A diversifying offer: The appetite for higher-end products is growing

Underpinned by strong economic and demographic fundamentals, retail in Ras Al Khaimah has continued to expand. The emirate’s population grew by an estimated 4.5% in 2010 to reach around 279,000 people, according to the RAK Department of Economic Development (RAK DED), with the government estimating 300,000 ahead of a 2012 census. Of those, 49.4% were active in the labour force and per capita incomes in 2011 stood at just under $25,000. Around 40% of the population were Emiratis, with the rest made up of expatriate workers and their families. RAK’s GDP grew by 8% in 2011. Moreover, the emirate levies no income or sales taxes, meaning that disposable incomes are higher than the headline figure might at first suggest. A 2011 report from Alpen Capital, an investment bank, estimated that retail sales in the GCC would grow at a compound annual growth rate (CAGR) of 8.3% during the 2010-15 period. As of 2010, retail, wholesale and repair services accounted for 11.7% of GDP, down slightly on 11.9% in 2009, but nonetheless up in absolute terms, according to RAK DED figures.

DEMOGRAPHICS: The demographic picture is more complex than preliminary figures indicate. Emiratis tend to be employed in the public sector, which in the UAE offers higher salaries than the private sector, but the average family size is high. This means that disposable income has to be spread around more family members. In addition, many foreign workers in RAK are in blue-collar and factory positions, although expatriates also account for a high percentage of the more highly paid professional and managerial positions.

Among expatriates, the more attractive positions tend to be filled by workers from Europe, the US and other Arab countries, while lower-income workers tend to be recruited from South and East Asia. This means that RAK’s retail market caters to taste and income segments that differ significantly.

RAK is only an hour’s drive from Dubai, which has positioned itself as a shopping destination on a global scale over the past decade and accounted for around two-thirds of total completed gross leasable area (GLA) in the UAE in 2010, according to Alpen. The sheer scale and variety of the retail scene in Dubai, combined with its proximity to RAK, means retailers in the latter face significant competition from Dubai. Over the past decade, however, RAK has adopted a policy of complementing, rather than competing with, Abu Dhabi and Dubai, and this is true in retail as in other sectors. RAK is diversifying its retail offering, and taking advantage of the fact that its shopping centres are less crowded than Dubai’s, often offering a more pleasant experience close to home. Moreover, the emirate is increasing its GLA to meet the demands of an increasing population and rising tourist numbers.

MALLS: As with the rest of the Gulf region, the major retail centres tend to be found in shopping malls. This is partly due to climactic conditions (temperatures of over 40°C are not uncommon in the summer) and also to the fact that shopping malls often fulfil the place of the high street in other countries and serve as social centres in addition to their retail function. The emirate’s first mall, Manar Mall, opened in 2000, and since then the number of malls has grown to seven. Recently-opened RAK Mall, with 700,000 sq feet of space and three stories of shops, is one of the latest flagships.

One of the newest malls in RAK is Al Hamra Mall, which opened officially in 2010, though the soft opening took place in 2009. Developed by Al Hamra Real Estate Development Company, it is part of the Al Hamra Village development, a mixed-use project consisting of hotels, villas and apartments aimed at an upscale clientele. The mall is located to the south-west of RAK City in an area that is being developed for tourism and high-end real estate projects.

The mall covers a total area of 37,000 sq metres and features over 100 retail units, a food court, and a number of other food and beverage outlets. Al Hamra was launched during an economic downturn, so it is understandable that given the climate occupancy levels have not yet reached 100%. As the developments around the mall come to fruition over the longer term, footfall, and therefore occupancy, is likely to increase.

Manar Mall, another Al Hamra property, covers 106,000 sq metres, with a total GLA of 44,100 sq metres and more than 120 stores. Occupancy is around 100%. Manar is situated in the middle of RAK City, and its central location makes it a popular meeting spot. Longer term, the company plans to expand Manar Mall to 120,000 sq metres of GLA. However, no firm target date has yet been set for the work, while the company assesses the effect of new malls on the market.

The Safeer Mall opened in 2008 in RAK and is owned by Sharjah-based property conglomerate Safeer Group, which manages four other malls across the UAE. The 500,000-sq-metre mall has anchor tenants such as a Carrefour supermarket and furniture store HomeMart, a 10,000-sq-metre family entertainment area, 120 shops and 12 food and beverage outlets. Elsewhere, a 20,000-sq-metre Centrepoint store opened in RAK in 2009. Centrepoint is a brand of Landmark, a Bahrain-based retail group which is the largest in the Middle East. It offers a number of the group’s brands under one roof, and is Landmark’s ninth property in the UAE.

The number of mall developments has continued to rise. Al Naeem Mall in the centre of RAK City covers a total area of 130,000 sq metres. Although construction was completed in 2009, the mall has yet to open, since it has not yet been connected to the electricity grid and the cost of using diesel generators to power air-conditioning would prove prohibitive for many tenants. Over the past few years, the Northern Emirates have suffered from an electricity supply crunch as the Federal Electricity and Water Authority (FEWA), which supplies the region, has struggled to keep pace with rising demand. Furthermore, FEWA follows a policy of prioritising domestic users rather than commercial customers. However, RAK has, by and large, got on top of the problems with electricity supply, and this confidence was reinforced in March 2011, when the Federal National Council (FNC) committed $1.5bn to upgrading utilities in the Northern Emirates. In early 2012, the developers behind Al Naeem Mall expressed their confidence to OBG that the mall would be able to open by the end of the year.

Mall of RAK, part of the WOW RAK complex, covers 15,677 sq metres and is being developed to serve visitors to the Ice Land water park and Planet Earth theme park, and the adjoining WOW RAK hotel. The developer is Polo RAK, a joint venture between India’s Polo Group (49%) and RAK Properties and RAK Investment Authority (RAKIA), which between them hold a 51% stake.

HYPERMARKETS: Hypermarkets have continued to expand in the emirate. This is down to population growth and the fact that many households contain a high proportion of dependent children, with consequent high demand for moderately priced necessities, such as food and children’s clothing, at which hypermarkets traditionally excel. According to Alpen Capital, super- and hypermarkets are expected to grow at a CAGR of 10.7% in the GCC between 2010 and 2015. This reflects a certain under-penetration. RAK for instance, used to have just two hypermarkets, Safeer at Safeer Mall and Carrefour at Manar Mall, to serve a population of around a quarter of a million, whereas a similar sized settlement in Europe or the US might be expected to have two or three times that number. That has started to change, however, with the opening of Al Hamra Mall, which brought Spinney’s, a Middle East supermarket chain with outlets in Lebanon, Egypt, Qatar and Jordan, in addition to the UAE, aimed mostly at a more affluent clientele. In 2011, Carrefour took over the hypermarket at Safeer Mall, marking its second store in RAK, while regional hypermarket chain Lulu (part of the UAE’s EMKE Group) was due to open its 100th store at RAK Mall in early 2012. Further penetration is likely as new malls open in the emirate.

FOOD PRICE CONTROLS: Since May 2011, the UAE Ministry of Economy has operated an electronic scheme to monitor the price of over 650 basic food items, including rice, wheat, eggs, sugar, bottled water, oil, flour, meat, chicken, milk, tea and bread, with the aim of enforcing price controls. The restrictions were introduced in response to rising prices on commodities markets worldwide, and were due to expire at the end of 2011, but were extended in December 2011 to run through 2012. Retailers found charging more than the price ceiling face fines of up to Dh100,000 ($27,000), and the ministry aims to reduce the price of foodstuffs by up to 50% in the case of some items. However, retailers have voiced concerns that the restrictions do not allow them adequate flexibility to pass on price increases incurred on wholesale markets.

MIXED-USE DEVELOPMENTS: Extra retail space is also starting to become available from mixed-use real estate projects currently under construction. Mina Al Arab, a $2.7bn complex of villas and apartments, being developed by RAK Properties, features 29,000 sq metres of retail space. While handover of residential units got under way in 2011, the timescale for the retail units has been extended until 2016, due to the impact of the global recession. Another RAK Properties development is Julphar Towers, a $109m mixed-use project consisting of two towers, the tallest in the emirate, one residential and one commercial. The project features 3000 sq metres of retail space on the podium level, dedicated mostly to restaurants and leisure outlets. Marjan Island, a $1.8bn artificial island, is being developed off the coast of RAK by Rakeen, the emirate’s real estate development arm, while the Real Madrid Island Resort, a $1bn project, will include a theme park, yacht club, marina, 450-room hotel and a10,000 person capacity stadium facing the sea.

As with elsewhere in the world, small family-run shops have come under increasing pressure over the past decade. The climate and layout of urban development in RAK City have tended to preclude the emergence of high-street-style areas dedicated to retail, while consumers tend to prefer malls and hypermarkets for the greater variety and better quality guarantees, as well as the air conditioned environment. This is not to say that small shops do not exist; far from it, there are plenty of small shops offering a wide variety of goods and services, but they often tend to be aimed at casual trade or geared towards the lower end of the market. According to the local press, in early 2012 the authorities in RAK initiated a crackdown on street vendors selling goods such as vegetables and ice cream, citing concerns over public health. However, certain traditional forms of retail, such as RAK Souq, near the old fishing harbour in the centre of RAK City, are thriving, partly because shops here cater to tastes that are not met in more modern shopping centres.

The main retail segments in RAK are the value and middle-market segments, due to the demographic make-up of the emirate. As with the rest of the Middle East, the leading sectors are food and children’s clothes. However, a number of malls are looking to update their tenant mix in response to increasing affluence. Mall owners have identified mid-range European fashion brands and restaurants, both casual dining and more upscale, as in tune with public tastes.

LUXURY SEGMENT: There is also more appetite locally for higher-end retail, although many such brands have not yet entered RAK because the relatively small population makes luxury stores look unviable. As such, the range of luxury products available in RAK remains limited. This is because the segment depends on purchasing power, and while RAK is not a poor emirate, the UAE’s largest urban centres, such as Abu Dhabi and Dubai, are home to bigger concentrations of affluent consumers, both in absolute numbers and in terms of income levels. As such, RAK consumers who can afford such products often prefer to shop for them in these cities, although day-to-day and less expensive needs can be met in the emirate.

Cars, which, as elsewhere, often play the role of status symbol, remain a major component of the local upmarket retail scene. Al Tayer, a UAE-based dealership for a number of luxury motor brands, such as Jaguar and Range Rover, recently entered the emirate, opening a showroom in 2011.

IMPACT OF TOURISM: Tourism is likely to have a significant impact on the retail scene in RAK. In 2010 the emirate recorded 260,000 hotel guests staying for a total of 515,000 guest nights, compared to 542,000 and 1.06m for 2009, according to the RAK DED. The reduction is due to the impact of the global crisis, with consumers in many developed countries cutting back on holidays. Europeans accounted for the single biggest group of visitors, followed by Emiratis, and of these the leading countries of origin were Germany, the UK and Russia. RAK’s tourist offering is aimed at a fairly upmarket clientele, and the emirate is well-placed to target this market, with the benefits of relative proximity to Europe, a pleasant winter climate and unspoilt nature as well as proximity to Dubai and Oman’s Musandam Peninsula for day trips. Many of the hotels in the pipeline are geared to this kind of market, such as the 349-bed Waldorf Astoria, due to open at the end of 2012, and RAK Exhibition and Conference Centre, which will add three 750-bed hotels by the end of 2013.

Tourists, however, also require facilities, such a golf courses, sights, and shops and restaurants. RAK’s target is to achieve 1.2m visitors by 2013, which should radically increase footfall at the emirate’s malls. Given the often affluent profile of tourists in RAK, this means the market for luxury as well as general retail is likely to expand significantly over the medium to longer term.

OUTLOOK: The retail market in RAK looks set to expand, both in terms of the absolute number of consumers and their relative wealth. However, traditional retail outlets, with the possible exception of the souq, are unlikely to see much of this growth, which will probably be concentrated in the hypermarket, mid-market and luxury segments. There is plenty of room for hypermarkets to grow, and their market penetration should increase significantly. Growth in the mid-market and luxury segments will depend on increased tourist numbers to make up the necessary footfall for expansion, but hotel developments mean that this should be forthcoming. The neighbouring emirate of Dubai, with its enormous malls, is likely to continue to constitute the main source of competition for outlets in RAK, but as developments fill up, the local retail scene will become both increasingly diverse and all the more attractive.