The retail market is Oman is seeing a frenzied growth of shopping malls in a short duration raising concerns about a supply demand mismatch. Mayank Singh and Oommen John P report
It was easy to pick a retail destination on a leisurely drive from Ruwi to the Al Khoud area in Muscat on a weekend, a few years ago. Doing the same nowadays is a bit tricky, given the multiplicity of choices – Lulu Darsait, City Centre Qurum, Ocean Mall, The Oasis Mall, Oman Avenues Mall, Muscat Grand Mall, Panorama Mall and City Centre Muscat. And if you thought these were more than enough, hold on for a moment, as there are plenty more in the works.
Cluttons ‘Muscat Property Market Outlook, Spring 2016’ corroborates the trend – ‘After limited growth between 2005 and 2012, recent years have seen the introduction of a significant amount of new retail mall space in Muscat which has increased the supply of leasable space by approximately 75 per cent over the last three years alone. The most notable malls introduced in this period are Muscat Grand Mall, Avenues Mall, and Panorama Mall which are all located in Bausher. Despite the marked increase in retail mall space, occupancy levels have remained relatively stable at around 85-90 per cent.” According to Alpen Capital’s GCC Retail Industry report, GCC retail sales are expected to grow at a 7.3 per cent compounded annual growth rate (CAGR) between 2013 and 2018 to reach $284.5bn. Food retail sales growth is anticipated to out-perform the non-food retail sales due to higher demand for healthier and high-value food in the region. Sales at supermarket and hypermarkets in the GCC are expected to reach at $59.3bn, translating into a five-year CAGR of 9.2 per cent. This growth is expected to be driven by increasing disposable incomes and modernisation of the industry, the report adds.
Says Benjamin Cullum, general manager, Hamptons International and Partners, Oman, “We are in a booming economy for retail because of the demographics, more people getting jobs and a willingness to expose oneself to debt. Oman is a retail hungry society and that is reflected in the increase in retail space over the last year. In 2015, Oman was the second largest market in the GCC in terms of lettable area.”
In the next 18 months, additional leasable retail mall space is expected to be completed. These include approximately 105,000 sq. mtrs at the Palm Mall in Al Khoudh and 30,000 sq. mtrs as a result of the expansion of Muscat Grand Mall. It is estimated that the proposed large scale retail mall space at the developments such as Majid Al Futtaim’s Mall of Oman in Bausher, Al Futtaim Group’s Muscat Festival City in Airport Heights and Al Raid Group’s The Boulevard in Al Khoudh, would add a further 300,000 sq. mtr of leasable retail space in the next few years.
Despite such developments, Oman still seems to hold good potential for commercial retail. Says Ibrahim Abdullah Al Qasmi, director of Retail and Business Development, Royal Opera House Muscat, “The population of Muscat has doubled since 2001 – when City Centre Muscat was established – from 0.8 million to 1.5 million people. The country’s population has also increased from 2 million to 4.5 million. The scientific way of measuring retailing is mall GLA (Grossed Leased Area) square metre per capita, Oman is at 0.1 per square metre per capita, Bahrain 0.7 mall GLA per capita, UAE is at 0.5, Qatar at 0.45, Kuwait at 0.2, while Saudi Arabia is at 0.15, due to the population size. So Oman is well below the GCC average. But this is not the only factor as we have to measure the potential household income and purchasing power, as these drive retail.”
Massive investment plans
The big daddy of retailing in Oman is Majid Al Futtaim Holding Group (MAF). The Group plans to invest RO515mn in Oman by 2020, taking the total investment of the group in the Sultanate to RO705mn. Announcing the group’s plans in Oman on May 2, 2016 Alain Bejjani, CEO, Majid Al Futtaim – Holding said, “We have always been pioneering in the Omani market. We are proud to renew our commitment to be the leading GCC investor in the Sultanate through our RO705mn investments, which include the development of Mall of Oman, City Centre Sohar, and My City Centre Sur, as well as additional investments from our retail, leisure and entertainment businesses. We look forward to completing our projects and seeing them deliver more great moments for everyone, every day.”
The company’s planned investments in Oman include Mall of Oman, City Centre Sohar, My City Centre Sur, and additional investments for its retail, leisure and entertainment businesses, including Magic Planet, Carrefour and VOX Cinemas. The company, which is investing RO180mn for these projects, plans to deliver the Mall of Oman by 2020 – a super-regional 137,000 square metre mall with 350 outlets and the country’s first snow park, with an 8,000 square meter play area, and a Little Explorers edutainment centre. Oman’s new shopping and entertainment destination will enhance the Sultanate’s retail and entertainment offerings for both residents and tourists. Says Ibrahim, “The leisure elements used to be complementary, but nowadays it has become essential, due to high demand and customer expectations. GCC shopping malls have set new standards compared to the original and standard North American malls which include anchor stores plus line shops. Malls in the region have become a ‘complete customers need’ destination combining shopping, leisure, dinning, services and nowadays healthcare, tourism, art, culture and much more. This is a way to attract frequent visits from customers and to increase ‘loyalty.’ Apart from the mix, it is customer service that draws people. For instance, prayer call was not something that one heard in every mall sometime back, but now they are commonplace. Some malls even have an ‘Imam’ in their mosque to lead the prayers.”
City Centre Sohar, set to open in 2018, will be the largest shopping and lifestyle destination in Batinah governorate. The regional mall will be home to 100 new retail outlets across 40,000 sq.mtrs space and will include businesses owned and managed by the Dubai-based group, such as a 7,400 sq.mtrs Carrefour hypermarket, and entertainment options including VOX Cinemas and Magic Planet. Says Cullum, “A few years ago, none of the malls in Oman had a cinema. Muscat City Centre and Qurum City Centre did not have a VOX cinema, because there was a lack of belief about demand for that kind of leisure and entertainment, but now the Dubai model of leisure and entertainment is being replicated in Oman. This means that smaller retail centres, which do not have the space to expand into large scale entertainment formats will decline.”
My City Centre Sur, which will open in 2017, will be MAF’s first community mall in Oman. The My City Centre retail concept, which was launched two years ago, features a tailored mix of lifestyle-orientated retail and service outlets aimed at serving the everyday needs of local communities. It will include 16,500 sq. mtr of retail space, comprising 50 outlets, a 6,850 sq. mtr Carrefour hypermarket, Oman’s first City Centre Clinic and a Magic Planet. The whole idea is to tap the market in interior regions. The new mall is located on Sur’s main commercial road, and is set to be a key destination for both residents and the growing number of tourists visiting this coastal city.
In addition to these mega malls, new supermarkets, hypermarkets and department stores will also add retail space. For instance, Palm Mall Muscat, which is already under construction in Mabela, is scheduled to be completed by end of 2016. As a vast retail destination, it will give the Sultanate’s shoppers a taste of what is already on offer in well-developed regional markets. The project’s attractions include an aquarium, snow city, and a shopping mall. Panorama Mall in Al Ghubra is also changing the face of Oman’s retail landscape.
The Lulu Hypermarket, which opened its Avenue Mall at Bausher in 2015, offers a total leasable area of 80,000 sq.mtrs with more than 205 retail outlets. The five-storeyed mall, which can accommodate more than 200 brands under one roof, is home to a mix of local, high-street and posh international brands. Muscat Grand Mall (MGM), the first major mall that was opened in 2012, has started work on its second phase expansion – a positive reflection of retail performance. The Tilal Complex, which houses MGM along with other residential units, is planning to add 80 per cent more space to its existing facility at Bausher, taking the total area to 250,000 sq.mtrs of space from 140,000 sq.mtrs now.
Philip Paul, Head of Oman, Cluttons, gives a sneak peek into an upcoming development, “The centre of Madinat al Sultan Qaboos (MQ) is being redeveloped as a retail centre by the W J Towell Group. The idea is to develop a pedestrianised restaurant street and we are going to invite expression of interests from retailers, F&B operators etc soon.” The development is expected to go live over the next couple of months. The two phases of the project will be built over a period of 18 months each. The first phase will cover 7,500 sq.mtrs and the second phase will have 10,500 sq. mtrs of retail and 3,000 sq.mtrs of office space. Says Matthew Wright, head of consultancy and industrial, Cluttons Oman, “In phase one the buildings in this area are going to be demolished and a shopping centre will be developed. There will be two levels of retail and then a penthouse providing office or retail units. It is going to be a mixed use development with a focus on retail. The idea is to take elements that are fairly disparate right now and to create something that caters to the MQ population and also the wider central area population.” Adds Paul, “We believe that this development will do very well, because it is very different and presently there is no other place like this in Muscat.”
A good indicator of what lies ahead would be to check the state of the retail sector in the aftermath of low oil prices. “2016 so far has shown good resilience even though some of the luxury and discretionary merchandising retailers have had an impact. However, overall with the quality of retail offering enhancing in the market, the market place has become very competitive, F&B entertainment are main stays of a shopping development and this sector has shown strong growth which is sustainable over the long run,” says Gogi George, general manager-Leasing and Development, Oman Avenues Mall.
Says K Devendra Kumar, head of Retail, SPAR Oman, there was a marginal slowdown in the overall market. But this was not evident in convenience stores and supermarkets. Governments are currently shifting focus to the growth of non-oil sectors such as retail and tourism in order to achieve economic diversification. The retail sector in Oman is forecast to register significant opportunities between 2015 and 2019. Retail sales are likely to grow at six percent per year through 2020. Oman is the 17th most attractive destination for retail investment among 30 developing markets in view of its robust economy, growing population and increasing consumer confidence – all of which contribute to make the Sultanate a popular growth location for regional and global retail players.
Naveej Vinod, executive director, Mars International says “We are almost stable amidst the oil price decline. It has not affected the FMCG section in a large way, but obviously the customer behaviour has changed due to the oil crisis, affecting us slightly.” “There are some effect across certain sectors but overall it has been much milder than expected and talked about,’’ avers George. “There has been a little impact but not significant in the food and grocery retail industry to stop the onslaught of new markets and stores. The slowdown in the economy due to plunging oil prices has not affected the expansion of the retail sector or the hiring process in Oman. Many retail giants are planning their launch of new stores in Oman and hiring both nationals and expatriates. The hypermarkets and the retail sector in Oman has been thriving on the consumers need for better quality produce which is fresh, and clean at competitive price and availability of the top international brands in their neighbourhood,’’ says Kumar.
A recent Deloitte study, titled Global Powers of Retailing 2016: Navigating the new digital divide, suggests that the retail climate will differ region by region this year. The study reveals that North America and the MENA region will enjoy revenue growth in 2016, while Asia-Pacific, Europe and Latin America will see a decline. The Alpen Capital report says airport-based duty free sales in the Middle East are estimated to increase from $3.9bn in 2013 to $6.6bn in 2018. This growth is expected to be driven by robust passenger traffic across all the leading airports in the region. The personal luxury goods segment in the Middle East is expected to grow at a 4.6 per cent CAGR between 2013 and 2018 to reach $9.4bn in sales.
Oman Avenues Mall has been heavily influenced by the concept of retailtainment wherein entertainment, leisure and F&B elements are core drivers that support footfall to the development that compliments the rest of the retail mix, so that’s our USP, says George.
SPAR International forayed into the Oman retail market in partnership with local business conglomerate, Khimji Ramdas in 2014. Since its successful launch, SPAR Oman has increased the shopping experience of its customers by combining the convenience of a supermarket with hypermarket prices. Currently, SPAR Oman successfully operates eight stores in Oman. SPAR Oman has established a strong presence with five supermarkets and three express stores, covering a total retail space of 40,050 sq.ft feet, says Kumar.
SPAR’s core values are freshness, value, choice, and excellent customer service. These values are an excellent fit to market such as Oman. Shoppers have appreciated this growth model. SPAR Oman is swamped with requests from real estate and shopping malls to set up SPAR in their properties. In fact, we have requests from shoppers to open SPAR in their neighbourhood, avers Kumar. And true to its core values, SPAR has always kept its promise and commitment to consumers, retailers, and suppliers, displaying its positive energy and attitude, always searching for innovation and creativity in an ever demanding scenario. SPAR’s growth model is strongly etched on the core values and culture which include retailer profitability, offering fresh produce at competitive price, encouraging retail relationships, entrepreneurship, and family values, and always on the lookout for new business opportunities, he says. Another key strength of SPAR is its multi format model. SPAR models fit in any size and any location. The SPAR International design team would help us to create world class shopping experience, Kumar adds. “We have grown significantly, opened most number of outlets in 2015. We opened five outlets in 2015, making us one of the fastest growing retailer,’’ says Vinod.
In expansion mode
Are retailers planning expansion in the turbulent times? Oman Avenues Mall is planning to extend its retail offering with Phase-2 extension that would see a large scale cinema and F&B elements. “We shall target some niche retail brands including filling in some niche fashion segment brands which are new to the market,” says George.
In today’s fast-paced, dynamic market environment, Small and Medium Enterprises (SMEs) undoubtedly play a vital role in building the economic fabric of the country, says Kumar. One of the core objectives of SPAR Oman is to invigorate the SME market in Oman and develop a sustainable and thriving SME sector. “Our plan is to start sub franchising and independent licensing from the year 2017. We would like to encourage Omani entrepreneurs to be part of this plan and own SPAR stores. SPAR would impart training and technical know-how to support these entrepreneurs to own and run SPAR stores successfully. We intend to open 24 own stores by 2018,” he adds.
“Mars Group has a strong presence in the Sultanate. We have 16 outlets across the Sultanate. Our expansion plans are huge with 10 more outlets to be opened in the next two years. Our biggest project in Al Khoud will be opened within two months. Mars is opening three new outlets in UAE this year. Being an Omani company, our plan over the next two years is to expand massively in other GCC states,” says Vinod.
However, the major question is whether these groups will be able to attract enough customers to make their investments viable. Says Ibrahim, “We have to measure the disposable household income, but before that the main challenge for any shopping mall is not just purchasing power but the right tenant mix and this is a major hurdle for retail outlets in Oman. This is because a few business groups own the franchise for most of the global brands in the GCC and they are reluctant about bringing these to Oman, as they believe that other markets give them better returns and offer a more flexible business environment.” He adds, “With huge capacity coming into the market, retailing for malls is going to be a challenge if we do not have a clear vision about the number of tourists that we plan to attract along with their profile, because tourists spends almost double the money compared to local residents and citizens. GCC tourist are the highest spenders among other nationalities, and within short flying distance. I really believe that they should be a major target in our international tourism campaigns.”
The occupancy levels in existing malls is around 70-80 per cent and with new malls coming up supply is going to outstrip demand. According to Cluttons ‘Muscat Property Market Outlook, Spring 2016’ – ‘It is clear that the retail mall sector in Muscat is going through a period of rapid expansion and we expect that the significant growth in retail mall space will translate into an increasingly competitive market. For retail mall owners, we expect the strengthening supply pipeline will prompt the need to carefully consider market positioning, tenant mix and rental values in order to maintain good occupancy levels.’
Says Paul “Retailing success is increasingly going to be about differentiation and entertainment.” Adds Wright, “The high end is going to be challenging because of the demographic and spending power. It is also a country where for more expensive purchases people look outside the country because of more choices and probably better prices. Overall, there will be winners and losers as there is a lot of retailing space for Muscat to absorb in a relatively short time.”
Although the slackness in oil prices has affected retail sales, purchasing power, growing population comprising a large proportion of expatriates, changing consumption patterns and increasing penetration of international retail players are positive factors for a growth in the retail sector. Says Cullum, “The malls are busy but whether people are bringing out their credit cards or wallets and buying things is something that needs to be asked to retailers. Being busy is a prime indicator of a successful mall, the concern going forward is how much can the market absorb and what will fall by the wayside.” Retail chain experts believe that although there could be a setback in sales revenue (mainly for luxury items), business prospects in the long-run are definitely positive. Overall, the retail industry in the Gulf Cooperation Council (GCC) is expected to maintain a positive momentum, driven by social and economic developments.