Is Qatar’s retail sector outstripping demand?
Qatar’s retail sector in the country is experiencing unprecedented expansion, with a plethora of new malls recently opened or on their way. But how long is this growth sustainable for and will there be enough customers for all these new stores? In this special feature, The Edge investigates.
In recent years, new additions to gross leasable area (GLA) of Qatar’s overall retail space have become common, and announcements of major mall projects often make headlines. This confidence in Qatar’s retail market is backed by figures, with both real estate firm DTZ and Alpen Capital revealing positive research statistics on the sector’s prospects in the country.
DTZ, in its Property Times Q3 2012, states that Qatar provides approximately 300 square metres (m2) of organised retail accommodation per 1000 people which, for perspective, in Europe is 200 m2, and in Dubai 1000 m2, one of the highest in the world. According to DTZ research, “Total organised retail mall stock in Doha increased from 430,000 m2 at the end of 2010 to approximately 510,000 m2 of GLA distributed across ten main shopping malls by the end of 2011. The next mall scheduled to open during Q4 2012 or Q1 2013 is Ezdan Mall in Gharaffa. Total stock of retail mall accommodation is expected to reach 685,000 m2 by the end of 2013 with new malls scheduled to open including Ezdan, Markhiya and Gulf Mall.”
Unless Qatar’s population and economy continue to grow at levels in excess of five percent per annum, there is risk of oversupply in the organised retail market.
Moreover Al Futtaim Group of the United Arab Emirates has announced plans to open Doha Festival City, its first shopping mall in Qatar, at a cost of QR6 billion and Barwa Commercial Avenue is due to open 640 retail store spaces by 2015.
On the economic viability of the enormous retail expansion in Qatar and whether this growth can really be sustained with uniform tempo, Mark Proudley, associate director, consulting and research, DTZ says, “Qatar is ranked as having the highest gross domestic product (GDP) per capita in the world by the International Monetary Fund (IMF). Coupled with limited income tax liabilities, consumers in Qatar are considered to have one of the highest levels of disposable incomes in the world, driving strong levels of private consumption and demand for retail space.”
While consumer spending power may be a given with such a wealthy population, unless Qatar’s population and economy continue to grow at levels in excess of five percent per annum, Proudley warns of the risk of oversupply in the organised retail market. “That will generate increased consumer demand and requirements for retail accommodation,” he says. “A developing retail market will not only create additional demand from existing retailers but also attract new brands into entering the market.”
Sanjay Bhatia, managing director, Alpen Capital Investment Bank (Qatar) LLC adds that there are several emerging trends that are catalysing the growth of the Qatar retail market. “A large proportion of expatriates and an affluent local population make Qatar a very attractive market,” he explains, “especially for fashion retailers. Many international brands have established their footprints in the country through partnerships with local companies who have a better understanding of the market.”
Prospects go hand in hand with sustenance, and Bhatia is of the opinion that the momentum of growth in the retail sector can be sustained. “As per our projections, Qatar is likely to register an annual average retail sales growth of 6.7 percent until 2016,” he says.
Mall developers like Eamon Kelly, general manager, Lagoona Mall and Olaf Kindt, director, City Center Doha agree with Bhatia’s assessment. Kelly discusses the factors that have contributed to the growth of the retail sector and says that the high GDP per capita, the substantial number of projects and the increase in public sector salaries have injected large amounts of money in the economy. “This has sparked demand in a large number of companies to enter the market, boosting competition,” he says.
Kindt categorises Qatar as an emerging market. “If one keeps in mind the expansion strategy of Qatar,” he emphasises, “its population growth and also the growth of income, the development of the level of retail with new retailers who have not yet come to Doha and who are keen to come – many of whom we have not been able to accommodate for lack of space – the sector is likely to see huge growth in the coming years, much like the construction business.”
However, with at least a dozen shopping malls entering Doha and its neighbouring areas, with news of many more in the offing, are there any fear of excess capacity in the minds of the retail developers? Some malls, especially those that opened in and around 2008 to 2009, at the peak of the global financial crisis, have had low occupancy and even now some malls in Doha have empty shops with slogans like “exciting new store coming soon” which stay there for months.
Commenting on why retail growth can be accompanied by issues of occupancy Ibrahim Bitar, managing director, Salam Bounian (the parent company of Doha’s The Gate mall) and Feras Owaidat, retail manager, Salam Studio & Stores, explain that some shopping malls came at a juncture when global retail tenants could not take decisions of expansion, mostly because of the global financial crisis. This is a cyclical phenomenon and Bhatia warns that over-capacity can cause this again. “While supply of new GLA will be sufficient to meet demand for retail space over the next five years, a part of new additions may witness lower initial occupancy rates.”
For others, like Kelly, it might just be a deliberate strategy. “We are now sitting with at 70 percent occupancy since we aim to bring in certain brands that reflect and meet market demands.”
“Qatar has been fortunate that our leadership has protected the nation from the worst of the financial crisis in 2008 and 2009,” adds Owaidat. “We are confident that the current wave of development is not being carried out arbitrarily, and that a burgeoning retail sector ultimately will form part of Qatar’s National Vision for 2030.”
Any country that embarks on a strategy of growth creates a fear that the growth prospects might slow down beyond the initial phase.
To attract and retain customers in such a competitive environment, shopping malls weave in entertainment areas to their overall offering.
Addressing this issue, Bitar says that Qatar has grown from a population base of 250,000 in the late 1980s to more than 1.8 million recently. “Our positive business forecasts are based on the assumption that the population will touch 3.5 to 4 million,” he says. “With this population base, it all boils down to how each of the malls packages its business philosophy, and includes the elements of success – like ease of location, presence of food and beverage section, brand mix, entertainment facilities, adequate parking, ease of circulation of traffic and the presence of a supermarket – into their respective malls.”
Bitar agrees there could be a degree of customer movement from one mall to another, but that does not, for him, seal the prospects of the sector as a whole. “There certainly will be migration to and from some malls, but in the end there is enough and more room for retail expansion,” he offers.
For Owaidat, retail in Qatar is developing more rapidly than anywhere in the world but “the rising competition will develop a more sophisticated, richer offering to consumers, compelling us to enhance what we do in every way.”
But the bigger malls have not eroded away the market share of smaller supermarket based entities like Qatar’s Al Meera Mall group. Dr. Saif Said Alsowaidi, vice chairman, Al Meera tells The Edge that the volume of the customers in 2012 compared to 2011 increased significantly. “The bigger malls did not impact much on our customer base,” he says, “and the main reason behind this is the choice of our location, which invariably is within the community. It is also a question of mindset since the customers who like bigger malls are more tuned to spending longer hours in wandering around the mall in addition to shopping, and not those who head to places like Al Meera just to shop for their consumer goods.”
In recent years many of Doha’s business groups have diversified into the retail segment, with hopes of higher returns. For instance, Ezdan is in the process of launching a new arm – Ezdan Mall Company – which is planning three malls in Gharrafa, Al Wakra and Wukair. This is understandable given the potentially high returns in the sector, but also begs two questions: with the ever-increasing competition, would their investments have better returns in other sectors? And would it be a challenge to find tenants, some of whom already have multiple outlets in Doha?
685,000 square metres - The total stock of organised retail mall space in Qatar expected by end 2013.
Bitar is of the view that the investment that retailers have made in the existing outlets has already seen attractive returns by now and most of the retailers are ready to innovate in new shopping outlets. “The Mango, for instance at the Mall, was their first outlet in Qatar though they are doing very well even now. If they now think of opening somewhere in North Road, they would surely need to go there with a new set of stock. A retailer has to be ready to move where the business logic dictates them. If they do not innovate and adapt to new business realities, they will surely be eaten away by the market share of another retailer.”
He also adds that, “retail has a lot of glamour and prestige attached. There are pricing and stock cycles – which essentially are the risk factors – and many businesses that diversify into retail do so because of the prestige that goes with it. Retail is detail, and only people who know how to manage the retail business do well in this space. So any investor who looks to making quick money in retail goes down a slide.”
In Kelly’s opinion, further retail expansion will only serve to attract more prominent brands from the Far East, Europe and South America as there will be more than enough space to fill. “This will give room for a wider and more varied choice of bands to benefit the Qatari consumer,” he says, whilst Kindt gives a novel angle to the logic of expansion saying that figures from most international chains that are present in City Center reflect that even though they have other outlets now in Doha, their clientele has not dwindled, saying “The other outlets have enabled development of the market since they have found a new set of customers, an instance of market creation and customer absorption.”
Attractions or distractions?
To attract and retain customers in such a competitive environment, shopping malls weave in entertainment areas to their overall offering – some have water parks, others have ice-skating rinks and many have cine complexes, side by side with food and beverage and kids’ zones. Do these additions create an illusion of retail business or are do they contribute actual transactions taking place outside of them?
67% -The average retail growth in Qatar until 2016 (as estimated by Alpen Capital Qatar).
Lagoona’s Kelly denotes these add-ons are factors that create what he calls a “wow” factor in the customers’ minds. “By offering better service and amenities like free parking, easy access, professional car wash and valet parking, we create a five-star shopping experience,” he explains.
“For us as mall developers,” adds City Center’s Kindt, it is extremely important to keep customers in the mall for as long as possible. The longer they stay in the mall, the higher the chances that they will spend, be it in the food & beverage or the fitness or entertainment section – but all these add up to business within the mall.”
However, while larger players include such facilities to woo customers, smaller entities such as Al Meera have tweaked their prices and expanded volumes. Explaining their strategy, Dr. Alsowaidi says, “Because of the volume of our business, Al Meera was able to negotiate very competitive prices with the supplier, which helped us to keep customers intact. The suppliers of most goods in Qatar share the same retail stores; and they are keen to offer better prices and services to those who sell more by volume. Al Meera has always attracted the attention of those suppliers, and has negotiated competitive prices from them, passing on the price advantage to our customers.”
For Ali Akbar Shaikh Ali, chairman New World Centre, a successful chain of Qatari malls that now operates across the region and that according to its website “caters to all types of customers…from the budgeted shoppers to upscale consumers” it is the same price advantage that has secured their market share. “We are not only a one-stop shop, but we also offer very affordable prices for our customers which make them come back time and again.” For New World Centre, the growth of population has contributed to 10 to 15 percent of their business growth and they are branching out into Al Khor, with a brand new food and beverage section.
To encourage market differentiation and to support the local economy, retail developers have assumed a policy of encouraging traditional Qatari products – abayas, perfumes, men’s robes – by reserving space for them in their malls, like The Gate or City Center. But do these mean that the unorganised retail market in the areas such as Mshereib will be totally eradicated?
“As a local company,” says Salam Bounian’s Bitar, “this was an express policy we had taken to encourage local industries, in addition to promoting international chains. Unorganised retail will always be affected by the growth of organised retail. Traditional business, which does not move with the flow of population and into shopping complexes where the retail business has moved, is bound to be swamped by the development of the sector and lose out. Heritage must match smart business logic and be willing to move in with the times”
Lagoona mall’s Kelly is of the view that, “there is a lot of young talent in Doha, and young Qatari designers are growing in numbers and taking off. There are greater opportunities to showcase their collections in the mall alongside international brands, which opens them up to a growing international tourist gaze at the same time.”
“Traditional business is bound to be swamped by the development of the sector and lose out.” - Ibrahim Bitar, managing director, Salam Bounian
Kindt is keen to create a souq ambience within the proposed expansion programme at City Center: “The local retailers are always important, but they take up anywhere between 10 and 30 percent of the total market. In our expansion programme, we are reserving a space for local producers in a souq ambience, which will have only traditional stuff. This will act as a special pull for tourists as well since they would not find these anywhere else outside of the Middle East.”
Owaidat brings a different dimension when he cites the staying power of unorganised retail. “If one looks at similar examples the world over, it’s clear that developers and analysts underestimate the staying power of informal retailers. There will inevitably be those that do not survive, but we are certain that the souqs and street-front stores that have always been part of Qatar’s shopping scene and a cultural destination will adapt, endure and even thrive, regardless of the growth and change elsewhere.”