Retailers in Dubai are being offered free space and fit-outs in selected malls, according to the Middle East’s largest luxury distributor Chalhoub Group, despite the shopping centres’ footfall being too low to sustain luxury retails brands.

Speaking to Arabian Business, CEO Patrick Chalhoub said those malls will likely cease to exist.

“It’s not a question of older [malls] but if they haven’t specialised themselves for a community or category or really understand customers, they will have a difficulty to survive… We have certain malls offering us spaces free of charge with a percentage rate and they’re ready to pay for the decoration, but it’s not enough.

“I prefer to pay the right price in the right location and right mall than just have a fantastic offer but not the requested traffic. So yes there will be causalities. But you still have malls charging prices higher than Madison [Avenue] so we have the two extremes…” he said.

Too many malls?

The chief executive said Dubai is “over retailed” due to the surge in mall openings in the years 2013-2015. The supply has not been met with enough demand, according to Chalhoub, which will lead to the closure of shopping centres that do not adapt to changing trends.

“Dubai has been over retailed basically because we were expecting more growth in traffic which we have not been seeing, so we have been over retailed. Some decisions of opening new malls had been taken in the boom years of 2013, 2014, 2015 and are coming to life today so today there are definitely malls that have to find their own way, some which will die, some which will survive, some which will service the community,” he said.

Chalhoub added that developers must work together with retailers instead of raising rent prices and making it more difficult for brands to survive.

“We have to make the right choices, even the developer has to understand what the customer is looking for, how they can offer relevancy. For me it’s really a world of operation between retailers and developers and consumers. The part where we were talking against each other has finished – where one was trying to increase prices and the other was trying to find spaces - we have to work together to understand customers… are we dead? No but there’s a good evolution.

“There is an evolution but it’s slow. As a group we are really trying to change the discussion; stop discussing rents, it has to be a win-win situation - discuss the customer journey. We’re eager to renegotiate our own terms and other stores which could survive, not only stores that have high productivity,” he said.

Better sales despite store closures

Chalhoub Group, which distributes luxury brands like Louis Vuitton and Dior has witnessed a higher sales growth than a flat market average, according to the CEO, with the group achieving at least over 1 percent growth year-on-year despite closing down 60 stores across the Middle East in 2019.

“We’ve had very tough years in 2016, 2017 and 2018 where our growth was lower than our increased cost so we needed to review our cost drivers and make sure we are agile and adapt to new norms. In 2019 our efforts started to pay off, so we have had better sales growth than the market average, with the market having been quite flat.

“It’s been a little bit negative in the Emirates, a little bit positive in Saudi Arabia and some other markets but quite flat in the luxury world at +1% while our group has done better than this. At the same time we have been able to control our cost and our expenses more at a time where our growth has been higher than the market average. Our own brands have had some successes, with Level Shoes being internationally successful today and well known in the luxury shoes arena,” Chalhoub said.

Among the stores it closed were its own children’s fashion concept Level Kids in Jumeirah, which Chalhoub said was mainly due to low footprint.

“One has to take responsibility. We probably overestimated the size of the market to what we could have done… we didn’t have enough traction. We had quite loyal customers but we didn’t have enough traction and we have been in a mall which didn’t get us all the traffic which we expected to get but I prefer to start taking responsibility,” he said.

“We probably need much more traffic and need to be more relevant than we had been… we prefer to cut losses and perhaps one day we come back, but we need to understand better what the customer really wants and have the right location to attract the traffic we really want. But we closed it, unfortunately. It broke my heart. I had just had my grandson who was born at the same time as level kids so I said it was fantastic,” he added.