The
ups and downs of the markets are enough to make
anyone invest in a crash helmet. A day of market
euphoria is now often tailgated by one of
nail-biting anxiety.
However, beyond the day-to-day angst witnessed
everywhere from New York to Dubai to Tokyo, the
ultimate indication that the world’s number one
economy may be slipping into recession came last
week with news of the latest US retail sales,
which offer the best indication of household
demand.
Sales at US chain stores rose by a mere one per
cent last month, making it the weakest sales
growth of any September since 2001, when the
industry was in a recession and absorbing the
shock of the 9/11 attacks. Also earlier this
month, MasterCard SpendingPulse, which measures
US retail sales, said a steep drop in consumer
spending sent its specialty retail sales index
down 7.7 per cent in September compared with one
year ago.
Many experts say there are more tough times
still ahead for the US.
“We expect October sales to post a sluggish
increase of about 1.5 to 2.5 per cent, as there
is considerable uncertainty about the economy,”
said Michael P Niemira, the chief economist and
director of research for the International
Council of Shopping Centres (ICSC).
Nearly 10,000km and a world away from Wall
Street, the UAE is among the handful of
countries bucking the current crisis with its
love of high fashion, fast cars and shiny
jewellery. Everything from car sales to computer
sales and mall revenues is growing in double
digits and expected to continue this way for
months and possibly years to come.
“Consumption contributes a large part to the GDP
and it is essential,” said Mary Nicola, an
economist with Standard Chartered Bank. “In the
past few years, most of the strength for western
companies was driven by their growth in the
emerging markets – it is a way to diversify
assets.”
Worth about Dh367 billion (US$100bn), the retail
sector serves as a major driving force behind
the economies of the GCC and has become the
second-largest non-oil industry in the region.
It is forecast to grow to Dh1.8 trillion by 2010
according to Retail International, a Middle East
consultancy firm. Retail spending in the UAE
alone is projected to reach Dh37.4bn a year by
the end of the decade.
However, a walk through any of the country’s
malls reveals that the western business world
may not be so far away after all. American and
European stores such as Saks Fifth Avenue,
Debenhams, Versace and Bloomingdales continue to
pop up at shopping centres across the country,
sending subtle reminders of the international
crisis at hand, despite continued prosperity
here in the region.
For instance, US sales at Saks Inc, which owns
Saks Fifth Avenue stores, decreased 10.9 per
cent for the five weeks ending on Oct 4. All the
while, Saks Fifth Avenue has continued its
expansion throughout the GCC, with the latest
location due to open in the Dubai Marina.
Similarly, Bloomingdales will make its debut in
the region with the opening of the massive Dubai
Mall next week, just as its American counterpart
announced it is slashing prices by as much as 60
per cent on various items in an effort to lure
buyers back into stores.
In today’s global economy, some experts believe
it is foolish to take such news with stride.
“Nobody likes uncertainty, so obviously it is
going to have an impact on any kind of business,
including retail businesses,” said Naeem Ghafoor,
the chief executive of Skyline Retail Services
Consultancy. “Luckily, our whole credit system
works differently here in that we are a more
cash-oriented part of the world than the US.”
Ajay Dayal, the general manager of retail and
marketing for Easa Saleh Al Gurg, the holding
company with brand names including United Colors
of Benetton and Siemens appliances, said the UAE
must now play the “wait and watch game”.
“I think we are over the first hump,” he said.
“I get the feeling that sentiments will not get
hurt because the government has come in so
strongly and supported the banks and made sure
liquidity is continued.”
Since the beginning of October, all seven Gulf
bourses have fallen sharply. Dubai suffered the
most, falling 22 per cent; Abu Dhabi was down 13
per cent and Saudi Arabia, Qatar and Oman were
all down by 15 per cent. Still, many believe
this is merely in reaction to the global market
climate and is in no way an indication of the
region’s economic stability.
Moreover, the strong purchasing power in the
region, it is believed, will continue to fuel
growth in the retail sector. Figures released
this week by the Ministry of Economy revealed
that private spending, which includes household
expenditure on food, rent, education and other
goods and services soared by nearly 18 per cent
to an all-time high of Dh290bn last year.
“Retail sales look very healthy in the region at
the moment and we haven’t seen any drop-off like
you see in the US and Europe,” said Shahram
Shamsaee, the senior vice president of retail
for MAF Shopping Malls. “Here, access to credit
is a lot stricter, there are a lot more
restrictions on borrowing and you have to be
employed to be able to borrow.”
Others attribute the region’s stability to the
franchise business model, which requires
international companies to partner up with local
holding companies. There are several benefits to
franchising a business, say industry leaders.
The biggest draw is it generates income, and it
fuels business growth with minimal risk and
minimal capital investment. It also increases
the potential for market penetration while
minimising operation costs and expenses.
“It is a way to diversify your assets and
minimise exposure essentially,” said Ms Nicola.
“US and European assets aren’t doing so well
nowadays, so they turn to partner up with
businesses here so that they maintain their
chances for growth.”
In fact, the Gulf has become an oasis from the
global economic downturn that has seen millions
of cash-strapped consumers in the West cutting
back on spending, with many brands turning to
the GCC as a means to survive tougher times.
Figures released by the regional car industry
estimate that the combined market for cars and
light lorries in the GCC will increase about 10
per cent to 1.2 million vehicles this year.
General Motors America reported losses of $8.5bn
in revenues in the second quarter of this year
compared with the same period last year, while
in the Middle East, Africa and Latin America,
the company increased second quarter sales by
$1.7bn.
Luxury brands have done even better. Lexus UAE
reported a 50 per cent increase in year-on-year
sales for the first half of this year, while
Lexus sales in the US were down by 15 per cent
for the same period.
Far from feeling the pinch at the pump, drivers
in the Gulf enjoy subsidised petrol, making
heavy-duty 4x4s a common sight on the UAE’s
roads.
Similarly, in the Middle East the PC maker Dell
posted 55 per cent growth in unit sales in the
second quarter compared to the same period last
year, according to company figures based on
International Data Corporation information,
whereas in the US, Dell sales grew by a mere 5.8
per cent. Acer, the world’s number three PC
maker, reported regional sales were up more than
54 per cent in the first quarter, while sales
slumped 20 per cent in the US for the same
period.
While Emiratis actively contributed to retail
sales, the buying power of the country’s
expatriate residents – who make up more than 80
per cent of the population – was the major
source of success, a study by the Delhi-based
RNCOS found.
Tourism is also a massive factor stimulating
growth, with the UAE expecting more than 11
million tourists annually by 2010. However, with
dire economic conditions in Europe and North
America, many travellers are likely to stay
closer to home. Last month, ABTA, a leading UK
travel organisation, warned that the UAE must do
more to develop its budget hotel sector or risk
losing tourists to cheaper destinations.
“There may be a drop in pure tourist traffic
because people coming from the West may feel a
bit threatened, but we have to wait to see how
the winter season is impacted,” said Mr Dayal.
“Let’s wait and see – it shouldn’t be too bad.”
