UAE retail sector still has room to grow
It does not take a genius to realise that the UAE has a retail landscape unlike most others. Whether it be the destination malls or the lack of spending online, shopping here is billed as a leisure activity rather than a need.
The spending on luxury products is presumed with the spread of luxury offerings. The host of fabulous cars on the roads overpower their peers. Dubai’s Gold & Diamond Park, the Gold Souq in Dubai Mall, the Gold Souq in Festival City, Madinat Zayed Gold Souq in Abu Dhabi and the gold souq, well, in the Gold Souq Deira, Dubai, suggest a lust for lustre. The booming F&B sector underlines our disposable income far above other countries.
Or does it? The facts do not support the assertion, and while we may seem like bling-is-the-thing, most of us would rather mend than spend.
“The per capita value of the retailing industry in the UAE is under US$4,000,” says Nikola Kosutic, a research manager with Euromonitor International. “This is relatively low if compared to Western European or North American levels, $7,000 and $9,000, respectively, which means there is still a lot of room for growth. The retailing industry in UAE will see a 7 per cent average growth rate, with regard to value, over the next five years, which is much higher than in Western Europe and North America at 1 per cent and 2 per cent, respectively.”
This growth is not, however from the high end. It is from the increasing offerings of value and economy products tapping into largest consumer segment of low-income population. Of course, on the other side of the income bracket there are an increasing number of high-income consumers who are willing to spend money on luxury items.
Furthermore, the number of outlets in the UAE is increasing – the opposite of Western Europe and North America, which are experiencing industry consolidation and a reduction in the number of outlets. As the retailing network in the UAE becomes denser, consumers will be able to find a larger number of stores in their proximity, hence they will have more choice and more spending opportunities.
With that is the expected population growth and tourism growth. This year it is estimated that tourist expenditures accounted for 5 per cent of total retailing value, and Euromonitor expects that share to almost double over the next five years. That means the bricks and mortar players will continue to do well.
“Two of the most promising sectors in Dubai have been the retail and hospitality sectors, which have seen rising demand amid increasing visitors to the emirate,” said Matthew Green, the head of research and consultancy for the UAE at CBRE Middle East. “A positive economic outlook and an increase in tourist numbers, combined with a rise in per capita income and changing consumer behaviour, are currently acting as a growth catalyst for the sector. Dubai remains the principal regional draw as an established retail tourism market, which is further reflected by the continuous rise in new brands and in footfall figures reported by the malls.”
While growth is forecast for the destination malls and in the value sector, will online be a winner in the future? Purely digital vendors are able to pass on their lack of rent, staffing and utility bills onto their customers. The sector should be booming, but the virtual world is yet to be loved in this region.
While the e-commerce space may well be a burgeoning area, it still has a long way to go before it competes with the retail spending of the UAE. According to Euromonitor figures, retail sales, excluding grocery stores, amounted to just below $33 billion, this year whereas strictly online retailers accounted for just over $496m. Mobile commerce accounted for just over $122m in annual sales, but that figure is expected to grow10 fold over the next five years to $1.34bn.
“I would argue that e-commerce is about 1 per cent to 2 per cent of total retail in the GCC,” said Omar Kassim, the founder of the online retailer Jadopado. “The merchant ecosystem is still fairly small, and even smaller when you consider the serious merchant ecosystem – my definition of serious being where merchants have invested significant capital into creating and scaling their e-commerce propositions. It’s a handful at the moment. The market’s evolving quickly and that change is going to continue to be disruptive both to existing e-commerce players as well as retailers dipping their toes into e-commerce.”
The UAE’s brick-and-mortar electronics retailers have definitely seen a shift in buying patterns and reacted accordingly. Jumbo launched its own dedicated online channel last month, and Plug Ins in June. Plug Ins has been able to push its smaller brands because of it.
“We’ve seen the emergence and surge of e-commerce become a game-changer in how customers interact with retailers,” said Omar Abushaban, the head of operations for Plug Ins. “Everything from pricing to branding and communications has been impacted by the growth of e-commerce in the Middle East. It’s estimated that the UAE makes up 55 per cent of the total e-commerce spend in the GCC. In our industry, we’ve seen the rise of new brands like Huawei, Lenovo, and Hisense alter the competitive landscape in consumer electronics. It’s no longer a duopoly between Apple and Samsung, and we’ve seen far-reaching impacts tied to this shift.”
The nascent online market has been nurtured by some of the bigger players here such as souq.com launching a version of Black Friday – the western world’s start of the Christmas gift buying season – with its White Friday, drawing in 6 million visitors over the last weekend in November.
The rise of online sales is evidenced by smaller players such as Mini Exchange an online discount market place for children’s clothing. In its first year of operation the company has tracked the growth of the public’s appetite for online retail through the use of Google analytics.
In comparison to December 2013, December 2014 search volumes for online shopping increased 64 per cent. In comparison to December 2011, this growth is more than 340 per cent. If one breaks down Google Middle East’s statistics, it is the Arabic-speaking population that needs to be convinced of online’s worth. Sixty per cent of queries are in English versus 40 per cent in Arabic, although in Saudi Arabia it is 75 per cent Arabic and 25 per cent English. This may also be because of the lack of Arabic-language online retailers.
The online world in the UAE and wider region may well be in most people’s hands – with smartphone proliferation – but is yet to capture the public’s imagination. Whether online commerce can rival the sector in the West, at nearly 10 per cent of all retail sales, is still open to question.
Even popular buying holidays such as Christmas are subject to the shifting demographics, and December, which could give a kick start to the virtual world, is not a bumper month for e- commerce in this region.
“Many people in Dubai, families in particular, travel home for the holidays from mid-December, so the last weekend in November and White Friday is often their last chance to shop for gifts,” said Sarah Appleton, the chief executive of Mini Exchange. “The biggest problem we have is the lack of initial searching online for kids clothing. Compared with the western world, the amount of people who will look online for retail opportunities is very small. It is growing by 100 per cent month-by-month, but from a low base.”
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Published: December 23, 2014 04:00 AM