There’s no denying it – luxury retail products and services are being forced off the Dubai shopping centre stage as consumers look elsewhere for better deals and bargains.

The fall of retail spending – especially in the luxury segment – could just be the tip of the iceberg. It is hard to forecast how long – and how hard – the global economic downturn will continue to hit consumer retail spending in Dubai.

The retail sector accounts for a third of the emirate’s gross domestic product.

More than 40 Dubai malls stock everything from cheap Chinese imports to designer goods: their extravagant features are designed to lure tourists who account for a significant chunk of business.

But as the global downturn caps consumer spending from Britain to India, retail is slowing markedly – and painfully.

'This year will be the litmus test for retailers in the region,' said Neil Tunbridge, head of retail services at Dubai-based consultancy GRMC Advisory Services. 
'They will just be trying to get through the year with their operating systems intact.'

Thilo Ahrend, a German tourist passing through on a stopover from the Maldives, said: 'I have to wait until I know how this financial crisis is going to affect me.'

'But I think if I came to Dubai just to shop, I would stop coming and just stay at home.'

The summer months -- when fewer Western tourists visit the emirate to avoid stifling heat and unemployed white-collar expatriates are likely to pull their children out of schools to head home -- will be especially tough, analysts say.

Dubai lacks the oil revenues of neighbouring Abu Dhabi, the main contributor to the federal budget.

Mohidin Bin Hendi, president of retail conglomerate Bin Hendi Enterprises, which distributes luxury brands such as Brioni and Calvin Klein, said February sales for luxury products were down between 25 and 30 per cent from a year ago.

'There are still people buying but they are being careful not to spend their money,' said Bin Hendi, who depends for about 60 per cent of his business on tourists, particularly from Russia and neighbouring countries.

'They have started spending wisely, not lavishly,' he added.

His group, which operates in India as well as the Gulf Arab region, has significantly cut its growth forecast for this year.

'Estimated growth for 2009 was between 35 and 40 per cent, which was humongous.

Now it's somewhere normal at between 5 and 10 per cent,' he said.

Retail magnet

Dubai's transformation from desert backwater to commercial hub has attracted retailers from around the world, including Spain's Inditex, owner of fashion chain Zara, British luxury retailer Harvey Nichols and Italian designer brand Fendi.

This spurred a real estate boom in the emirate that saw retail space increase at a dizzying rate. In 2008, leasable mall space rose 28 per cent to 21.4 million square feet, according to a study by real estate services firm Jones Lang Lasalle.

By the end of this year, that is expected to rise to 30 million sq ft, said the study, published in February.

But after years of rampant expansion, plans to expand existing malls or build new ones are being put on hold. Nakheel, the government-owned developer of Dubai's palm-shaped islands, said in March it was delaying its $3 billion mall expansion plans.

This led Australia's largest department store, Myer Ltd, to put planned expansion into the emirate on hold: its new outlets would have been sited in Nahkeel's new malls.

The global slowdown has prompted a strategic rethink.

The emirate's annual shopping festival, which was first held in 1996 and draws tourists from around the world with a month of discounts, had its budget cut and shifted focus towards attracting visitors from neighbourin