DUBAI,(Reuters) – Some big Dubai retailers, accustomed to giddy spending in the Gulf Arab tax-free haven, are grappling with a drop in sales as consumers worry about the impact of the global financial crisis on their wallets.
The Gulf has not been as heavily hit by the credit crisis as Europe and the United States, but the contagion has led to stock market routs, tight lending conditions and a range of government and central bank attempts to mitigate its impact.
In the United Arab Emirates, home to the glitzy financial hub of Dubai where shopping is virtually a national sport, a frisson of fear has seeped into consumers’ minds.
“Business is 20 percent down in the last week in retail,” Mohi-din Bin Hendi, president of Bin Hendi Enterprises, told Reuters.
“In the beginning, people did not take it seriously. When they start to get their ATM cards refused from the bank, that’s when sense comes back … that this is serious.”
Bin Hendi, whose retail-based conglomerate operates in the Gulf Arab region and India and offers everything from jewellery to sofas, said the firm would take steps to ready for a further decline in consumer spending and would “cut the desirables, go to the essentials.”
Asked whether he would cut jobs, he said: “Absolutely. We have not come to a figure as yet.”
“People with wise moves won’t suffer as much as those who think this is only a cloudy day and it’ll clear up tomorrow. It won’t clear up tomorrow that easily.
“We have to sit tight, cut down our costs and be smart.”
Long known for spending excesses — it is home to man-made islands in the shape of palm trees and the world map as well as a ski slope in the desert — Dubai has revelled in its reputation as a top shopping destination.
Its annual month-long festival dedicated to shopping, sponsored by Dubai Duty Free, attracts some two million visitors eager for deals and lavish giveaway prizes.
But consumers have begun to see uncomfortable signs of the credit crisis’ toll.
Companies are quietly shedding jobs or not hiring, according to recruiters, while the Arab world’s biggest listed developer, Emaar Properties recently gave buyers more time to pay for new homes given difficulties in obtaining mortgages.
The UAE’s biggest bank Emirates NBD has stopped lending to foreigners who work for top Dubai property firms on fears a slowdown could jeopardise their jobs and income and an Islamic mortgage lender, Amlak, has suspended new loans altogether for now.
Meanwhile, distressed sales of Dubai property are on the rise as investors rush to offload homes, real estate agents say.
LESS SPENDING PER PERSON
“There is less footfall in the stores, people are tightening their belts,” said a retail manager who declined to be identified. “It’s never been like this before.”
The global financial meltdown came just as the world’s biggest mall opened in Dubai and nearly each week has seen the announcement of one lavish retail exercise after another.
This week, British luxury retailer Burberry said it had created a new firm with its UAE franchisee, Jashanmal, that would manage all its retail and wholesale operations in the Gulf Arab region.
Jashanmal Group President Gangu Batra said forming the joint venture made business sense given its long ties to the British firm but the timing could have been better.
“Now all we can say is I hope it doesn’t affect us too much. There will be some effect and we will see that effect in the course of time,” he told Reuters.
Batra said same-store sales on a yearly basis were steady at the retailer, which operates department stores, booksellers and franchises for brands like Calvin Klein, but the firm was bracing for a slowdown in the wider economy in coming months.
“People are still there but spending per person has gone down,” he said. “I don’t think our country will be immune to these problems.
“I can see some slowdown when I go to restaurants and hotels. The view is, so far, there’s no reduction in the tourists but then when they do the booking, they do so months in advance.”
According to a 2007 annual country report, visitors to Dubai represent 69 percent of all luxury retail and leisure spending.
Batra said spending levels were likely to decline even further once the current wave of vacationers head home.
Caution has seeped into every aspect of consumer spending.
One Dubai-based dentist said business had fallen about 40 percent this year.
“People see it as cosmetic rather than essential,” she said.