#90: Where is Consumerism heading to in the Middle East?

In ancient times, the Ides of March signified a time for celebration. Not this March however.

Unless you were living under a rock, no matter where you hail from, no one has been immune to the fast changing times. 

Yes - I am talking about the so called new world since the onset of COVID-19.

Some countries are coming out of the lockdown at the time of writing this article but as life limps back to normal, the fact remains that we will never be really normal.

2020 is the lost decade and you don’t have to look very far to notice that. 

As Harry Truman famously said, “ It’s a recession is when you're neighbour loses his job; a depression when you lose yours.

Well this time it’s hit us all very close to home. All the wealth created by consumerism over several decades have been washed away in a couple of months.

Retail, hospitality and the aviation industry that employs 100’s of millions worldwide has been the hardest hit! While this fall from grace has been sobering, the fact remains that the climb back out of this hole will take years to fill.

"We have all become materialistic and if there is one learning we can take from this pandemic is that we can do a lot more with less"

This is a learning process and with it comes new shopping behaviours, lesser discretionary spending and ultimately slower growth.

All those Head Honchos of large Corporations will have to get used to smaller bonuses, less flashier cars and make their work actually count!

Current status of the United Arab Emirates:

The UAE has one of the highest COVID testing rates per million as a population worldwide. This is truly admirable period.

Dubai’s model has been built on the triumvirate of aviation, retail and hospitality. Sadly these are the sectors that remain the hardest hit by this pandemic. 

At a broad level, scores of expats (approx 1 Million) are estimated to leave the Emirates. This is by far the largest peace time repatriation since WW2.

Aviation: The flagship airlines of Emirates & Etihad are in the process of letting go of at least 60,000 employees combined comprising of pilots, cabin crew and ground staff. Besides this there has been an extension of pay cuts implemented for the remaining workforce. Lately the opening of Dubai has been announced with a lot of fanfare but please do not forget to read the fine print before opening a bottle of champagne! Even with Dubai opening its doors to visitors, a lot depends on the origin countries opening their skies. 

With stringent travel norms to adhere too, the risks and the costs of institutional quarantine will be like navigating a minefield. Given all this, which tourist in the right mind would want to turn his/her desert holiday into a nightmare?

Retail: Retailers juggernauts like Chalhoub, Al Shaya, Landmark, Apparel, Al Tayer, Al Futtaim, Sun & Sand Sports etc are all downsizing their workforce besides announcing extended pay cuts to the tune of 30 - 50% across the board. This will all affect discretionary spending as we see the ripple effect across the economy. Vacancy levels are poised to increase in Malls and you can expect more closures, rent defaults and businesses going bust. Tourist driven Malls will suffer the most while neighbour hood Malls where there is organic consumption may be able to hold the fort longer. Having said that profitability rather than size will take precedence.

Across all Malls irrespective of grade, there are already signs of Stores shutting down due to low customer turnout, non payment of rentals etc.

Hospitality: There is a popular joke in Dubai that if you throw a stone it would either fall on a hotel or a mall. This is really no joke!

Hotels occupancy and revenue per room is expected to fall by anywhere between 20-30% with vacancy rates at an all time high. Over proliferation of hotels, malls and dining options have become its own undoing.

This is what happens when vision is married with narcissism, megalomania and a cannot go wrong attitude. We are not God after all!

This era will mark the end of the 'build it and they will come' model.

Current status of Saudi Arabia:

The Saudi economy is shaky and the main reason is that it is built purely on 2 pillars.

Can a building really stand on 2 pillars! Your guess is as good as mine.

Oil & Religious tourism

Oil: With the price of oil reaching some of the lowest levels in the past few months, Saudi is in for a very bumpy ride. Coupled with the oil price war initiated with Russia, the never ending war in Yemen, the Qatar embargo, you would think they have their hands too full to deal with a sinking economy! With oil production down, the price of oil hovering in the low 40's, the Saudis will have to get ready for a protracted period of lower spending.

Religious tourism: What has made matters worse for the country is that the COVID case numbers have been the highest in the Middle East. Malls which where shut for an extended period before and after EID and have only lately just started to reopen.

It will be quite a while before consumer spending gets back to pre COVID levels. A major state revenue generator which has been impacted is the Haj international pilgrimage.

Now to all of this, add the VAT burden being passed on to consumers with it tripling from 5% to 15% eff 1 July.

You truly have a storm in a tea cup!

What changes are you noticing in the Middle East?

Do let me know in the comments below...

In my next article, I will be covering the future of consumerism in India