How Qatari malls are adjusting to a post-pandemic world

Qatar’s retail sector fared well in 2020 and 2021 despite the effects of the Covid-19 pandemic. Although shopping outlets were forced to close in the spring of 2020 when governments around the world imposed lockdown measures to stem the spread of the virus, reopening began as early as that summer. In the months since, retail stores and malls in Qatar have welcomed customers with a range of health guidelines in place. A handful of new malls opened in 2021 and more are expected for 2022, encouraged by pent-up demand for goods and socialising, even as median monthly rents have fallen. Grocery retailers, in particular, were buoyed by online deliveries and minimal disruption to supply due to Qatar’s pre-pandemic drive to boost food security and diversify trading partners.

Oversight & Policy

The Ministry of Commerce and Industry is the primary government body charged with regulating retail operations. Retail-specific mandates include overseeing commercial activities, issuing licences to establishments, combatting fraud, protecting consumers, preventing monopolistic practices and safeguarding fair competition. The purview of attracting investment to the sector largely falls to the Investment Promotion Agency, created in July 2019.

One policy with significant implications for the retail sector will be the introduction of value-added tax (VAT). Agreed to under the GCC Common VAT Agreement in mid-2016, Qatar and Kuwait were the remaining countries in the region to not have enacted the tax as of early 2022. After multiple delays, Qatar is expected to introduce the tax in 2022. According to a report in January of that year from global consultancy KPMG, the VAT is expected to feature a 5% rate, a threshold of QR364,000 ($99,900) for annual taxable turnover, and the inclusion of imports and exemptions for specified categories. The immediate effects of introducing VAT are likely to include a rise in inflation, slightly lower household spending as individuals react to higher prices and minor disruptions to business operations. The long-term impact on consumers should be beneficial in terms of competitive pricing and product diversification.

Performance

After fluctuating between QR49bn ($13.4bn) and QR50bn ($13.7bn) at constant prices between 2016 and 2019, the value of wholesale and retail trade, as well as the repair of motor vehicles and motorcycles, dropped to QR45.3bn ($12.4bn) in 2020. While this represented an annual contraction of 8.6%, the category maintained its share of total GDP, at approximately 7%, due to overall economic activity easing during the first year of the pandemic. Amid the beginnings of a tentative economic recovery, the sector logged growth of 2.3% year-on-year (y-o-y) in the third quarter.

Inflation in Qatar was negative in 2020, at -2.54%, due to less spending stemming from movement restrictions and store closures. The only other years to experience such negative inflation since the turn of the century were in 2009 and 2010, when global economies were similarly recovering from the 2007-08 economic crisis. However, inflation was forecast to jump to 2.53% in 2021 and log 3.18% for 2022, largely because of the mismatch between global supply chain disruptions and a resumption in consumer demand – a trend mirrored in many countries around the world. This is a welcome development, as household consumption contracted by 10.9% between 2019 and 2020, from QR150.7bn ($41.4bn) to QR136.5bn ($37.5bn). Meanwhile, in 2020 Qatar’s GDP per capita at purchasing power parity was the highest of all GCC members, at $96,550. The UAE, which ranked second, had GDP per capita of $71,140. Qatar’s high spending power has traditionally served the retail sector well, but unmet demand caused by supply chain disruptions could fuel inflation.

The consumer price index, which uses 2018 as the base year, stood at 102.14 in December 2020, up from 101.75 the previous month and 95.93 in December 2019. The largest y-o-y increases were seen in recreation and culture (up 37.3%), transport (11.3%), food and beverages (6.7%), and clothing and footwear (6.2%). Housing, water, electricity and other fuel costs fell by 2.7%, while those associated with health fell by 1.4%.

Covid-19 Measures

Malls have traditionally provided a place for young adults, families and tourists to gather for dining, shopping, entertainment and, increasingly, sport offerings in air-conditioned spaces. The onset of the pandemic led to the authorities closing all retail stores in malls and commercial complexes – except for pharmacies and food outlets – in March, April and May of 2020 in a move to slow the spread of Covid-19. According to market researcher ValuStrat, most retailers experienced a significant loss of revenue during this period, but there was no drastic decline in asking rents and occupancy – signalling that the majority of retailers decided on a wait-and-see approach.

The remainder of 2020 and early 2021 saw various degrees of reopening, reduced hours and capacity restrictions for shopping centres, restaurants and fitness spaces. Restrictions were reimposed in response to the Omicron variant at the end of 2021, and in January 2022 the authorities announced that only double vaccinated individuals would be permitted to enter malls. Even so, the fact that 90% of the population had received at least two doses of the Covid-19 vaccination as of May 2022 is expected to fuel continued expansion and incentivise the development of new malls.

Malls

Malls scheduled to open in the first half of 2022 include 04 Mall at La Plage South, North Gate Mall in Al Rayyan and Place Vendôme in Lusail City. Place Vendôme is set to open its doors in the first half of 2022, is oriented towards the luxury market and reflects Parisian architecture. It hosts three high-end hotels and an air-conditioned outdoor space; puts on a daily laser light show; and features fountains and a canal that leads to the Gulf. Later in the year Doha’s mall scene will include Doha Oasis in Msheireb, which is set to open alongside the city’s hosting of the 2022 FIFA World Cup in November and December. In addition to the typical shopping, dining and cinema offerings, it will feature a spa, luxury hotel and business centre.

“The 2022 FIFA World Cup will have a catalytic effect on multiple sectors, including retail and hospitality. Many more people will shop in Qatar to not only purchase necessities, but experience the local food and culture,” Bader Al Darwish, chairman and managing director of Darwish Holding, told OBG.

Msheireb Galleria Mall in downtown Doha and J-Mall in Duhail opened in April and October of 2021, respectively. Msheireb Galleria Mall features approximately 100 stores, several art galleries, a cinema, a grocery store and “selfie stations”, while J-Mall includes sport options such as a bowling alley, a gym and a rooftop paddle ball court. “Having a good value proposition for customers of all ages is essential for the future of retailers. Entrepreneurs in the retail sector need to look for new business models that cater for rapidly changing customer needs,” Marzooq Al Shamlan, group CEO of Marzooq Shamlan Al Shamlan Holding, told OBG.

Real Estate

Average monthly asking rents trended downwards in the years from the beginning of 2018 to early 2021, according to ValuStrat. In malls the median asking rent fell from QR252 ($69.17) per sq metre per month in the first quarter of 2018 to QR240 ($65.87) in the first three months of 2019, QR230 ($63.13) in the opening quarter of 2020 and QR220 ($60.38) in the first quarter of 2021. Asking rents for street retail space in Doha followed the same trajectory, declining from QR230 ($63.13) to QR165 ($45.29) per sq metre per month over the same period, while median asking rents for street retail outside of Doha registered a fall from QR210 ($57.64) to QR155 ($42.54). However, as a reflection of new space becoming available, gross leaseable area stood at approximately 1.93m sq metres in the opening months of 2021, up from 1.89m sq metres in mid-2020.

Food Retail Players

Malls are typically anchored by a supermarket or hypermarket tenant. Al Meera has the largest grocery presence in the country, with 54 supermarkets in 2021. A local company created by Amiri directive in 2005, Al Meera is 26% owned by the Qatar Holding Company and 74% by shareholders. The Géant hypermarket chain was born of a partnership between Al Meera and French grocer Casino. The latter opened the first Monoprix store in 2013, of which there were five in Qatar as of 2021. France’s Carrefour is also active in the Qatari market, with five hypermarkets and five supermarkets that year, as is local Safari Group, with four hypermarkets. Safari Group also operates Safari Mall in Doha. LuLu Hypermarket, another Qatari venture, operated 16 stores in 2021.

Park N Shop hypermarket chain, another major player, was rebranded to Marza in October 2021. Operated by Al Raheeb International Group, the chain of hypermarkets has four branches in Qatar, the most recent of which opened in J-Mall that same month. At the press conference for the event Jafar Kandoth, managing director of the group, stated that two additional Marza hypermarkets and five express stores were planned for the coming months.

Pandemic Effect

The strong local grocery segment is supported by Qatar’s drive for food security. The National Food Security Strategy 2018-23 was developed in response to the blockade imposed on Qatar by its regional neighbours in mid-2017. The strategy is based on four main pillars: diversifying trade routes and international suppliers, with contingency plans in place; moving food from ports, fields and reserve areas as efficiently as possible to reduce waste; establishing adequate and sensible reserve capacity; and ensuring domestic self-sufficiency in line with the country’s resource base. Qatar has already seen success in this endeavour. While most of the dairy products sold before the embargo were imported, Qatar is now self-sufficient in milk and even exports some dairy products to countries such as Oman, Yemen and Afghanistan.

Although the blockade was lifted in January 2021, Qatar’s drive to promote domestic brands and diversify its trade partners served it well during the pandemic. “Qatar quickly learned from the supply chain disruptions in 2017 and was able to develop effective solutions to these challenges,” Mohamed Althaf, director of LuLu Group International, told OBG. “The country diversified its sources of food imports, recalibrated various supply chains, upgraded logistics capabilities with a new port, streamlined cargo movements at the airport, and enhanced storage and cold-chain facilities. As a result, Qatar was in a resilient position when the pandemic began.”

However, while food supply was relatively uninterrupted in Qatar at the onset of the pandemic, habits changed at the consumer level throughout 2020. According to a survey conducted on a volunteer basis in the country from May 24 to June 14, 2020, 32% of respondents increased their consumption of fruits and vegetables, and stated that they chose much healthier alternatives. The researchers from Qatar University and partner universities in Italy, Iran and South Africa found that nearly 45% decreased their consumption of unhealthy foods, such as fast food. The mode of acquiring groceries saw a shift as well: 35% of survey respondents said they ordered groceries “moderately more” and “much more” online. However, 29% indicated that they had never ordered groceries online.

E-commerce

When retail outlets were closed due to lockdown measures, residents increasingly turned to grocery delivery and other online shopping options. The number of e-commerce companies with a presence in Qatar rose from 350 in June 2020 to 416 in December of that year.

While the GCC as whole has been relatively slow to adopt e-commerce due to the long-standing cultural role that malls play as places of social interaction, measures associated with the pandemic and the country’s high rate of internet use – with 99% of the population using the internet as of early 2021 – helped facilitate the more widespread adoption of digital tools in commerce. However, the trend was beginning to take hold before the pandemic: according to the former Ministry of Transport and Communications – whose functions were separated in October 2021 – in 2019 some 60% of consumers in Qatar expressed a desire to shop online.

To this end, the Ministry of Commerce and Industry and the Ministry of Transport and Communications worked together to launch Theqa in October 2019. Theqa is an e-commerce platform that certifies companies to enhance consumer confidence, and improve the quality of goods and services provided by local retailers. These efforts were especially important given the shift to digital solutions seen during the pandemic. The wider aim of the accreditation was to grow the local e-commerce market, and it has been successful: as of March 2020 Theqa had certified 85 retailers and this figure grew to 240 by December 2021. The retailers operate in segments including beauty, electronics, baby care, groceries and home improvement, and many are small and medium-sized enterprises. Supporting these types of entities is among the core goals of Theqa.

A September 2021 report by the Qatar Chamber found that e-commerce grew by 47% between 2019 and 2020, from $1.5bn to $2.2bn, and was on track to reach $2.3bn by the end of 2021. Qatar ranked 50th out of 152 countries globally and fifth in MENA on the 2020 B2C E-commerce Index published by the UN Conference on Trade and Development, which considers a country’s internet use, the prevalence of electronic accounts among people 15 years of age and over, bank account penetration and the reliability of the postal system.

Outlook

The retail sector is poised for a strong 2022, with a pipeline of new malls and high spending power supporting sales. Qatar’s hosting of the 2022 FIFA World Cup is also forecast to provide a boost to the sector, as tourists and football enthusiasts from around the world come to the country to watch the games (see Tourism, Culture & Sport chapter). Factors that may dampen this outlook include accelerating inflation, especially if the longawaited introduction of VAT is rolled out in 2022. E-commerce is also expected to continue its upward trajectory, underpinned by delivery offerings.