City of Gold hit hard by global meltdown

February 02, 2009

Commodity Online
DUBAI: Is the much talked about Dubai Duty Free, which has set an example for world retail market, under threat from the global recession. The global market meltdown is all set to hit the sales of Dubai Duty Free also. This, even as the Dubai Shopping Festival is witnessing a slump in sales due to the economic crisis, year may be one year which will show some fall in the Dubai Duty Free, which was set up in 1983.

25-year-old Dubai Duty Free is one of the biggest brands in the world. By the beginning of last December, sales for the year had passed the $1 billion mark for the first time, and transactions were at 60,000 a day.

An indication of the wealth of the company —  which recently moved into a new head office and distribution centre at Ramoul — is that it has created more than 90 millionaires and launches a promotion every time it starts a new operation. It is currently running a draw in which one person will win $5 million. It is also a major sports sponsor.

But, things may not be that hanky-dory this year. Property prices in Dubai are falling, and it may fall by 80 per cent in the next few years. Shares in property firms are also falling and developers are laying people off.

Gold sales in Dubai's traditional jewellery market have collapsed as much as 70 percent in the last one month as the credit crunch hits the pockets of tourists. Gold sales in Dubai, the heart of gold trade in the Middle East, have become very much dependent on tourist flow as gold's big surge in recent past has weakened domestic demand.

Since everyone else has been trying to copy Dubai, it is unclear how economic policy should be reshaped if the model has to be rescued.

Real estate would not be as busy as it used to be. People are not purchasing plans the way they used to. Banks are also changing their policies with regard to lending. Most banks used to lend 90 per cent of the mortgage price, but that has now been reduced to 70 per cent. For the present, Dubai seems to be better protected than other countries.

However, Dubai Duty Free is predicting a slowdown in sales this year. Sales figures to last September were up 27 per cent on the previous 12 months, but budget forecasts are projecting a 15 per cent increase in sales next year.

The biggest airport in the world — Al Maktoum International — is also under construction and will eventually be capable of catering for up to 140 million passengers a year.

The first phase is to open next year. Initially, Dubai Duty Free will have 4,000 square metres of space in the new airport, and this will increase to 65,000 square metres over the next 15 years.

Plans for this year include bedding down the new Terminal 3 and ensuring that a target of a 15 per cent increase in passengers is met.

It seems enticing customers is a good way to go during the time of recession. The World Gold Council is linking up with retailer Damas to give away 20 kg of gold in a retail promotion during the Dubai Shopping Festival, which ends on February 15. Pure Gold Jewellers, meanwhile, is offering discounts of up to 50 per cent on its diamond collection.

The Dubai Shopping Festival has also witnessed a fall in footfalls due to the recession. So, companies will have to take drastic steps to woo back the customers. So, they can expect more prices cuts and better quality soon. Finally, customer is the KING.

The World Gold Council (WGC) is one of the participants of the ongoing mega Jan 15-Feb 15 Dubai Shopping Festival. WGC’s promotion of gold in Middles East during this festival every year has earned Dubai the ubiquitous name ‘City of Gold.’

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