The UAE enjoys a world class shopping but are customers in the country paying more than overseas?
Does it really cost us over the odds to shop in the UAE?
With the attention of sports fans still on the 2010 Winter Olympics in Vancouver, the dearth of UAE contestants is unsurprising. The combined ingredients of sun, sand and sea do not add up to the best recipe for winter Olympiads. But there's no need for low spirits, for there is another type of sport at which residents of the Emirates excel: shopping. The malls are immaculate, the breadth of brands breathtaking and the shopping participants display an uncanny knowledge, technical ability and style. But, despite this excellence, there's a niggling concern, especially for those of us who spend a lot of time outside the UAE: are we shopping on a level playing field?
Shopping might be a big part of the culture here, but it can often feel as though we are overpaying, compared with elsewhere in the world. This could, in part, be dismissed as an exchange-rate issue. But even taking that into account, an MP3 player or designer handbag can appear substantially more expensive here than elsewhere. Keen to play fair, we researched how much a selection of items cost in New York, London, Hong Kong and various stores in the UAE. A glance at the table, below, will show you how prices can vary internationally - and not just for shoppers in the UAE.
"I understand why cosmopolitan shoppers get suspicious when they see an international brand selling the same item for very different prices as they travel to from one country to another," says Robb Young, a strategic consultant for the luxury industry and fashion-business journalist for the International Herald Tribune. "But many of the factors contributing to price disparities are actually beyond the brand's control. A lot of it has to do with far bigger issues, like geopolitics, bilateral trade conventions and constraints set by national governments."
It is true that some countries, particularly emerging markets across Asia and Latin America, have placed luxury goods in a very high tax bracket, with sometimes as much as 30 or 40 per cent added to the price tag. But in the case of the UAE, the big draw for many individuals and companies is its open and free economy - including (famously) low or non-existent import duties. Patrick Chalhoub is joint chief executive of the Chalhoub Group, which handles the wholesale and retail distribution of many of the world's top luxury brands within the GCC, including Louis Vuitton, Fendi and Saks Fifth Avenue. He says that although his company is not required to pay tax when importing from the group's 280 brands to its Dubai warehouse, other practical costs need to be incorporated into the retail price.
"There's the need to provide Arabic labelling on all products," he explains. The climate is also a big factor: "With two seasons and temperatures sometimes reaching 50C, the air conditioning in our warehouse is a must-have, and this requires a lot of energy." These issues, as well as freight costs to get a product to Abu Dhabi, naturally affect price. And there are other factors. "Marketing costs are typically higher in new markets, too, because the brand is still comparatively unfamiliar to local consumers," suggests Young. "Brands can spend a phenomenal amount of money putting a footprint down in a new market during the first few years and all this has to be paid for somehow."
Chalhoub agrees that taking a US or European brand and making it meet the varying needs of GCC countries provides challenges. "Selective buying appropriate to the region is another requirement and tailored marketing campaigns for the Middle East that boost our brands' credentials while respecting local sensibilities can be challenging too - as well as finding the best locations in the best malls."
Dan Farmer, the Middle East manager at the global management consultancy AT Kearney, thinks that the cost of building recognition should not be emphasised too much. "Creating brand recognition in the Middle East is not difficult, as there is an existing preference for globally recognised luxury brands," he says. The figures show that these often cost more in the UAE - and in some cases it's a significant jump. Frequently, the most recognisable brands show the most variation in price - for example, the Ralph Lauren polo shirt, which is 40 per cent more in a Dubai shop than in a New York store. (In an email, Ralph Lauren's press office said: "Our UAE prices are consistent with our EU prices. Across the board in our sector EU prices are generally higher than US prices for various reasons, ie higher social costs, etc. You should also take US sales tax into consideration, which further explains some of the difference.")
Farmer believes that some brands are tempted to take advantage of the unique shopping environment that the UAE provides: "Luxury brands have strong pricing power in the Middle East region due to limited competition and a strong consumer base." The fact that few products are available online to the UAE makes it even harder to shop around for a good deal. He points to expatriate professionals as prime targets: "Good incomes and tax benefits also create significant disposable income and provide an opportunity for these consumers to purchase luxury goods more readily than in their home countries."
But Farmer concedes this is not the full story: "The need for a local partner must be considered," he points out. When a brand opens up shop in a new market, it usually gets a local partner to invest in joint ventures or franchise partnerships to spread the risks for the first few years, and in the UAE it is a legal requirement. This is yet another necessary cost that ends up on the in-store price tag, explains Young. "The brand typically takes a significantly lower share of the profits; this in turn means the price can rise to compensate the local partner's investment."
In short, it seems there's no single reason why the same lipstick, iPod or designer bag changes price according to where it's sold. The answer is more complex than simply a matter of greedy retailers. Instead there are numerous issues, often (although not always) beyond a brand's control. A quick glance at the table shows that brands are cheapest in their home countries - not surprising, given all the factors that affect price as soon as they cross the border.
But it's not just the in-store cost. Enter a store of many brands and your experience can be radically different according to where you are. Oddly, this applies more to fashion outlets than electronics retailers. When comparing prices for this report, in certain cases it was impossible to find exactly the same fashion product sold across stores in different countries. For instance, Marks & Spencer's UK stores include many more fashion and youth-oriented pieces, compared with its counterparts in the UAE or Hong Kong, which tend to concentrate on the mature shopper.
This chameleon behaviour can feel slightly misleading to international shoppers. Luxury-brand boutiques in Abu Dhabi can often focus on accessories with barely a dress to be seen. Farmer believes that a big problem for brands in the UAE is meeting the demands of its diversity. He says that distinct types of shopper coexist in the UAE and that makes it hard to please everyone all the time. "The three unique segments that dominate consumer demand are the local nationals, expatriate professionals and tourists - these segments can offer significant opportunities and challenges for luxury goods providers."
A "please everyone" approach runs the risk of blandness. "Maintaining a consistent brand identity across such divergent markets around the world is becoming a pain for brands today," Young agrees. "Each brand has to look at itself in the mirror and come up with a list of non-negotiables that define its identity." Chalhoub says that pleasing the UAE shopper can feel like the business equivalent of walking a tightrope: "Striking the balance so that the brand continues to live up to its universal appeal is a must," he says of bringing Saks to the UAE. "We aim to understand our customers and the lifestyles that they lead - although it is our role to introduce them to new and upcoming brands."
So are we shopping on a level playing field? When it comes to what we can buy and what we pay, probably not. In this complex and ever-changing retail landscape, it's difficult to tell who is winning and who is losing. Yes, a Scott bike costs more than in New York, London or Hong Kong, but a Philippe Starck Louis Ghost chair from Kartell was among the cheapest in the Dubai store. When it comes to buying from an international brand, it's always worth doing your homework - especially if you travel a lot. And anyway, it's always good to have an excuse for a New York shopping trip.