The Gulf States: where retail is expected to grow | KPMG | BE

The Gulf States: where retail is expected to grow significantly over the next 3 years

The Gulf States: where retail is expected to grow...

With a combined GDP of US$1.37trn, this region is one of the few emerging markets where the retail sector is forecast to grow significantly and consistently over the next 3 years.


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Our guide to the Gulf Cooperation Council states

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State of the market: Recent political unrest has failed to affect the country’s economic outlook. GDP rose by 2.5% in the first quarter of 2013, fueled largely by rising oil output. Although oil accounts for around a quarter of its economy, Bahrain is considered to have the most diversified economic mix in the region.

Strengths: The retail market is tough to gauge due to recent political unrest, but reports suggest consumer confidence has rebounded with spending set to rise. Bahrain’s major malls enjoy high occupancy levels and strong rental growth.

Weaknesses: Social unrest, which erupted in 2011 and caused the Grand Prix to be canceled, hurt tourism and the large finance sector. CBRE reports that occupancy rates have fallen in some smaller malls.

Consumer stars: Originally launched in 1913 from a small shop in a souk, today Ashrafs WLL is now one of Bahrain’s leading retailers. The company sells major international fashion brands and household goods, as well as consumer electronic brands such as Kenwood, Nikon and Sony.

Foreign investors: Waitrose now has four stores in Bahrain. Géant Hypermarket, a partnership between Fu-Com International and Groupe Casino of France, is the largest retailer in Bahrain. LuLu is opening three hypermarkets this year as part of a long-term US$334m investment program.

The verdict: “Bahrain was the only GCC country badly hit during the Arab Spring. Tourism was severely affected, and consequently retail.But now things are relatively stable and the economy is responding well, with investor confidence returning.” - Anurag Bajpai, Partner, KPMG in the UAE


State of the market: Launched in 2010, Kuwait’s five-year plan to strengthen its private sector, most notably with major infrastructural investment, seems to be working: GDP is growing by around 6%. Strong retail sales are being fueled by urbanization and a big influx of foreign workers from Iraq. 

Strengths: Retail sales are forecast to grow by US$4bn from 2011 to 2015. GDP per capita in Kuwait is circa US$40,000. Global brands are popular, particularly fashion, and young people are splashing out on electronics. Two new malls will add 2.4 million sqft of retail space.

Weaknesses: Kuwait’s censorship laws have deterred certain retailers of books, films, records and clothing. Virgin Megastore and Dubai-based record distributor Music Master withdrew in 2012. Of greater concern is a political crisis which has led to parliament being dissolved six times since 2006.

Consumer stars: Long-established Kuwaiti Al Ostoura fashion boutique has more than 40 stores occupying over 107,600 sqft of retail space under its Al Ostoura or Limelight fascia. The chain also runs stores under the names of fashion designers whose clothing it stocks. 

Foreign investors: Kuwait hosts many Western brands, including IKEA, Victoria’s Secret, Prada, Mothercare and American Eagle Outfitters. EMKE Group has opened hypermarkets in the country.

The verdict: “Despite little economic diversification and a big reliance on oil, Kuwait has a mature retail sector and high penetration of multi-brand and fashion stores, including many Kuwaiti retailers. But low tourism means less growth potential than other states.” - Neeraj Dassani, Partner, KPMG in the UAE


State of the market: With a relatively small population of just over three million, Oman has a lower GDP per capita (US$26,000) than some neighbors, but a large number of high net worth individuals. The concentration of wealth has particularly attracted luxury brands.

Strengths: The capital, Muscat, is driving change in Oman’s retail sector. New projects, such as the Muscat Grand Mall and Mustafa Sultan complex, should attract global retailers. Consumer spending power should increase, driven by more tourists and expats.

Weaknesses: Oman is seen as a stable rather than spectacular opportunity for retailers. The economy keeps growing and consumer confidence is stable, but malls and supermarkets aren’t expanding as fast as elsewhere in the Gulf – possibly because the economy is small and GDP per capita relatively low.

Consumer stars: Established in 1870, Khimji Ramdas runs more than 50 Khimji’s Mart supermarkets across Oman and manages a chain of Welfare Markets for the police.

Foreign investors: LuLu, which is part of the EMKE Group, has a strong hypermarket network across Oman. Major retailers LVMH, Marks & Spencer and L’Occitane have all had a presence in the Gulf state since 2007.

The verdict: “There have been some major moves in terms of retail penetration, with more modern and well-established retail brands increasing their presence in Oman, as are supermarkets. As a result, the economy is becoming far less fragmented.” - Anurag Bajpai, Partner, KPMG in the UAE


State of the market: With the highest GDP per capita in the world – US$102,000 in 2012 – Qatar’s global profile keeps rising as it prepares to host the 2022 FIFA World Cup Finals. Current GDP growth of 6.5% is set to continue as some experts predict the state’s population could double to 4 million by 2020.

Strengths: Growing affluence, expat numbers and tourism are driving growth, as will Qatar’s new airport. The healthy 3,200 sqft of retail space per 1,000 people is set to rise in the run up to the World Cup.

Weaknesses: Projected high infrastructure, housing and retail-space growth in Qatar means its population and economy need to grow by over 5% a year, say financial experts. The economy needs to become less dependent on energy. There’s a fear the retail property market could overheat if not carefully managed. 

Consumer stars: Qatar-based supermarket and hypermarket chain Al Meera runs 33 stores and six more are in the pipeline. It is also developing a network of stores with French retailer Casino under the Géant fascia. 

Foreign investors: Tex-Mex brand California Tortilla opened a store in Qatar’s capital Doha this year. Marks and Spencer has two shops there. Al Meera runs three WHSmith outlets – eight are planned for the new Doha airport. Fashion brand By Malene Birger has recently opened stores in the capital. 

The verdict: “Qatar has seen rapid development of many shopping malls featuring high-end retailers, along with the penetration of a lot of established supermarket brands due to the big potential spending power of the rapidly growing population.” - Neeraj Dassani, Partner, KPMG in the UAE

Saudi Arabia

State of the market: Despite a fall in oil production this year, the National Commercial Bank expects GDP to rise in Saudi Arabia by 4% in real terms in 2013. The burgeoning middle class is expected to drive growth. The Oxford Business Report estimates that the retail sector accounts for 17% of GDP.

Strengths: One of the Gulf’s fastest growing retail markets, Saudi Arabia will benefit from the arrival of around 1.7 million new consumers over the next five years. Retail floor space has grown rapidly, increasing by 80% in Jeddah alone since 2005. 

Weaknesses: Youth unemployment in Saudi Arabia is around 30%, one of the highest in the world. There are lingering concerns over the country’s supply chain infrastructure, which government plans to invest US$110bn in the next five years may help to address. 

Consumer stars: Fawaz A Alhokair & Co (known locally as Alhokair Fashion Retail) trades off its strong local market knowledge to forge franchise partnerships with global fashion brands such as Gap, Banana Republic and Zara.

Foreign investors: Toys R Us operates 11 stores in Saudi Arabia under a licensing agreement, and plans to open two more this year. In August, the retailer unveiled plans for a new 377,000 sqft distribution center that will be the hub for its five-year regional growth plan. 

The verdict: “GDP per capita is lower than its neighbors, reflected in Saudi Arabia’s retail brands, while the market is fragmented, focused on the main cities. But with entry for foreign brands easing and 60% of the population under 30, the country has strong growth potential.” - Neeraj Dassani, Partner, KPMG in the UAE


State of the market: The GDP of the world’s eighth-largest oil producer grew 4.2% in 2012. Non-oil GDP growth is 3.1%, as tourism booms. Dubai is second only to London in real estate consultancy CBRE’s rankings of global retailer presence. Dubai Mall attracts 35 million visitors a year. 

Strengths: The UAE’s free-market economy makes it one of the easiest Gulf states to do business in – it’s often used as a test bed for retailers new to the region. Clothing sales in the UAE and Saudi Arabia are strong, expected to exceed US$14bn this year.

Weaknesses: A dearth of retail space in Dubai has led to high rents. This will be eased by new retail projects, such as Nakheel Mall on the Palm, which will provide an extra 1 million sqft of space by 2016. High-street stores face a threat from online sales, tipped to rise from US$280m today to US$1bn by 2020. 

Consumer stars: Founded in 1974, Jumbo Electronics is one of the UAE’s leading consumer electronics firms, with 27 stores and nine service centers, selling such brands as Apple, Dyson, Lenovo and Sony. 

Foreign investors: Fashion brands Crazy 8, George and Calzedonia launched in Dubai this year, Abercrombie & Fitch will follow suit in 2014 while LVMH is investing in a new mega fashion mall. Fashion retailer M&Co plans to have 12 stores in the UAE by 2018.

The verdict: “Seen as a safe haven, the UAE’s retail sector is being boosted by tourism and investment from Saudi Arabia and Qatar. The next evolution is likely to be homegrown UAE retail brands expanding across the GCC and beyond.” - Anurag Bajpai, Partner, KPMG in the UAE

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