The retail sector experienced a particularly challenging time in 2017, with new consumer behaviour, tighter spending due to tough economic times and increased competition.
Many retailers, though, have already started turning such challenges into an opportunity for growth. The 2017 AT Kearney Global Retail Development Index ranked the UAE fifth in the global retail sector with sales exceeding $73bn.
Looking into 2018, then, there are three major factors that will shape the retail sector, all of which retailers need to adapt to if they are to remain relevant in the market: firstly, the newly introduced Value Added Tax (VAT) will almost certainly affect the purchase rates of certain consumer products in the region; secondly, there is increased shopper interest in high-street-style retail experiences rather than malls; and thirdly, online shopping will continue to change the orientation of the sector.
Even though the GCC retail market showed early signs of dips during the beginning of 2017, it is expected to steadily recover through the whole of 2018 and all the way through to 2021, with a predicted reach of $313.2bn.
The major contributing factor to this retail boost is the hike in the number of tourists visiting the country. In addition, with the introduction of VAT, the UAE economy is expected to rise some 3.4 percent year on year.
The elasticity of demand is key in identifying the extent to which retailers need to absorb the cost of VAT. For instance, in most cases products that have an inelastic demand will not be affected by a price increase.
The past 12 months have also witnessed an interesting evolution in consumer patterns, especially in Dubai. There seems to be a shift in interest from the traditional mall to new and emerging types of retail, such as pedestrianised high-streets and online shopping.
It is no longer the case that major purchases can be solely made from malls. In fact, customers are now looking for a high-street ambiance for their purchases, which is why outdoor areas such as Boxpark, City Walk and the Dubai Design District are gaining huge popularity.
Shoppers are seeking out retail experiences in commercial and residential areas that enhance their interaction with open spaces. The push towards an urban feel is also bound to increase tourism and indirectly affect related F&B sectors in a positive manner.
Another aspect of change in the retail sector has come about due to mobile shopping. It is true that e-commerce has been challenging the traditional retail market across the region for a number of years, but the change continues.
With millennials driving the region’s connectivity and mobile phone usage, the GCC is considered to have a strong foundation to adapt to the expansion of online shopping.
In fact, while the UAE has the largest e-commerce market, there is still a huge potential for growth within the coming year. Research conducted by MasterCard indicates that at least half of the population shop for goods online, forecasting that e-commerce will reach as much as $10bn by 2018.
With an extremely high penetration rate, if the prerequisite catalysts are implemented, the e-commerce market is expected to quadruple in value to $20bn by 2020, according to AT Kearney.
There will be a surge in investment around online shopping, the impact of which is not just limited to retailers but also their landlords, forcing them to develop tech-driven strategies for their infrastructures. A recent study by PwC revealed that consumers prefer to shop online mainly because of lower prices, product selection and convenience.
All that taken together, we can conclude that the retail sector in the Gulf region will experience a boom in the coming year. With the implementation of new retail boardwalks and better, more sophisticated online stores, visitors to the region and today’s millennials will bring promising changes to the sector.
Businesses need to listen to the changes in consumer behaviour and develop business strategies accordingly. The introduction of VAT and the increasing demand for mobile shopping creates a necessity for retailers to bring savvy solutions to the market, especially as online shopping offers lower prices on common, everyday goods.
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