Why is UAE shopping so expensive when there is no VAT and retail rentals are low?
Posted on 28 November 2011 with 2 comments from readers
UAE retailers must be making huge profit margins because they charge high prices for goods and yet do not have to stump up 20 per cent VAT as in Europe and their rents are way below those of competing global cities. Expatriate shop staff from the Third World are also cheap to employ.
Compare the price of a polo shirt from Lacoste bought this July in Vancouver for precisely one-quarter of the cost of exactly the same shirt in the Ibn Battuta Mall in Dubai. Admittedly it was sale time in Vancouver but even without the sale discount the shirt was 60 per cent cheaper in Western Canada.
Low rentals
It is not as though Dubai retailers have to pay high rents. Property consultants CBRE say prime rents in Dubai are $109 per square foot in the top malls like Dubai Mall and Mall of the Emirates. That does not even make the global top 20. New York’s Fifth Avenue is 17 times more expensive!
Then there is the absence of a sales tax, and that generally adds accounts for 20 per cent of the selling price of goods in Europe and goes straight to the government. Retailers in Western countries also generally face higher staff costs as well as social payments for those staff that do not exist in the UAE.
It’s no wonder the retail sector has grown so fast in the UAE in recent years and is now reckoned to comprise around 25 per cent of GDP. It has become a very profitable sector for the owners.
Recession prospects
Will this gold mine dry up if UAE economic growth starts to falter amid another global economic recession next year? This is by no means certain. UAE retailing has proven very reslient in past recessions and the high profit margins leave plenty of room to absorb a short-term downturn.
In the 2008-9 recession it was the luxury end of the market that bore the brunt of the downturn, the middle-market groups like Landmark kept growing strongly with consumers continuing to buy food, clothes and other more basic items.
Of course there is hope that a global downturn might force UAE shop keepers to become more competitive with global prices, particularly if there are massive bargains to be had elsewhere in the world. It is remarkable at the moment how few global shoppers appear put off by the current high prices.
2 Comments posted by readers:
That Retail prices in UAE are horrendous rip off is no secret.
There was a time 10 years ago when tourists actually used to come to Dubai to shop, Today they go to London if they want to shop as prices even without sale discounts are generally 30% cheaper.
While high unwarranted high mall rents are partially to blame, it’s mostly the retailers who keep crazy markups resulting in poor sales volume leading to unsold stock and losses.
If the morons just priced it right they waould sell most of their stock, generate good sales and be rid of 60-80% of their merchandize versus the 20-50% that they manage to sell now. Call it retailers greed or stupidity, most shoppers have written off Dubai as a shopping destination. The results of this will be clearly apparent in the next couple of years with greedy/stupid retailers and mall owners bearing the brunt of rapidly declining business !!
You are looking at merely part of the picture and what you are seeing is hardly accurate.
Rent: No, it isn’t that low. The numbers you got are the lower end of the bracket and are usually given to tenants acquiring larger plots/spaces. There are lost of costs also that are factored such as deposits, staff cost (some malls charge up to Dhs 500 per employee as a service fee), registration..etc.
Mind you, not any merchant can take space in any of the mainstream malls here in Dubai. It is more complicated than you think.
Labor: Isn’t that cheap either. Payroll is the least of any merchant worries because, like you said, its is low. However, all ‘lower-wage’ staff require accommodation (more rent, maintenance, municipality charges, water, electricity..etc), labor cards, visas, health licences and training (if in food business) and transportation. That isn’t really the case in many other places.
Then you have things that you haven’t factored in that add to the bill:
Cost of capital (funds): Very few businesses are equity financed. Most capitals are financed by loans. Business loans here are crazy expensive – even for UAE nationals. That cost will find its way to the price tag.
Cost of capital (assets): ALL outlets aren’t equipped with any kind of services. So isn’t really a matter of renting a place, buying a few shelves, hire a cashier and start selling? Nope, you build everything from scratch. Interiors, MEP (Mechanical, Electrical and Plumbing), signage ..etc. Not only that, but you’ll have to adhere to dubai municipality regulation and, god forbid, the mall’s. And that of course means more approvals, more fees and more payments.
Then you have gov admin fees. I own a restaurant, do you know how much my trade licence coast per year? Dhs 98,000/- .. just so that i can have a piece of paper that says i can operate a restaurant.. of course i didn’t factor in annual fees for civil defense, waste removal and disposal, minicipal fees, cost of water, gas and electricity and telecommunications..
So please, before you start blaming the merchants, at least have a clue on what it takes to run a business.