UAE outlets for some of the world's best-known shopping chains are marking up prices by 70 per cent or more.
Chain stores defend big mark-ups on imports
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The price is stated in dirhams, but the sales tag also shows the retail price in other parts of the world. And for the UAE consumer the markup can be considerable. An investigation by The National shows that local outlets for some of the world's best-known shopping chains are marking up prices by 70 per cent or more. The evidence is hanging from the items themselves: the original price in the currency of origin and the local cost. Among the worst examples were a pair of girl's jeans with a 78 per cent mark up, a photo frame with a 70 per cent mark up and a birthday card that was more than twice the original cost.
Store owners defend the high prices, citing transportation costs and excessive rents and the need to balance discounted items. But some analysts believe they have gone too far. Others say it is a simple matter of supply and demand. Naeem Ghafoor, the chief executive of Skyline Retail Services consultancy in Dubai, said while import charges might be seen as an added expense, retailers in the UAE are exempt from the taxes applied in many parts of Europe and North America and enjoy lower labour costs.
"There's no problem with charging more money, but it's how much more you charge," he said. "In my opinion, prices that are 10 to 15 per cent more expensive are acceptable. If you are over that you are ripping off the public." Examples included a lamp at Debenhams in Dubai that was tagged at £18 (Dh106), but marked up to Dh150, a 42 per cent increase. A birthday card at Gulf Greetings in Dubai was labelled at US$1.99 (Dh7.30), but sold for Dh15, more than double the local price.
A pair of men's leather shoes at Marks & Spencer in Dubai was labelled £59.50 (Dh352) but sold for Dh450, a 28 per cent markup, while a frozen pack of Iceland cod fish cakes at Lulu Hypermarket in Abu Dhabi labelled at £1 (Dh5.90) sold for Dh10. Even so, Mohammed al Shihi, the director general of the Ministry of Economy, said market competition in the UAE kept retail prices in check. He attributed price disparities to additional costs of doing business in the Emirates and fluctuating currency exchange rates.
"This is under market control, and people can choose between different varieties here," he said. Mr Ghafoor agreed the shifting currency exchange rate could be a factor because retailers paid for stock orders as much as a year in advance, making it difficult for retail prices to reflect the latest currency values. However, there was still an unusually large gap in prices between countries for certain products.
Because the dirham is pegged to the US dollar, the exchange rates between the two currencies are stable. Yet, a Hallmark family photo album tagged at $20 (Dh73.40) for US consumers was sold at Gulf Greetings in Dubai for Dh125, a 70 per cent markup. Even if using the highest exchange rate in the past year - Dh7.35 for every pound sterling in July 2008 - a pair of girls' jeans at Tammy in Dubai labelled at £16 should cost no more than Dh117.60. At current rates, it would be only Dh95. Yet, the jeans were recently priced at Dh169, a 78 per cent markup, although they have since been reduced to Dh126 in a storewide sale.
Ian Johnson, Hallmark's marketing representative for the Middle East, said retail prices were set by the local retailer based on several factors, with "rent being the most significant". Mall rents, he said, exceeded "those comparable in the US by a significant factor". He also attributed the price difference to air-freight costs. Shailesh Mehta, the brand manager for BHS and Tammy in Abu Dhabi, also cited freight, duties and high rent as factors driving prices higher than they would be overseas.
"Whatever the customer pays over there, we can never get that," Mr Mehta said. "In some cases you will lose, in some cases you will win. You can never get the equation right." Mark Morris Jones, the senior director for retail and industrial property in the Middle East and North Africa with CB Richard Ellis, discounted the influence of high rents, maintaining that the cost of prime retail real estate in the UAE was far cheaper than the best shopping districts in London.
"Like for like, the best retail pitch in the UAE would be on par with a reasonably sized provincial city in the UK," he said. Mr Mehta said prices were based on what the market would bear. In some cases the company will take a loss because the customer expects to pay low, he said. In other cases, it can charge more. "We apply different prices where we can fetch that price," he said. "When we lose somewhere, we have to make it somewhere."
Robert Ziegler, the vice president of AT Kearney management consultancy in Dubai, said consumer goods should cost less in the UAE because of the absence of a sales tax and the UAE's low import tariffs. At the same time, he pointed out consumers still had a choice not to buy from retailers with high markups. "If they can get higher prices in the UAE for the same product, then that is fair," he said of the retailers. "It may not seem fair for the consumer, but the buying power in the UAE is much higher than anywhere else."
Nandakumar, the corporate communication manager at Emke Group, which runs LuLu Hypermarkets, said local food retailers could not offer prices similar to those in which the goods were produced. In addition to import costs, he said, food must be shipped, cleared, labelled in Arabic and English, certified according to UAE regulations, all of which add costs. "We are importing this for a niche market," he said. "These are not essential products. The person is aware they're paying a slight premium because there is a lot involved in getting the product here." Natasha Tulsi, the marketing manager for Marks & Spencer in the Gulf with the local franchise holder Al Futtaim, said it was impossible to charge the same prices in the UAE as in the UK because the company did not have the same profit margins. Al Futtaim must pay more for products from Marks & Spencer as a franchisee, than what it cost to bring stock to stores in the UK, she said.
But Ms Tulsi said Marks & Spencer in the UAE had saved money with the falling sterling exchange rate and had permanently cut its retail prices by 10 to 40 per cent to pass on the savings to the customer. "It's very important for the brands at the end of the day to answer to the customers," she said. "If you're not true to them, it's failing customer service and lowering the brand value." Even with the added expenses, prices should be no more than 20 per cent higher than elsewhere, she said.
But Tamara Keenan, a 33-year-old teacher who lives in Abu Dhabi, said she found that many branded items were much more expensive in the UAE. Even on sale, the prices are just on par with what she pays overseas. email@example.com