Is Dubai's retail glory fading?

By Rajendra K. Aneja, IANS,

Shopping is the soul of Dubai, a place whose very name can be pronounced "Do-Buy"! Retail is a key driver of Dubai's economy. It is the major tourist attraction. Dubai lures visitors from Asia, Africa, Europe and the Middle East since it offers very enticing shopping experiences. The city offers scintillating malls, almost every brand in the world, shopping bargains, huge discounts.

If Dubai is a very stylish car, then the two front wheels are real estate and retail tourism. Real estate is currently under pressure. Retail tourism is also likely to be under duress. In 2009, sales in many malls and retail outlets have declined 20-30 percent. Footfalls have also dropped 15-25 percent.

Retailers are wondering why and what they must do to ensure a better future.

The main reason for the decline is a drop in the number of free spending tourists from Europe and other parts of the Middle East. Sales have also eroded because countries like China, India and Pakistan are building massive shopping malls which are luring the best global brands.

So customers from neighbouring countries do not need to visit Dubai to buy a Canon zoom lens or an Apple I-phone. Prices of most electronic items, including mobile phones, are now lower in India than in Dubai. A Hermes tie is cheaper in Paris; fashionable women's clothes are cheaper in New York. This is despite the fact that Dubai is duty and tax free.

Some retailers are also suffering due to bad management. For example, when they found it was becoming expensive to hire Indians, they hired Filipinos instead. Then when the Filipinos became expensive, they hired Nepalis, Chinese, Bangladeshis.

All the time, the service conditions of the employees were getting worse -- six to eight of them were being housed in one room, each employee was being asked to work 10 to 12 hours a day.

In many instances, the staff did not receive increments for 3-4 years. Few retailers provide refreshments or lunch to their staff. Some top retailers pay as little as 10 dirhams per hour of overtime.

Added to this problem of untrained and demotivated staff members, many Dubai retailers have antiquated IT systems. So they do not know their inventory, what is selling, what is not.

But the most neglected arena in retail is basic customer service. Walk into a bookshop. The sales girls can hardly speak English and cannot spell "Monologues". They have no passion for books, yet spend their day in selling them.

The critical question is where do Dubai retailers go from here? They will have to get used to about 15-30 percent lower sales from 2006-08 levels. As of now, the management and marketing vibrancy and energy required to reverse this downward trend is missing. Unfortunately many Dubai retailers have a trading mindset, not marketing.

This could lead to closure of marginal malls and shops, which are unable to lure customers.

Retailers need to become pragmatic. Hopefully, they will focus more on service rather than be preoccupied with the marble floors of their retail outlets. They also need to worry about volume growth, rather than sheer profits, through short-term pricing policies.

Retailers should acknowledge new emerging paradigms. They should recognise the new competition from neighbouring countries. They should build strong and vibrant management teams and give up their "shopkeeper" habits. They should focus on improving customer services rapidly. These steps will enable retailers in Dubai to reverse the downward trend in sales and begin the path to recovery.

(28-02-2010- The author is the CEO of a foods company in the Middle East. He can be reached at rajendraaneja@hotmail.com)