International shopping tourism, expanded entertainment offerings in Qatari retail

Qatar has one of the highest GDP per capita in the world. The retail sector has, therefore, benefitted considerably from high levels of disposable income, coupled with a large expat population. Furthermore, retail centres have established themselves as the primary choice for not only shopping but also leisure and entertainment. The country has subsequently seen a significant expansion in retail space since 2000. However, population growth is now stabilising leading to concerns about oversupply over the longer term. Nevertheless, despite these challenges, demand and consumer confidence in the retail sector remains buoyant, and new hypermarkets continue to open across the country.

Structure & Oversight

The Ministry of Commerce and Industry (MoCI) is responsible for overseeing commercial and industrial activities. The remit of the authority includes providing public services to the sector, regulating trade practices, registering commercial and investment establishments, issuing licences, as well as providing general sector oversight. The MoCI is also responsible for consumer protection and the prevention of commercial fraud and monopolistic practices. As part of broader efforts to increase foreign direct investment (FDI), the government announced a new law in January 2019 to enable 100% foreign ownership of retail projects, while also providing tax incentives. Additionally, in December 2018 the Ministry of Finance (MoF) stated that it would not be rolling out a value-added tax (VAT) in 2019. In addition, the MoF established a new authority to assess the impact of VAT and broader tax regime on the economy. While the new tax is unlikely to be deferred indefinitely, the reprieve has been welcomed by the industry. The retail sector can also look forward to a broader reform of the taxation system, pending the findings of the new tax authority.

Performance

Qatar saw the opening of a range of new retail centres in 2018. According to DTZ Qatar – the Qatari branch of the international real estate firm – the total supply of retail space exceeded 1.4m sq metres at the end of 2018, with this figure excluding small neighbourhood retail centres and stand-alone hypermarkets. This represents nearly a 100% increase in capacity since 2015, with the opening of 13 new malls. This figure is expected to rise even further, with five new shopping malls expected to come on-line in 2019 and the supply of retail space set to exceed 2m sq metres by 2020. “The hypermarket segment is expanding, and we expect strong growth in the coming few years,” Salah Ahmed Al Hammadi, deputy CEO of Qatari retail chain Al Meera, told OBG. “Total modern trade is approximately 85% of the market, with traditional trade making up only 15%. The plan going forward will be on efficiencies and possible acquisitions.”

However, as available retail space continues to grow, concerns have arisen over potential oversupply and some mid-sized malls scheduled to open in 2018 have experienced delays. Nevertheless, underlying demand remains resilient and developers have found ways to increase footfall, by increasing their niche market offering. “Malls have understood the need to provide an experience for visitors that goes beyond shopping,” Robert Hall, general manager at the country’s largest shopping centre Doha Festival City, told OBG. “Both Qataris and expats enjoy socialising at shopping centres with family and friends.” According to the Planning and Statistics Authority, the country’s consumer confidence index increased in the third quarter of 2018 from 184.2 to 184.3 ahead of other states in the region. Nevertheless, this figure is lower than its all-time high of 186.2 in the fourth quarter of 2015.

While the luxury goods segment was expected to be negatively impacted by the blockade, this has largely been offset by an increase in domestic consumption of luxury items, as nationals have chosen to make their purchases at home and have refrained from travelling abroad in the GCC. Furthermore, the decrease of tourists from the region has also been offset by rising tourism numbers from other parts of the world, notably India and China. “There have been great improvements in the strategies followed by the Qatar National Tourism Council to boost tourism and cement Qatar’s position in this sector, which had a big impact on the performance of the retail industry. The infrastructure is in place alongside a promising vision, which is attracting many more tourists, giving them more options in terms of dining and accommodation, cities to visit and explore, amusement, art and culture destinations as well as shopping,” Bader Al Darwish, chairman and managing director of Darwish Holding, told OBG.

Concurrently, the consumption of lower price items has risen in the country since 2015. As a result of these shifting consumption patterns, there has been a rising number of lower-cost international clothing outlets opening in the country since 2014, including H&M, Mango and Zara. Furthermore, value retailer Matalan has been in Qatar since 2014 and is set to open two more stores by 2020, with its Doha store one of its best-performing international stores.

Tourism Policy

While the implementation of the blockade on Qatar in 2017 brought issues for the sector by dramatically reducing regional tourist numbers the government was quick to implement policies to mitigate the impact of this fall on the economy. Notably, in August 2017 the government introduced visa-free entry to Qatar for 80 countries worldwide. “Tourism can provide Qatar’s retail sector with new opportunities to grow, particularly thanks to recent efforts to streamline and liberalise the visa regulation system to bring in new visitors,” Sean Kelly, project director of Qatari investment group United Developers and Place Vendôme, a QR5bn ($1.4bn) mixed-use development, told OBG.

Meanwhile, the government increased efforts to improve cruse ship traffic, investing in port upgrades. These efforts have delivered results with 22 cruise ships and 65,000 passengers arriving during the 2017/18 cruise season and a further 43 cruise ships and 200,000 visitors expected in the 2018/19 season, according to the Qatar Tourism Authority. The resulting rise in international visitors and cruise ship tourists arriving in the country have proven to be a boon to the sector, particularly the luxury goods segment. “The opportunities brought by these increases will need to be led by malls rather than individual brands to increase footfall,” Stuart Elder, CEO at Mall of Qatar, told OBG.

Mall Expansion

Qatar has a mix of large retail malls as well as small to mid-size malls, all mainly concentrated around Doha, but also increasingly in Al Khor and Al Wakrah. Valued at QR6bn ($1.6bn) Doha Festival City opened in April 2017 and offers 600,000 of shopping space and 240,000 sq metres of gross leasable area (GLA). The market has expanded significantly in recent years, with 13 major retail malls opening between 2015 and 2018. The most recent of these was Tawar Mall, which opened to the public in March 2018, is 301,000 sq metres in size, offering 91,000 sq metres of GLA. The country’s shopping mall offering is expected to expand further over the short term. According to DTZ Qatar’s market review for the final quarter of 2018, five new malls are set to open in 2019, namely Doha Mall, Katara Plaza, North Gate Mall, La Galleria and Doha Souq.

Shopping malls provide a broad range of services, with family entertainment and social activities being particularly important. According to a study undertaken by Doha Festival City in 2011, and again in 2018, the provision of entertainment services is one of the leading factors in shaping consumer choices over which mall to visit. Cafes and restaurants traditionally play an important role in Qatari society. However, high temperatures have increasingly limited such activities to shopping malls. As such, malls in Qatar have an extensive offering of food and beverage outlets with over 65 in Doha City Festival and over 100 in Mall of Qatar. “To grow in this sector it is essential to have an efficient distribution network, a robust database, and good after sales services. There will always be more customers with high purchasing power to serve in Qatar; it is thus a matter of adapting to local market conditions to improve your bottom line performance,” Al Darwish told OBG.

In addition, location and accessibility were found to be key considerations among both domestic and international shoppers. A range of new infrastructure is being developed to improve access to retail spaces in preparation for the 2022 FIFA World Cup. The sector is already successfully leveraging Qatar’s increasingly important position as a centre for international sporting events. Shopping malls hosted special events with athletes to increase footfall during both the 2018 Artistic Gymnastics World Championships and the Qatar Total Open tennis tournament, which ran during February 2019. Due to the increased supply of retail space, malls previously offered large retailers capital incentives with more competitive rental rates. This led to rapid expansion of chains as they sought to lock in space to prevent unused retail space being taken by competitors and thus reducing into their market share. This has resulted in cases of repeated offerings of the same chains across numerous malls, providing less competitive choices. “Many retailers are recognising that a presence across various malls may be adding little increased value,” Elder told OBG. “As a result, they are exploring ways to increase footfall by focusing their presence in key areas rather than through multiple stores.”

Supermarkets

International supermarket and hypermarket chains have increased their operations in recent years. Notable among these is Carrefour, which was founded in France, but is now owned and operated by real estate giant Majid Al Futtaim Group. The chain operates five supermarkets and five hypermarkets, one of which opened in 2018 with a further store expected to open in 2019. In addition, the Netherlands-headquartered retail group SPAR began operations in Qatar in 2017, opening its third store in 2018 and announcing plans to open a fourth in 2019. While there are a large number of international players operating in the segment, local retailers remain dominant. Al Meera – Qatar’s largest domestically owned retail chain – operates 47 hypermarkets and supermarkets in the country, with a combined retail space of just under 71,500 sq metres, including a Géant-branded hypermarket operated in partnership with French retailer Casino. This offering is set for further expansion, with Al Meera announcing plans in December 2018 to open eight new outlets at a range of locations, including Doha Metro stations, over the medium term. Meanwhile, the segment has largely rebounded from the initial impact of the blockade. “While the blockade negatively impacted the import and availability of some consumer items during the second quarter of 2017, the effects proved temporary,” Laurent Hausknecht, country manager at Carrefour Qatar, told OBG. “The blockade served to accelerate the opening of Hamad Port, enabling the import of produce from different sources.”

FDI

In a sign of increasing confidence in the local economy, FDI increased 4% in the third quarter of 2018 reaching QR710bn ($195bn), according to the MoCI. An example of this rise in sector FDI came in May 2018 when the UK clothing retailer Harvey Nichols opened an 80,000 sq metre store in Doha Festival City in partnership with the Saleh Al Hamad Al Mana Group. Barry Tallintire, the group property and facilities manager of Harvey Nichols, told local media that the decision to enter the Qatari market was due to “the significant investment by Qatar in infrastructure, transport and associated hotels, as well as other leisure facilities”.

In an attempt to further bolster global investment, a new FDI Law was passed in January 2019, enabling 100% foreign ownership rights. The new law lays out a set of incentives for foreign companies choosing to invest in Qatar. These incentives include an exemption from income tax for FDI projects, along with an exemption from Customs duties for imports of machinery and equipment. Critically, this law excludes firms engaged in the extraction, exploitation and management of natural resources, but does include the retail sector.

E-Commerce

While there is a global trend of consumers choosing to shop online, in Qatar and the region the mall continues to dominate the retail landscape. This situation is shaped both by cultural dynamics combined with climatic factors. Nevertheless, e-commerce has been making inroads, with the market growing 20% in 2017 to reach $1.2bn, according to figures from the Ministry of Transport and Communications. Over 50% of the population is under the age of 35, with a 92.2% internet penetration rate and the market is expected to expand further, growing to $3.2bn by 2020. Given the social role that is played by shopping malls, this rise may not negatively affect bricks-and-mortar outlets.

Outlook

While the 2017 blockade brought challenges, the sector has successfully mitigated its impact. Industry players have expanded their operations into leisure and entertainment activities and government policies have boosted the number of tourists visiting Qatar. Retailers have also leveraged international sporting events to increase the number of visitors to their stores. Nevertheless, challenges lie ahead for the sector, including issues of overcapacity. However, the new FDI Law and the impact of major events, such as the 2022 FIFA World Cup, suggest that the industry is set for further expansion over the medium term.