Can Dubai sustain more mega malls?

Can Dubai sustain more mega malls?

Last Updated: April 24. 2008

Since Singapore was labelled the world’s leading retail destination in 2005, Dubai has set out to outpace, outdo and out-shop the Asian city and any other competition in its bid to build the emirate as a shopper’s paradise and attract more tourists to the “shopping hub” of the Middle East.

In fact, Dubai has already achieved this goal, as it was recently ranked eighth among the top 15 international retail markets, while Singapore fell to 13th place, according to the global emerging markets survey released two weeks ago by CB Richard Ellis.

Retailing has changed dramatically in the past five years, with high-profile developments bringing in high-end labels to Dubai. Today, 40 per cent of retail sales are generated by tourists, so continued success depends heavily on an increase in travelling shoppers.

Dubai already has the region’s largest shopping centre, Mall of the Emirates, complete with its own ski slope. Dubai Mall, near the world’s tallest building, Burj Dubai, will become the world’s largest mall, according to the developer, when it opens at the end of August, while the giant Mall of Arabia is in the making and is due to open in 2010. Three of the world’s five biggest malls will be in Dubai – but can Dubai really sustain more mega malls?

Currently, the emirate has 4.2 billion square metres of retail space and, with Nakheel’s recent announcement that it plans to develop five new mega malls, a few hundred million more square metres will be added by 2012.

However, if you look at the numbers, Dubai is already heading towards overcapacity by 2010. Based on current shopper numbers, per capita retail spending would have to increase by 280 per cent to support the planned retail space growth – without taking Nakheel’s expansion into consideration.

Newly developed communities will need retail space to reach a wider consumer base and offer shopping in the direct vicinity of residents, and this is the niche that Nakheel intends to cover. Although faced with no other choice than to offer more retail space, will Nakheel compete in a sector where market share can only be gained by taking it from others?

The success of a mega mall does not solely depend on community traffic; it also relies heavily on shoppers from further afield. In an environment where size is not the only differentiator, success is also dependent on the entertainment factor and attractions produced to lure shoppers away from the competition.

Size has been known to hinder sales, as is the case with Ibn Battuta Mall on the outskirts of Dubai, which is widely known as having suffered from its complex layout. The same happens when malls become too large. Customer traffic density declines and “dead corners” develop, leading the mall to opt for more expensive entertainment and attractions to tempt consumers back.

For Nakheel to succeed, it needs to diversify in terms of licensed brands. Currently, all malls carry, more or less, the same labels and product offerings. If malls do not differentiate through brands and clear market segmentation, they become a commodity, no matter how high-class the interior may be. Malls run the risk of becoming “out of fashion” quickly, once the next mega mall becomes operational. These factors, paired with declining occupancy rates, quickly cause a mall’s demise, requiring another circus to revive it.

Robert Ziegler is the vice president of AT Kearney Middle East