Global Report: Middle East

New shopping malls, a rise in GDP and growth in tourism mean there are still opportunities for UK businesses to flourish. The Middle East and North Africa (MENA) and Gulf Co-operation Council (GCC) regions reached 3.3%and 2.9% real GDP growth respectively in 2012, and the rate is expected to hit 3.6% and 3.5% by 2014.

“Virtually every UK high street fashion name has entered the Middle East - Marks & Spencer, Debenhams, Tesco, Jigsaw, Reiss, Oasis - and for many, it has proved an effective launch location for international growth,” says Isabel Cavill, senior retail analyst at Planet Retail. “Shipping routes are reliable, consumer demand is up and tourist numbers are rising fast. Both luxury and ‘family’ value brands are incredibly popular.”

Value clothing retailer M&Co plans to open 12 stores in the United Arab Emirates (UAE) over the next five years and 30 around the Gulf in Saudi Arabia, Kuwait, Bahrain and Oman. “In these locations, we will have expats who will know us and shop with us. Tourists will shop with us too, but the most important category will be the local customer,” explains Lee Braid, international franchise manager at M&Co.

George at Asda, which opened a pilot franchise store in Abu Dhabi’s Al Wahda mall last year, is upping its presence in the Middle East as part of wider international expansion to enter 24 countries in the coming year, and has partnered with local franchise operator Azadea Group. George is in the process of opening another franchise in Sharjah in the UAE, followed by a store in Amman in May. Stores in the UAE, Kuwait and Qatar will open later in the year.

Andrew Moore, chief merchandising officer at George, says working with a respected franchise business such as Azadea is vital: “Our international team will benefit from the vast franchise experience the company has from the successful partnerships they operate with many other apparel brands.”

Luxury goods retail has been growing between 10% and 12% in the Middle East, according to analyst Bain & Company, and Verdict predicts spending on luxury goods will double between 2011 and 2015.

Didier Drouet, chief executive of upmarket clothing and footwear retailer LK Bennett, says: “The Middle Eastern market is extremely important to us. Since opening our first store in Dubai Mirdif city centre [in October 2011] with franchise partner Jashanmal Group, we have gone on to open stores in Dubai Mall and Abu Dhabi, in addition to Qatar with United Fashion Company. We are excited to open our first store in Jeddah, Saudi Arabia [this] month with Global Retail, and over the next year hope to expand further in these existing markets, as well as in new markets like Kuwait and Lebanon.”

In the UAE, which enjoyed 4.2% GDP growth last year, there’s a real buzz around the planned Mohammed Bin Rashid City in Dubai. Once finished - no date is yet set - this development will house the giant Mall of the World, the globe’s biggest shopping centre by area. It will cater for an estimated 80 million shoppers a year.

Needless to say, international franchises are scrambling for space in this and other mega malls of the UAE - particularly The Dubai Mall and the Mall of the Emirates - driving demand for premium retail space. “A major problem for franchise operators today is securing sufficient trading space to accommodate the new brands being signed up by the franchisees as well as their aggressive expansion of existing brands,” says Cavill. “An advantage of these partnerships, for incoming UK fashion retailers, is that many franchise groups are also property developers and therefore able to allocate brands in their portfolio prime units in schemes they’re developing.”

While Dubai can offer less and less new retail space, developments are coming on stream in Abu Dhabi, particularly the Yas Island development. The retail element of this mixed-use scheme is leasing and should be ready to trade by 2015. High-end brands including Louis Vuitton and Mulberry are heading to luxury development The Galleria at Sowwah Square in Abu Dhabi, while US brands such as Abercrombie & Fitch are rumoured to be entering the market.

Saudi Arabia is also a popular destination. Impressive new shopping centre schemes are under construction in Riyadh and Jeddah, the latter’s Flamingo Mall to be anchored by Carrefour and boasting an indoor ski centre.

Ecommerce is growing at 35% year on year, which means web sales can facilitate a first step into the Middle East. Anita Balchandani, partner at OC&C Strategy Consultants, says: “Ecommerce is allowing companies to take a selective and resource-light approach to localisation - testing the waters via ecommerce before choosing where and when to launch multichannel propositions.”

But there is growing competition. Local fashion start-ups are securing funding and becoming household names: for instance, Namshi.com, Sukar.com and MarkaVIP.com, which often sell international brands at discount prices.

UK retailers need to plan around the climate and be aware of local customs and cultural issues. “By religious law it may be difficult for local customers to wear certain garments,” says Jonathan Coates, relationship director for fashion, retail and wholesale at Natwest/RBS.

Coates advises UK brands and SMEs to work closely with their banks and solicitors to make sure partnership agreements - whether for wholesale, concessions or retail projects - are watertight. “It’s worth talking to your local chambers of commerce, or UK Trade & Investment for advice on which are the best partners to set up with,” says Coates. “And it’s also vital to mitigate risk with credit insurance mechanisms to make sure you’re
always getting paid.”