Three other Gulf markets make top 20 of AT Kearney's Global Retail Development Index
The UAE has been ranked as the fifth strongest emerging market in an index of global retail investment, but the experts who compiled the list warned the emirates’ ranking could slip in future years due to oversaturation in the market.
The 13th edition of the Global Retail Development Index (GRDI), compiled by consultants AT Kearney, had four GCC countries ranked among the top 20. The UAE was ranked fifth, followed by Kuwait (9th), Saudi Arabia (16th) and Oman (17th).
Globally, Brazil was the most attractive retail emerging market for the third year in a row, followed by Chile, Uruguay and China.
“The GCC retail sector has witnessed exponential growth in 2012 fueled by increasing tourist flows and new retail projects. In 2012, Dubai saw the entry of US-based brands Victoria’s Secret, Cheesecake Factory, and IHOP through franchise agreements.” said Dr Martin Fabel, Partner and head of Consumer Industry and Retail Practice at AT Kearney Middle East.
While the UAE moved up two places from seventh to fifth, Fabel said there was risk of it slipping down the rankings in later years due to the oversaturation of the market
“The UAE is already saturated,” he said. “The UAE scores three out of a hundred points on market saturation. This is only comparing emerging markets, we don’t have really mature markets in here… [But] within the emerging market we consider the UAE very, very saturated.”
New malls are being planned across Dubai in particular, with extensions underway to Dubai Mall, Ibn Battuta Mall and Dragon Mart and new malls planned for JBR’s The Walk and Palm Jumeirah and Mohammed Bin Rashid City set to build the Mall of the World, which will be the largest retail space when complete.
“The only thing is in the future it might lead to the UAE maybe falling down in the overall rank as the time pressure, because of the saturation, there is more time pressure so the window is closing when it is a good time to enter a certain market,” Fabel said.
Despite these concerns, the report said demand continues to grow in Dubai. With plenty of European concepts already in place, demand is now shifting to American concepts and food and beverage.
“Retailers are updating and repackaging their existing offerings. Chalhoub Group, a leading luxury retailer, opened the largest shoe store in the world in Dubai Mall, featuring leading brands such as Gucci and Louis Vuitton. Prada opened its biggest boutique in the Middle East in Dubai Mall at the end of 2012. In Abu Dhabi, major investments in infrastructure, universities, arts and cultural events are taking place and consumers are demonstrating an appetite for luxury concepts,” Fabel said.
The Gulf’s second most popular country, and ninth overall, was Kuwait, which welcomed new brands Cheesecake Factory, Victoria’s Secret and COS, with Prada set to open its second Kuwait store at The Avenues in early 2013.
Despite falling two spots to 16, Saudi Arabia is still a strong market, with retail sales are expected to increase by 11 percent this year.
Little growth was seen in Oman, which explained why it was overtaken by other faster growing market and slipped to number 17 on the rankings.
“Consumers across the region are becoming more sophisticated, demanding differentiated product and retail formats, with trends such as fresh food taking hold as young consumers strive for healthier lifestyles. Overall, the GCC’s strong representation in the index is indicative of the opportunities that exist for retailers wishing to enter the market or expand their brand in fast-growing markets,” explained Fabel.
The report said Kuwait's retail outlook remains favourable amid increasing consumer spending and a greater presence of international retailers.
"In line with an optimistic economic outlook for 2013, the retail sector is expanding and demand for retail space is growing despite expensive real estate. The country's largest mall, The Avenues, opened its phase-three extension in 2012, and other developments, such as the Gate Mall, are opening their doors in 2013," it said.
The report also said the fundamentals in Saudi Arabia remain strong with retail sales expected to increase by 11 percent in 2013.
"Retail sales per capita and disposable income remain lower than some of the neighbouring locations, so there is plenty of room for growth," the report added.
AT Kearney's report said that while developed markets face flat or anemic growth, developing markets remain important sources of growth.
The GRDI ranks the top 30 developing countries for retail investment based on several macroeconomic and retail-specific variables.