How to strengthen the UAE's retail sector

04 Feb 2021
Ahmed Galal Ismail, Chief Executive Officer, Majid Al Futtaim Properties;
Two gears

Retail is critical to the economy of the UAE. In Dubai, for example, it makes up just over a quarter of our gross domestic product. Harking back to our long history of trading and our mercantile spirit, you could say that retail is in the country's DNA.

In 2020, the sector suffered globally as movement restrictions were put in place to combat Covid-19. The pandemic also hit retailers in the UAE, but we are now seeing the emergence of green shoots and a soft, 'W-shaped' recovery developing.

This is extremely encouraging and has gone hand-in-hand with a strong sales recovery in all but the most affected categories. There are, of course, big winners and losers. But the fact that retail has bounced back relatively strongly goes to show its underlying resilience and the criticality of the sector to the real economy.

Looking ahead, however, the question I would pose given the sector’s contribution to the UAE’s economy is whether retail is truly fulfilling its maximum potentialI believe that the answer is no.

Fundamentally, the retail sector in the UAE needs a ‘new deal’ to set it onto a sustained growth path. This should be predicated on partnership and resolve three core issues facing the industry: the relationship between landlords and tenants; the need for enabling regulation; and a commitment to bringing in new types of investment.

The classic view of the relationship between retail tenants and their landlords, from Shanghai to Sao Paulo, is that tenants pay rent and landlords provide retail space in return.

This is an outdated notion at best and a model that cannot remain as the status quo in a post-Covid world.

To stimulate growth, it’s essential that this basic transactional connection evolves. What we need are more comprehensive and deeper partnerships, characterised by mutual targets and collaboration to truly make this a win-win for the entire ecosystem.

Consider how this could work in practice.

The emerging area of digital co-marketing is one which holds great promise for retail. Here, landlords and tenants exchange customer and sales data regularly and co-operate on marketing and loyalty programmes. So, for instance, when a new store launches in a mall, the mall owner makes its customer data available to assist the retailer with targeted promotions.

Not only does this get the new store off to a good start, but it also boosts overall footfall in the mall, maximising the collective share of customer spending. Such an approach also allows brick-and-mortar retail to keep pace with digital competitors, where data sharing – and acting on its behavioural insights – is not only accepted, but required industry practice.

Supportive government regulation will be a critical factor in enhancing the shape of this partnership – and, ultimately, retail growth.

Policy makers must strike a balance between continued business deregulation and regulating what needs to be protected. While deregulation of the current commercial relationships in retail still has some way to go, there is a need for new regulation that supports retail’s recovery.

Canada’s emergency rent subsidy for small businesses affected by the pandemic is a good example. Here in the UAE, further targeted support for small and medium enterprises, especially in the restaurant and leisure sector, would make a big difference to the economy and drive retail’s recovery.

Another useful measure elsewhere has been the EU’s cap on credit card fees. A report found that the introduction of reduced interchange fees for consumer cards had lowered merchants' charges for card payments and, ultimately, consumer prices.

With Smart Dubai, the UAE government is playing a vital facilitator role by building out data infrastructure and data exchanges. As part of Smart Dubai, public and commercial stakeholders – including Majid Al Futtaim – are now working on an enabling framework for open data sharing.

Laying down these regulatory foundations will be conducive to the development of a broader ecosystem within retail and with other industries, going beyond traditional landlords and tenants. Those wider alliances will be vital to the future growth of the UAE's retail sector.

Our sector’s renewed recovery will depend on creating new value propositions with a wide network of contributors

Take lifestyle rewards programmes as another example. A mall operator may have its own scheme in place to capture customer data but open data partnerships with credit card companies or merchant payment providers, for example, could significantly enhance the depth of insights gleaned.

Ultimately, such an open data sharing framework is for the collective benefit of the industry.

Naturally, reshaping the retail sector will require capital investment. With borders opening and the UAE being a hub for investment, there is a favourable climate for growth.

Such investment could translate into enhanced initiatives to build advanced data and digital infrastructure, develop new digital marketing and analytics capabilities, and train associated talent, such as data scientists.

But the biggest investment required is into relationships, breaking down the stereotypical working models of old and replacing them with more collaborative forms of engagement.

If all parties touched by retail can align, the impact of this reboot will extend far beyond the sector to adjacent industries such as tourism, hospitality, and aviation, which all count on the continued success of the UAE as a top-tier retail destination.

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