Holders of Gulf franchises for major UK stores are likely to be studying the fine print of their agreements as British high-street names go into freefall amid a global slump in consumer spending.
World-famous names such as Marks & Spencer, clothing retailer Next and department store Debenhams have all reported a significant slide in sales in Europe despite the crucial Christmas period.
This came just weeks after the retail sector was shocked by the end of Woolworths after 99 years of trading, and the fall of children's clothing store Adams.
Tea-and-coffee retailer Whittard of Chelsea was last month bailed out at the 11th hour by a private firm. Music retailer Zavvi, formed in a management buyout of Virgin Megastores, went into receivership on Christmas Eve.
With the exception of Zavvi, all have franchised outlets in the UAE. Now, there is a fear that a failure of a big-name brand in the UK could pull under its namesake in the UAE.
But, according to experts, the devil is in the detail – and the terms of individual licence agreements will hold the key should the worst happen, with many local companies in a strong position to resist any problems.
In the UAE, the likes of Al Futtaim, Alshaya, Al Safeer and Al Madani – large groups that have brought Marks & Spencer, Debenhams, Next and Mothercare to the malls – will be reviewing their contracts. As one executive from the Alshaya Group said: "If one of our UK brands collapsed, then the stock would dry up and we would have to close the store."
The Alshaya Group, which operates stores under its MH Alshaya subsidiary, has franchises for Next, Warehouse, Debenhams, Boots, Mothercare and Topshop, among others. At the moment, conglomerates like Alshaya are afforded some protection from the gloomy sales results in the UK due to the nature of their franchises.
Jonathan De Mello, Director of Retail Consultancy at Experian, said: "If it's a franchised business in the UAE, then the extent of the local partnership will determine how much trouble if any of the company could be in.
"Franchised businesses in the UAE will be more insulated from the crisis as the local partner can help them to continue to trade."
De Mello said 1,600 retailers may go bust in the UK – many of them stores in small towns. Overall, the store vacancy rate will rise to 10 per cent by next month, from seven per cent today, before soaring to a record 15 per cent by the year's end.
Although every franchise agreement is drawn up differently, it can be the case that a UK brand in Mall of the Emirates has the freedom to function as a separate entity – only paying royalties and the price of goods to the parent in London, and honouring a profit-sharing deal.
Royal Sporting House, a Singapore retail brand-distributor that is 75 per cent owned by Emaar, operates high-end clothing retailer Ted Baker in the UAE. David Reilly, the company's CEO for the Middle East, said it had side-stepped any fallout from the UK.
"Ted Baker has performed very well here and is well insulated from the goings-on in the UK retail market because we get our products directly from the manufacturers," he said.
Eisa Ibrahim, General Manager of BurJuman and Chairman of Dubai Shopping Malls Group, said retail groups would be studying franchise arrangements with their UK counterparts, as the threat of more stores failing becomes a reality.
"The franchise agreement is an intensive legal document between both parties," he said. "Possible insolvency in the UK is an issue both [parties] will be dealing with very carefully at the moment. The worst that can happen is the discontinuing of branded products from the manufacturer.
"Dubai Shopping Festival will be a real test. Stores will be shifting more stock to their Dubai operations as sales are not good in London, Paris or New York," Ibrahim said.
The demise of Woolworths in the UK prompted many people to question the future existence of the UAE's version of the store. But the management at Woolworths in the Middle East said there was no real link between the two and they were two separate companies running under the same brand name.
The Sharaf Group said Woolworths Middle East was a franchise of a South African brand, and so was safe from destruction.
UAE retail firms holding several UK high street brands in their portfolio should adopt a "wait and see" approach before they take any decisions, said Zayd Maniar, International Liason Partner at advisory firm Horwath Mak. "What's happening in the UK should make companies here more prudent, but it shouldn't necessarily mean there will be redundancies. If something were to happen to the UK brand names then there is an issue of continuity – whether the brand can continue at all," he said.
Who owns what
UK BRAND UAE GROUP
Clarks (shoes) Jashanmal National Co
Next (clothing) Alshaya
Warehouse (clothing) Alshaya
Debenhams (department store) Alshaya
Whittard of Chelsea (tea and coffee) Al Madani
Marks & Spencer (food and clothing) Al Futtaim
Jane Norman (clothing) Al Futtaim
Dorothy Perkins (clothing) Alshaya
Miss Selfridge (clothing) Alshaya
Boots (healthcare) Alshaya
Evans (clothing) Alshaya
Mothercare (baby shop) Alshaya
Topshop (clothing) Alshaya
Peacocks (clothing) Alshaya
Mamas and Papas (baby goods) Al Tayer
Harvey Nichols (department store) Al Tayer
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