Retailers in the Gulf will need to "reimagine their current strategies" if they are to remain relevant in an increasingly competitive market, with customers switching spending online and mall owners facing greater competition, according to a new report.
“The combination of the global pandemic, technology-driven advancements and supply-driven challenges can leave GCC retailers with great uncertainty in respect of their future positioning,” the paper from CBRE and Roland Berger said.
“Moving forward, retailers will have to reimagine their current strategies not only to keep them relevant in today’s retail sector, but also to anticipate the future of the industry and ensure long-term success," said Johannes Distler, a partner at Roland Berger.
Prior to the outbreak of the pandemic, the retail sector in the GCC showed strong growth, with fashion and beauty sales in the region projected to grow by $6 billion (Dh22bn) between 2020 and 2023, reaching a market size of $16bn in 2023. However, the sector is also facing challenges due to the high density levels of retail space and the growth in e-commerce.
The Covid-19 pandemic is the greatest challenge facing the world economy, which has slid into a recession that is expected to be the worst since the Great Depression, according to the International Monetary Fund.
A number of retail giants across the world are reporting losses in the wake of movement restrictions imposed by the governments to contain the spread of the virus. Famous brands have also been forced to file for bankruptcy in the US including Brooks Brothers, JC Penney, J Crew, Neiman Marcus, Muji USA, Luck Brand, nutritional supplement seller GNC and others.
The outbreak has led to “a widespread spending freeze and dramatic changes in consumer behaviour”, according to the report.
This included a rapid shift to online retail, meaning retailers need to embrace technology and integrate artificial intelligence into their operations, it argued.
The pandemic also means new trends including contactless check-out being expedited across the GCC due to social distancing measures.
“The region may not yet be ready for 'Just Walk Out' technology [pioneered by Amazon stores in the US] but it is beginning to see an uptake in RFID [Radio frequency identification] tags, eg. in Zara Dubai Mall. In a post-Covid-19 world where social distancing may become the norm for the near-term future, we expect to see further uptake of this technology," the report said.
Another challenge will be in making sure they choose successful sites as the amount of space on offer increases. Dubai and Abu Dhabi already have among the highest density rates of retail space per capita in the world.
As of the end of 2019, total organised retail stock in Dubai was estimated at almost 5 million sq m of Gross Leasable Area (GLA), up 11 per cent from the previous year. The city’s retail area is expected to increase by almost 40 per cent to 6.9 million sq m by 2023.
In Abu Dhabi, the growth in retail supply has softened over the past 5 years, averaging 1.8 per cent growth over the period 2015 – 2019. In 2019, the city registered a total of 2.8 million sq m of GLA and retail space is expected to grow 28 per cent by 2023.
Riyadh’s retail market is also expected to witness considerable supply growth, equating to 600,000 sq m of GLA, or an increase of 20 per cent of existing retail stock, to 3.5 million sq m by 2023.
“Regional malls are expected to form a major portion of new supply, representing an impressive 70 per cent of the total quality retail supply under construction. These large deliveries are likely to place downward pressure on overall performance levels," the report said.
"However, with the focus currently placed on large-scale retail malls, smaller neighbourhood and community developments are likely to be well-received, as they cater to more niche markets and captive populations seeking convenience and daily retail solutions.”