Gold souk vendors hold back rent as sales slow

Angry merchants say few shoppers enter Dubai Mall's gold souk because of its maze-like design and lack of promotion by shopping centre officials.

Gold merchants at Dubai Mall complain of poor business with few customers visiting them.

Retailers in Dubai Mall's gold souk have stopped paying rent and enlisted a lawyer to try to convince the mall's developer, Emaar Properties, to reduce tariffs or redesign the layout of the shopping centre. Angry merchants say few shoppers enter the gold souk because of its maze-like design and lack of promotion by shopping centre officials.

While footfall at Dubai Mall has improved significantly in recent months, the trickle of customers and sales at its gold souk has forced many of its retailers to use their savings to cover rent and expenses. About 100 of the up to 170 stores in the souk have not paid their rent, which averages Dh400,000 a month (US$108,896), since November, said a source familiar with the matter. Hilal Bhat, the owner of Galerie Hamadan, has not paid his rent since November, when Emaar raised retailers' fees by 7 per cent as outlined in the original contract.

"It is not a gold souk. It is a ghost souk," said Mr Bhat, who sells carpets. "Nobody comes in and we are paying rent. We paid rent last year of Dh1.5 million and we're likely to lose, again, the same amount." He said he had not signed on with the lawyer but had been meeting Emaar officials frequently. He said they promised him a rent reduction and showed him a map of the redesigned gold souk, which would include department stores.

"But when? When are they going to do it?" Mr Bhat asked. Emaar officials were not available for comment. The retailers, who spent an average of Dh500,000 on fitting out their stores and between Dh5m and Dh50m on stock, signed three-year contracts without a termination clause. Retailers claimed Emaar had offered them the option to leave provided they paid any outstanding rent, a penalty of between three and six months' rent and a security deposit amounting to three months' rent.

The lawyer has been hired by a group of 55 shopkeepers to negotiate on their behalf. "At least they [Emaar] will give some kind of answer to the lawyer," said one retailer, who declined to be named. "This was our last resort. We have been requesting this from them for almost a year, to do something for us to resolve it one way or another. But no response at all." Retailers had been in talks with Emaar since last summer, but official legal notices were served to Emaar officials on January 19 and February 1, said a source familiar with the matter.

The retailers are asking for reduced rents, a redesign, or the option to break their contracts without financial penalty. They are also asking for damages, the source said. If no progress was made, the retailers would take their case to the rent committee's civil courts. Their lawyer met Emaar officials last week and discussed a redesign of the gold souk, but the developer did not make firm commitments to take action, the source said.

Retail sales across the region fell last year as consumers became more wary of spending amid the economic downturn. Jewellery retailers were hit even harder as the price of gold climbed to record highs. But the merchants with outlets in the Dubai Mall gold souk said their problems were further compounded by the shopping area's design. At least 30 shops have closed, including Felopateer Palace, which had just one paying customer in its first year of operation.

When rents rose in November, Fires Omran, who ran the store, closed up, resulting in a company loss of Dh2m. Mr Omran has not hired a lawyer, but has not paid rent since, he said. "Dubai Mall is very nice place to go," he said. "But the gold souk, they have to change the design." After a year of lacklustre sales, plus the amount invested in inventory and spent on salaries, many retailers said they did not have the money to pay release penalties.

"Except for a few retailers who are at the entrance or in the dome, everybody else is dipping into their savings," an informed source said. [e-mail]