Dubai’s Majid al Futtaim Properties has built its successful City Centre brand on a clear vision and sound financial foundations, and is now planning the next stage of its expansion strategy, says chief executive Peter Walichnowski
AS DUBAI emerged as a commercial and economic powerhouse in the 1990s, the vision for the city was beginning to take shape.
The urban landscape was being transformed, creating massive new commercial opportunities.
Majid al Futtaim, a highly successful entrepreneur and real estate developer, recognised in particular a retail opportunity. His intention was to create a concept which would serve the city’s unique and evolving urban environment and structure. Believing Dubai lacked a modern commercial heart, he decided to create one, and in 1995 delivered the first step in his vision.
Majid al Futtaim Properties, which manages shopping malls, hotels and mixed use developments, has not looked back since opening the first City Centre-branded mall in Deira, in downtown Dubai, in that year. While malls were nothing new in the already-commercialised city, the new mall offered a welcome new lifestyle dimension for the its increasingly demanding and discerning residents and tourist visitors.
The idea caught on, and not just in Dubai, where Majid al Futtaim Properties, part of Majid al Futtaim Holding, currently has three City Centre-branded malls. There are 10 malls in the portfolio, with a combined gross leasable area of almost one million square metres stretching across the UAE, the Gulf Co-operation Council (GCC) and Egypt. In total, its malls attract an annual footfall of more than 135 million, according to official figures.
“Majid al Futtaim Properties aims to double its number of malls over the next five to seven years, mostly in the MENA region, which will account for about 80 per cent of our business,” says Peter Walichnowski, the Company’s chief executive, tells The Gulf.
Australian Walichnowski is no stranger to high profile retail development, having served as chief executive of the massive Bluewater Shopping Centre in the UK, one of Europe’s largest malls.
Having accepted the challenge to drive Majid al Futtaim Properties’ retail ambitions in the mid-2000s, he has witnessed first hand the city’s real estate difficulties at the back end of the decade, though he is quick to point out that the Company’s diversified focus on retail, hotels and mixed-use developments saw it comfortably dodge the downturn bullet.
“We were here a long time before the bust in Dubai,” he counters, referring to Majid al Futtaim Properties’ heritage in its home market stretching back to 1992. We speak in his office, which overlooks Deira City Centre, the shopping mall where, arguably, the Company’s success story really took off.
“Shopping malls represent 80 per cent of the Company’s business,” he explains. “They are what we continue to build our brand reputation on and where we invest most of our capital,” Walichnowski explains.
Despite a difficult global economic climate and against a background of political and social discontent in ?some MENA markets, Walichnowski nevertheless believes the region’s potential outweighs the risks, and ?that despite the common perception ?the region as a whole is not saturated with shopping malls.
“The region has a lot of upside in terms of shopping malls, and not just the big ‘smoker’ regional destination malls like Mall of the Emirates,” he says, while clarifying that there is ‘no one size fits all ‘solution : “What works in Dubai may well not work in other cities,” he points out.
In keeping with its steady and sustainable business philosophy, Majid al Futtaim Properties is taking a pragmatic approach to future mall development, looking at both large projects as well as smaller developments, which promise healthy returns in shorter timeframes.
Buoyed by a 21 per cent year-on-year increase in revenue in 2011 to Dhs2.8 billion ($762 million), not to mention a recent $2 billion sukuk bond programme in London, the Company is, says Walichnowski, comfortably placed to fund future asset building ambitions in a capital intensive business.
“We are conservatively geared and not over-leveraged. Banks like customers like us. But we are careful how we spend our money,” he says.
Investments will, he notes, be made in proven as well as lesser known markets. According to Walichnowski, ‘several malls’ are on the cards in Saudi Arabia over the next five years as the Company makes its debut in the region’s largest economy.
Egypt, still in the throes of political turmoil and where Majid al Futtaim Properties currently has two malls and a third on the cards, is also earmarked as a strategic growth market, even though last year’s overthrow of the former president delayed the final go-ahead for its massive Mall of Egypt project.
“Recent events have not altered our long-term strategy in Egypt. We can easily double our presence there over the long-term. Democratisation can only help middle and working classes, our typical customer base,” Walichnowski says, adding that he hopes to receive approval for the Mall of Egypt “in the next few months.”
Majid al Futtaim Properties is also following some of its franchise partners into less familiar territories. It is currently putting the finishing touches to a project in Azerbaijan, in conjunction with hypermarket partner Carrefour, which will be the Company’s first non-MENA project.
“The master developer of a new urban development in [Azeri capital] Baku travelled the world to look for prospective partners, but told us Majid al Futtaim Properties captured the essence of what they wanted to achieve with their project,” Walichnowski explains. It is not unusual for the Dubai company to be approached in this way, he adds.
“Nine times out of ten we are approached for new projects, either from governments who want to sponsor a mall, from private individuals with land, or master developers building residential, hotels and offices but who lack expertise in shopping malls,” he says.
“We can normally judge very quickly on a macro level if we want to pursue the opportunity and if so, we’ll assign a team to it.”
That team is part of a 800-strong workforce Walichnowski describes as having the requisite expertise to identify, develop, design and build shopping malls. He says, proudly, that the Company needs to outsource just a few specialist skills to do so.
“City Centre is the Middle East’s most recognised mall brand,” he remarks. “But exporting the Majid al Futtaim DNA from Dubai to other countries and adapting it accordingly, whether in terms of quality standards or intellectual capital, is an ongoing challenge, and requires people with the right DNA to enable us to achieve our overseas goals.
“We must also strike a balance between the size of our organisation, its skillsets and capital base, which determine how many projects we can execute simultaneously,” he explains.
Walichnowski acknowledges that Majid al Futtaim Properties is more than just about the ‘wow’ factor such as Dubai’s Mall of the Emirates. The Company is, he says, also looking further down the retail hierarchy at smaller community malls, such as the 34,000 sq m Fujairah City Centre, due for completion next month.
Such flexibility to adapt scale and product to local conditions is essential, Walichnowski notes.
Nowhere has this been more evident than in its decision to integrate shopping malls with hotels and leisure facilities, starting with Deira City Centre in 1995. As a concept it wasn’t new – more mature markets in Europe and North America had long embraced the idea – but in 1990s Dubai, with an rapid influx of residents and tourists looking for a shopping, entertainment and accommodation destination under one roof, it was a sure starter. To date there are a total of nine hotels under five international brands, including Kempinski and Accor brands attached to Majid al Futtaim Properties’ malls.
But it was the Mall of the Emirates – completed in 2005 at an estimated cost of $800 million – which best epitomised the strategy, redefining mall theory and taking the ‘integrated destination’ concept to another level.
“We marketed Mall of the Emirates as the world’s first shopping resort, where people could come on holiday and had no reason to leave,” Walichnowski recalls. “The ski slope [Ski Dubai] added a ‘wow’ factor, giving people even more reason to come to Dubai and experience something different.
“You can’t do this in any Middle East city – not all are tourist destinations and there is a hierarchy of needs.”
Walichnowski says despite the clear potential through the retail supply chain, many mall developers in the region lack the long-term vision to replicate the City Centre brand’s impact.
“Most individual developers look at the numbers and want maximum returns from day one. They do not necessarily appreciate the concept of building a mall that can grow over time, and are not prepared to invest in it. Their malls become irrelevant over time,” he remarks.
To underpin its instinct for a new project, Majid al Futtaim Properties undertakes a form of due diligence internally termed ‘Future Proofing’.
“Future Proofing is about asking what we have to do to ensure our malls continually evolve with market needs – perhaps buying more land than we initially need and sitting on it, or building the mall to allow to future expansion or upgrades,” he says.
“That’s the art of retail development – knowing how to have a mall which can evolve over 20 or 30 years without significant re-investment. It involves greater initial capital investment, but pays back handsomely,” he insists.
Corporate social responsibility is also increasingly woven into the art of retail development. Walichnowski points out that the Company’s malls now incorporate the latest designs to minimise energy waste. This, he says, helps reducing operating costs and gives retailers a greater appreciation for the broad-brush approach.
“Retailers know we run malls professionally – this is important because they commit a lot of cash when they expand, and they need a developer who can bring people to the mall,” Walichnowski explains.
In an increasingly fickle consumer world, delivering a mall which ticks the boxes of convenience, cleanliness and quality and variety of shops has never been more paramount, whatever the route taken to achieve it.
Current mall portfolio
Deira City Centre
Size: 115,000 m2 | Completion: 1995
Mall of the Emirates
Size: 233,467 m2 | Completion: 2005
Mirdif City Centre
Size: 196,000 m2 | Completion: 2010
Bahrain City Centre
Size: 150,000 m2 | Completion: 2008
Sharjah City Centre
Size: 37,728 m2 | Completion: 2001
Ajman City Centre
Size: 29,399 m2 | Completion: 1998
Muscat City Centre
Size: 60,484 m2 | Completion: 2001
Qurum City Centre Oman
Size: 20,600 m2 | Completion: 2008
Alexandria City Centre Egypt
Size: 61,039 m2 | Completion: 2003
Maadi City Centre Egypt
Size: 31,281 m2 | Completion: 2002
Fujairah City Centre
Size: 30,000 m2 | Estimated completion: April 2012
Beirut City Centre
Size: 60,000 m2 | Estimated completion: 2012
Mall of Egypt, Cairo
Size: 160,000 m2 | Estimated completion: 2014
Khams Shamat Touristic Development, Damascus, Syria
Size: 1 million m2 | Estimated completion: 2014 (phase 1)