Multiplying footfalls
The addition of new high quality retail developments is not just improving the shopping experience of consumers but is also forcing existing retailers to upgrade their offering, writes Ahmad Ayyub

The Middle East, led by Dubai and Abu Dhabi, is witnessing a boom in the retail industry with new shopping malls opening every year. The Dubai Mall, the largest shopping mall in the Middle East and one of the largest in the world opened in November 2008 adding a total of 344,000 sqm of gross leasable area (GLA) to Dubai’s retail sector.

A bird’s eye view
Muscat’s retail sector has only recently caught the attention of investors and retailers and despite having only half the total square meters of GLA that Dubai’s newest mall has, is making headway in expanding and improving the retail space for Muscat residents. In 2007 the Muscat City Centre, completed its RO22.5mn expansion project which more than doubled its GLA, increased its parking space and vehicle access to the mall. In addition to this the eagerly anticipated Qurum City Centre opened its doors to the public.

With increasing household incomes over the past few years, consumer spending among Muscat residents has been on the rise, thereby improving the bottom lines of retailers and creating demand for more shops to be set up in Muscat. In the past few years, it has also been observed that Muscat-based shoppers who used to travel to Dubai for shopping for international brands now make many of their purchases in Muscat. Indeed, in 2008, Muscat City Centre, now home to named brands such as Zara, Gap and Borders, announced that it expects to receive a record 10mn visitors (footfalls) up 25 per cent from the 8mn it received in 2007. In light of the above facts (and many more) it is understandable that there are several new retail projects currently in the pipeline for Muscat, including Muscat Grand Mall and Bousher Mall which, when opened in 2010, will make up an estimated 120,000sqm of Muscat’s total GLA.

In addition to bringing new retail shops, new high quality retail developments improve the shopping experience of consumers by forcing existing retailers to improve their offerings. Indeed, Sultan Centre reacted quickly to the entry of Carrefour into its territory by introducing a loyalty programme and renovating parts of its retail space. The new Carrefour is offering a larger variety of quality fruits and vegetables in order to attract Sultan Centre’s customers. Fruits and vegetables has always been an area of strength for Sultan Centre.

Growth drivers
Like most countries, the demand for retail space in Muscat is driven by increases in the population, consumer spending and consumer tastes and preferences. The growth of the Omani economy has increased the disposable incomes of its residents. The improved purchasing power resulting from higher disposable incomes has increased consumer spending, thereby providing room for the retail industry to grow. An indicator of the increase in consumer spending and the increasing demand for retail space is the fact that the newly opened Qurum City Centre achieved full occupancy in January 2008, ten months before it opened. The taste and preferences of consumers has changed too, many preferring products from international brands, previously unavailable in the country. Consumers are now willing to purchase internationally branded products that are sold at a premium price.

Value driven approach
In order to attract adequate footfalls, a retail development should strategically meet the demands of the consumers. This means that the mall should have a strong anchor store that will guarantee a constant stream of shoppers such as Carrefour and LuLu and a suite of shops that complement the shopping experience of a consumer. The correct mix of retail and entertainment offerings as well as the existence of an anchor store that is a major player in its field is imperative for the success of a retail facility.

For example, despite offering good quality retail space, Markaz Al Bahja has been struggling to attract footfalls. Visitors flock in droves to the nearby Muscat City Centre however, they seem to forget about Markaz Al Bahja. People prefer Muscat City Centre mainly for the complete shopping experience it offers to the shoppers. Families can spend the day doing their house shopping at Carrefour, making personal purchases from clothes to books and gifts, having lunch while their kids play at Magic Planet, and socialising at the many coffee shops in the mall.

Muscat is gearing up for the two new shopping malls which will open in 2010. The existing (and successful) LuLu Hypermarket may well assist in bringing customers to Boushar Mall and though Muscat Grand Mall has yet to announce its anchor store, the associated offices and residences will surely bring customers through their doors. But the key success factor in this case is the volume of buying customers. The two developments are situated adjacent to each other and the sheer size of the two projects (expected GLA of both together is double that of the extended Muscat City Centre) raises some concerns on their early success, especially in view of the current and future short term economy conditions. The ability of these malls to bring in enough customers to survive and make them profitable will be a true test for their management.
 

Ahmad Ayyub is an analyst with Ernst & Young’s Transaction Advisory Services.

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