Why online retail growth in the UAE is different than in the rest of the world

The growth of e-commerce is not likely to challenge shopping malls in the UAE but rather to complement them, which could benefit shoppers and retail operators in the long run.

Grocery retailers in the UAE, such as Carrefour, have experimented with the online retail model and have been quite successful. Silvia Razgova / The National

In the long run the global formula for online retail success might be notably different from the one that will prevail in the GCC countries – and especially in the UAE.

The growth of e-commerce is not likely to challenge shopping malls in the UAE, but rather complement it, which may be beneficial for consumers and retail operators in the long run.

This is because here in the UAE, the rise of shopping malls and outdoor retail destinations still draws in consumers to visit the brick-and-mortar shopping centres to make retail purchases – across fashion apparel, jewellery and electronics, even though globally many traditional consumer businesses are moving away from models that are geographically focused to ones that are customer-centric and borderless.

In January, a KPMG report said that UAE consumers shop less frequently online than the global average, suggesting further room for growth and adoption in the online space. However, even though UAE shoppers browsed online for less time, they were quick to spend: their average ticket size of US$332 was the highest in the world.

Globally there are expectations for more online retail growth from categories that have been traditionally popular in the brick-and-mortar format – including mobile phones and laptops, as well as furniture and home decor. In the UAE, the growth so far has been mainly in mobile phones.

One emerging segment for online retail, globally and in the region, is groceries. This segment is growing. A number of grocery retailers in the UAE, such as Carrefour and Geant, have experimented with this model and have been quite successful. Globally, the early winners in this segment have focused on Millennials and young professionals, where the attention on prepared fresh meals has been a growth driver.

In the UAE, online shopping may never replace shopping malls since malls are an intrinsic part of life in the region, especially in the UAE.

Malls have evolved into entertainment destinations where people spend time with family while they shop, dine and use entertainment facilities, and they are not likely to be replaced so easily.

As malls continue to evolve in the F&B space too – from food courts to fine dining – brick-and-mortar retail can significantly grow in the UAE. Shopping malls in the region are also continuing to evolve.

For instance, in Saudi Arabia malls are increasingly focusing on entertainment options and are especially looking forward to the approval for cinemas coming through at the earliest. We expect that innovation and new entertainment ideas in this space will be led by big players.

There could be certain categories where e-commerce will dominate, such as electronics and certain apparel, but as physical stores also offer competitive prices they continue to attract a growing number of consumers. Furthermore, retail events such as the Dubai Shopping Festival – which provide incentives for visiting retail outlets and making physical purchases – continue to drive the popularity of this format.

It is in the interest of mall developers to collaborate with individual retailers and shop owners to attract more visitors to the malls as revenue models are shared – rental income also depends to a large extent on the sales.

This push ultimately may result in consumer benefit in terms of better deals for products and services sold in stores.

This creates pressure on online retailers in terms of price points they are looking to sell. At the end of the day, they have to be profitable. Globally, only a few e-commerce businesses are profitable.

In the UAE, there is still healthy competition between the two formats – and this is only going to grow considering the recent developments in the e-commerce space including the announcement of Noon.com and potential outside investments in Souq.com.

Farhan Syed is a partner at KPMG, Lower Gulf.

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