image Credit: Gulf News Archive

Dubai: Two of the UAE’s leading jewellery retailers are taking drastic actions to counter the COVID-19 impact on gold demand.

Joyalukkas, the first jewellery retailer to create a multi-store network in the Gulf, is closing its “weak performing” outlets, while Malabar Gold & Diamonds, with more than 100 outlets in the GCC states, has decided to delay opening all stores until there is clarity on rent reductions from its landlords. The gold trade has been the worst hit by the virus outbreak, as most residents stopped spending on anything other than essentials, while tourists too have been absent after the suspension of flight services.

The initial plan is for Joyalukkas to exit seven of its 24 stores in the UAE, and repeat the process in the other Gulf states. The UAE contributes the highest share of the retailer’s revenues, at 40 per cent.

“It has reached a point where we can’t retain all stores,” said Joy Alukkas, Chairman. “There will be a dip in our UAE sales because of the closures, but nothing too drastic, I hope. Fact is we will be better served by retaining just one store in locations where we had two or even three.

“Because there is such low consumer demand for gold jewellery right now, it’s better not to re-open some stores – that way retailers will end up with less expenses.”

Flagship stores in prime locations command rents of Dh800,000-Dh 1 million.

Retailers say it’s relatively straight forward getting out of rental contracts. Serve out the notice period and then make the exit – but even during this period, they will not have the stores open.

Closing down weak performing outlets is the first step in getting costs under control, says Joy Alukkas, Chairman of the retail group that bears his name. Image Credit: Gulf News Archive

Talks go on

Right from the moment COVID-19’s impact on sectors became apparent, retailers have been working the phone lines to try and get their landlords to see reason and offer some sort of rental compensation.

This is what Malabar is doing, by deciding to re-open its 54-store network in the UAE in “phases”. “No one in the gold trade thinks they will be making money this year – which is why landlords need to hear our views patiently,” said Abdulsalam K.P., Executive Director at the retailer.

“We are asking all our landlords for a four-month waiver and for the rest of this year, to drop their rents by 50 per cent. All stakeholders should support these requests – the government has already shown the way by dropping fees on all government-related services.”

Abdul Salam KP Malabar Gold 30122018
In no rush to re-open... Malabar Gold & Diamonds plans to assess its network needs over coming weeks. Meantime, it expects landlords to do their bit in sharing the pain. Image Credit: Gulf News Archive

Pain of job losses

According to gold and jewellery industry sources, if consumer buying won’t improve any time soon – it’s unlikely with gold well above Dh190 a gram – more stores will face closure. That can only mean more cuts on the workforce.

“So far, we have tried to retain as much of our staff as possible, through the lockdown and then the subsequent opening from April 26,” said the owner of a leading gold wholesale and retail business. “But when stores are shuttered, there’s no way staff there can be absorbed elsewhere.

“By summer, the gold trade will have a full measure of job needs and losses.”

Less expensive than opening

Many retailers confirm that keeping stores shut makes better sense on the cost side. Some gold retailers have returned their inventory to bullion banks, thus getting their hands on some much needed funds.

“If there’s no business likely to happen, why pay interest to banks and rents to landlords,” the retailer said. “Best option is an exit.”

Wait for landlords to decide

Abdulsalam is willing to play waiting game, until landlords decide one way or the other. “A lot of our locations are dependent on tourist shoppers; so, there’s no point in opening those outlets now,” he added. “Our message to landlords is consistent – when we can afford to re-open, we will.

“But we will need a clear message from landlords on rents. When and whether we re-open all stores depend on that.”

Some landlords have deferred rents for the period when commercial activity was at a standstill. But no one is as yet talking about major cuts on rents and extended rent-free periods.

The same sentiments about the need for rent-relief are repeated in every other retail category. “Retailers are seeing lower footfalls to the stores and they are having to compete aggressively with online platforms,” said a consultant. “Brick and mortar is having to match pricing with online channels to bring shoppers to the store.”

Thankfully, for the UAE’s gold trade, online selling has not intruded into their prospects for now. Local shoppers need the sense of touch and in-store experience when it comes to jewellery. Once gold prices settle down and buyers feel the urge to pick the yellow metal, they will be back at the stores.

“When they do, we can always go back to opening - or re-opening - stores.”