The rich economies of the Gulf are growing strongly but amid a mammoth array of discounts, raffles and promotions at this year’s Dubai Shopping Festival, there are signs that consumers are becoming more value-conscious and thinking twice about spending after months of instability in the global economy.
Daily light shows and fireworks along the Dubai Creek, night souks (markets) extending until after midnight , lotteries to win 19 kilos (42 pounds) of gold, and hotel promotions are features of the 32-day long festival for shopaholics.
Now in its 17th edition, the festival started off in 1996 as a government initiative to promote retail sales and trade.
“The Dubai Shopping Festival plays a major role in supporting the economy of Dubai and boosting it in various sectors,” said Laila Suhail, chief executive officer at organizer Dubai Events and Promotions Establishment.
In 2011, the contribution to Dubai’s economy from retail, travel and hospitality spending in the emirate during the festival totaled 15.1 billion dirhams, DEPE figures showed, including 5.9 billion dirhams spent by regional and international visitors. Total spending was equivalent to about 5 percent of Dubai’s 2010 gross domestic product.
Suhail said 4 million visits were made to the festival in 2011, of which 884,660 were regional and international visitors, mostly from India, the United Kingdom and Saudi Arabia.
Total spending may climb further at this year’s festival, which runs until February 5. Tourism has been strong − passenger traffic through Dubai’s international airport rose 8.9 percent year-on-year in November − and the government of the United Arab Emirates has been boosting handouts to its citizens, partly to mark last month’s 40th anniversary of the country’s founding. In November, the government said it was setting up a $2.7 billion fund to help pay low-income citizens’ debts and would raise the wages of some state employees.
“I’m confident that sales at this year’s Dubai Shopping Festival will be very positive,” said Fuad al-Najjar, asset director at the Deira City Centre, one of the major malls taking part in the festival.
“We have seen a lot of Chinese and Russians coming to shop here. I’m quite optimistic to see double-digit sales growth this year compared to last during the festival.”
Hussain Kalmari, shop manager for Breitling at the Mall of the Emirates, is offering up to 20 percent discounts for luxury Swiss aviation and diving watches, starting from a basic price of 12,000 dirhams.
“We are expecting this month a 20 percent increase in sales over last year, and we had a good start. The number of tourists has increased this month. We have so many Russians and also Europeans,” he said.
But while overall sales may rise this year, there are indications that many individual consumers may be less free-spending and hold out for better bargains.
Pushing a trolley filled with bags from fashion shop Promod and Clarks Shoes, Laleh Khosravian, married with two children, travelled from Tehran to Dubai to snap up bargains at the festival, but said she was disappointed.
“The prices are very high, despite the sales. Last year it was very good, but not this year,” she said.
Rose Sebuco, a sales assistant at Vipera, a Polish cosmetics and skin care brand, said: “Sales are not going well at all this year. We had a lot of visitors from Saudi and Kuwait last year. But nowadays it is really quiet.”
Simon Williams, chief economist for the Middle East at HSBC, said consumer spending in Dubai, which is more exposed to global economic conditions through trade and tourism than many other Gulf economies, would be vulnerable this year.
“I’m hoping consumer spending will hold on the same kind of levels as last year, but I don’t think we will see significant population growth, and I think credit growth will be quite soft,” he said.
“Given the distress the global economy is experiencing, I think the inflow of tourists, which tends to have a pretty direct impact on retail spending, will be fairly soft.”
Bank lending to the private sector in the UAE is sluggish; it grew just 0.8 percent year-on-year in September, the latest central bank data shows.
“Definitely consumers have become smarter in terms of spending. They check the prices, they make sure they really get value for their spending,” DEPE’s Suhail said.
“The retailers really have to work very hard because the consumers today are not how they used to be two years ago. They really need to make major efforts to make shoppers come and spend during the festival and give value for their promotions.”
While the economies of Dubai and the Gulf in general are growing strongly, buoyed by high oil prices, they may be slowing. Analysts polled by Reuters in December forecast the overall UAE economy would grow by 3.1 percent this year, after an estimated 3.9 percent in 2011.
HSBC’s latest purchasing managers’ survey for the UAE, based on a survey of 400 private sector firms, found growth in business activity in the non-oil private sector slipped to a four-month low in December as expansion of output and new orders eased and employment stagnated.
With the euro zone debt crisis still unresolved, companies and consumers in the Gulf, like elsewhere, have been subjected for months to a drumbeat of negative news from Europe. Banks from Europe have been pulling out of business in the Gulf to strengthen their balance sheets back home.
The threat of an international conflict over Iran’s disputed nuclear program may also start to worry consumers. Dubai residents have lived with the issue for years and many have learned to ignore it, but with Iran just 150 kilometers (100 miles) across the Gulf, it could become a factor in spending decisions.
Dubai is vulnerable to any slowdown in wholesale and retail trade because those sectors contributed around 30 percent of the emirate’s 2010 GDP, data from the Dubai Statistics Center showed, higher than in many other cities worldwide. Dubai’s GDP accounts for about 28 percent of the UAE’s economy.
“In 2012 we will see a lot of cuts globally in the tourism sector, which will affect consumer spending in Dubai,” said Mahdi Mattar, chief economist at CAPM Investment in Dubai. “There will definitely be an impact in 2012 on the real GDP growth of Dubai due to the global slowdown.”