Mall rent hikes may force retailers to go online

Amazon.com, the world’s biggest online retailer, recently bought Souq.com, the region’s largest online retailer. Satish Kumar / The National

A top retailer has warned rent hikes in some malls have become unsustainable as more shoppers move online.

It comes as traditional retailers face increased regional competition from global e-commerce players like Amazon.

“Mall operators need to be careful about their charges because there is a point when we look at our operating costs and if online makes more sense then we will leave,” said Anthony Chalhoub, the co-chief executive of the Chalhoub Group, which runs more than 600 outlets across the Middle East and employs more than 11,000 people.

The group, which focuses mainly on the premium and luxury segments, closed more than 50 stores last year – or double its normal churn.

It is now moving boosting its investment in digital channels.

“Some malls just became so expensive that we moved,” he said on Sunday at the launch of a white paper on the retail sector. “Others had changed their clientele so were not appropriate for our brands any more. I think the digital realm is still insignificant versus the bricks-and-mortar offerings in the UAE and Middle East. The US malls did not react until online was about 12 per cent of the retail offering. Now there are many empty retail spaces in the US.”

About 350,000 square metres of retail space is scheduled for release in Dubai this year with another 367,000 sq metres listed for completion in 2018, according to JLL data.

Although retail vacancies grew by only 1 per cent in the fourth quarter last year to 9 per cent, there are concerns that a rapid increase could lead to a glut of retail space in the short term.

Amazon.com, the world’s biggest online retailer, recently bought Souq.com, the region’s largest online retailer.

JadoPado, a local e-commerce platform, was last week acquired by a regional bricks-and-mortar retailer and Mohammed Alabbar’s online portal, Noon.com, is late-out-of-the-gate for its January launch but promises to carry 20 million products eventually.

“The disruption in the retail space is frightening,” said Patrick Chalhoub, the co-chief executive of the Chaloub Group. “The online world is taking a huge investment from ourselves and other players putting the customer at the very centre of the retail experience. While our revenues were only US$200 to $300 million online in 2016, we believe this will be $1.9 billion in 2020.”

He said the Chaloub Group had a flat year of growth in 2016 and believed that would hold for 2017.

For smaller online players the region offers an opportunity for exponential growth as internet penetration, social media access and mobile connectivity improves.

“We have grown 100 per cent every year since we launched in 2011,” said Kunal Kapoor, the chief executive of The Luxury Closet, an online luxury boutique. “We now have 17,000 products on our site, but it is not an easy sell. Marketing the platform and ensuring those that may be interested to know you are there is a tough job. E-commerce is not an easy pitch, you have to constantly strive.”

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