Leading Arab nations have cut their ties to Qatar, whose capital Doha is a major area for retail development.

DUBAI Luxury brands and retailers were scrambling to assess the fallout Monday from the decision by Saudi Arabia, the United Arab Emirates and Bahrain to sever ties with Qatar, accusing the government of supporting terrorism.

Energy-rich Qatar has been left isolated by the measure, which cuts off land, sea and air routes with its powerful regional neighbors in what is considered one of the worst rifts in years in the region.

Qatar’s stock market index sank 7.5 percent Monday in the wake of the news, with some of the market’s top blue chips hardest hit. Questions hover over just how devastating this could be for retail businesses. The UAE is Qatar’s biggest trading partner from the Gulf Cooperation Council countries.

“This is going to have a huge impact,” said one senior retail executive based in Dubai, declining to be identified due to political sensitivities. “Businesses here operate across the region and it’s not clear how we are going to move forward.”

The source cited everything from goods being distributed regionally to stores in Qatar reporting directly to head offices in Dubai. “Will phone connectivity also be cut off soon? This is what we do not know yet.” News channel Al Jazeera, which is owned by the Qatari government, has been blocked in the UAE.

The unknown sent some retailers into overdrive, especially in e-commerce. An executive who runs an e-commerce business said: “We are rushing to ship product out to Qatar immediately, our second-biggest market after the UAE.” Most of the Dubai-based online retailers depend heavily on cross border trade.

Qatar, with the world’s highest per capita GDP, has high spending power, which retailers bank on, especially during what has been a tough year due to the decline in oil prices. Expelling all those potential shoppers, especially ahead of the Eid shopping season, will be hard to swallow.

The impact of Qatar’s isolation remains to be seen in Europe. “It very much depends on the next steps – and if the measures by neighboring countries are also adopted by the West,” said Luca Solca, managing director at Exane BNP Paribas. “If this was the case, and if this came with sanctions, then it would be a negative for luxury goods for sure.”

Europe – and the U.K. in particular – has always been a hotspot for Middle Eastern spending and investment, and the post–Brexit referendum weaker pound has only fueled those fires.

Since 2005, in the U.K. alone, the Qatar Investment Authority and its related businesses have invested around 30 billion pounds, or $40 billion, in retail, such as Harrods; commercial property such as the hotels Claridges and the Connaught, and residential property. The QIA also owns the site of the U.S. Embassy in Grosvenor Square, which will soon be converted into luxury flats when the embassy moves to south London.

Reached on Monday, Qatar Investment Authority declined to comment on the diplomatic rift.

The Qatar-based fund Mayhoola for Investments, which is run by the Qatari royal family, is also heavily invested in luxury fashion and retail in Europe. In 2016, the fund acquired Balmain for an undisclosed amount. It also owns Valentino; has a 38 percent stake in the London-based accessories brand Anya Hindmarch; 11.3 percent of Tiffany & Co.; and a controlling stake in the French department store Printemps.

An industry executive who has worked extensively in the region expressed doubts that the move would seriously impact luxury brands. Western consumers aren’t that focused on the political moves in the region, while Qataris do much of their shopping within Qatar and not in other Arab countries, said the executive, who requested anonymity. As for U.S. and European luxury consumers, “I am not sure how much they take their lead from those countries” that have implemented the ban, he added.

Still, the rift is likely to have significant impact on Qataris traveling in the area. Abu Dhabi’s state-owned Etihad Airways, Dubai’s Emirates Airline and budget carrier Flydubai said they would suspend all flights to and from Doha on Tuesday morning until further notice. Qatari nationals have been banned from entering the UAE and any Qatari residents or visitors currently in the country have been expelled. Emirati nationals are also banned from traveling to or even transiting through Qatar.

This rift also threatens Qatar’s position on the global stage just as it is ramping up to become a global tourism destination ahead of hosting the 2022 World Cup. The World Cup is the centerpiece of a carefully crafted strategy to project Qatar as a safe destination for travel, similar to Dubai. Qatar Airways has led that by positioning the country to be a major hub for international connecting flights. Now Qatar Airways will no longer be allowed to use the expansive airspace of Saudi Arabia on flights to Europe and North America, which will affect business.

But the ramifications on the country’s image for safety will be difficult to overcome.

Several major real estate projects have been under development in Doha, with more than 14 million square feet of retail space in the pipeline for delivery by 2019.

In addition, several Qatari companies have interests across the region, including the Al Manna Group, which operates Hermès stores in the area and has regional offices in Dubai.

Some Dubai-based retailers are hoping tensions may ease if Qatar publicly takes a harder stance against Iran and Islamic Groups such as the Muslim Brotherhood. Last week, Qatari Emir Tamim bin Hamad Al Thani upset the Saudis when he called Iranian President Hassan Rouhani with congratulations on his reelection. Today, however, the government of Qatar showed no inclination to backtrack. Qatar’s Ministry of Foreign Affairs called the isolationist measures unjustified and “based on baseless and unfounded allegations.”

 

 

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