UAE brands might go solo: What does that mean for all those involved?

Across the world retailers are ending their relationships with local partners and are taking full ownership and control of their brands

Kenny Lam, Opinion
Kenny Lam is the Associated Director Retail Advisory for the Middle East at Savills. He joined Savills in early 2013 and has worked in multiple markets during this time, starting with Hong Kong, followed by Canada and now the Middle East. Lam has assisted premier global retailers on complex projects such as transaction management, lease administration, portfolio strategy and national brand rollouts. His notable clients include APM Monaco, Dyson, Escada, J. Crew, Procter & Gamble, Lululemon and Tumi. As part of the Cross Border Retail team at Savills, he is currently responsible for the expansion of the retail advisory and agency across the Middle East.

February 23, 2022

UAE RETAIL

We recently heard that the UAE is likely to end the monopolies by its large family-owned conglomerates on the sales of imported goods. While there is still no official communication on the topic, we have started to think about how that might impact the various stakeholders involved, should changes to Commercial Agencies Law be announced soon.

Landlords

Elsewhere in the world landlords generally have control over the zoning of the brands in their mall, leading to a grouping of stores with similar offerings in dedicated sections. This gives a certain ‘flow’ to customers of the mall during their visit. In the Middle East, however, we sometimes see a more scattered mix of brands, irrespective of the sections they’re located in.

Merchant families who are franchise operators typically have multiple brands under their portfolio with interests ranging from F&B to apparel to electronics. Often, we see many of these brands making it to the same cluster or zone in the more prime retail areas within the mall even though the offerings might be unrelated: this is something which is hardly observed in other retail markets in Asia or Europe. However, the franchisors who own brands but who are also the developers of some of the malls will likely have a better tenant mix and zoning, having control over the brands as well as the mall real estate.

Dealing with the brand principals directly can help landlords gain greater control over the brand mix they choose and agree on their ideal positioning within the mall.

Retailers

The concern with many brands being controlled by one franchise operator is that that all the brands within the portfolio may not receive customised treatment. As many of the staples are currently not focussed on a single segment like luxury or electronics or beauty, all brands within the portfolio may be considered equal, which is not always the ideal strategy.

For retailers, perhaps the biggest advantage would be to control how their brand is projected and therefore perceived by customers, enhancing overall brand visibility. By connecting with their target audience at the most basic level, retailers can be more aware of their customers’ needs and wants. They can see first-hand how their brand is being received and can pivot and change their strategy as required. By customising the approach for each brand after careful thought, the risk of diluting its essence is reduced, if not eliminated.

Consumers

Customers who have experienced a different retail model in other global cities would notice the dissimilarities here. Should the law be tweaked and more brands choose to go solo, we will likely see the model align more closely with global retail markets, with the customer journey and experience changing significantly.

Principal-operated stores are generally more experiential, allowing the customer to connect with a brand and form a relationship of sorts. Retailers believe that with greater autonomy and control, they can effectively communicate the brand ethos to their customers and provide a uniform and consistent experience to them, no matter which market.

Lastly, customers can expect a greater variety of offerings that are more in line with global trends with personalisation for the local market.

Conclusion

We are already seeing this trend of decoupling play out elsewhere in the world: in China, retailers have ended their relationships with local partners and taken full ownership and control of the brand. In the UAE, big names such as Apple, Tesla and now New Balance, operate fully independent stores.

It’s important to weigh the pros and cons of each arrangement. On the plus side, the staples have relationships, transactions and market data, and know the market nuances and cultural sensitivities, helping brands that are new to a country or region. However, franchise operator families who come with multiple brands might make certain demands from landlords in terms of rent payments, fit-out costs, capex etc. We often see that landlords agree to some of these demands as they need to fill up their malls and not risk losing multiple brands and therefore tenants, but they may or may not pass on these costs to retailers.

Another disadvantage is that brands will find it difficult to get an unbiased view on the market when there are only a few franchisors who control most retail. However, third-party real estate consultants might be able to address this by leveraging relationships with its global teams, brands, landlords and the like.

Whether brands come in and operate independently or with a local partner remains to be seen. Entering a new market on your own can have many considerations from HR to back-office operations and even tuning in to the local culture – many brands might prefer these responsibilities continue to rest with the local partners.