Dubai – Decypha: Major contributor to the country’s economic growth, the retail market in the United Arab Emirates (UAE) is a key player to constant development and has been considered one of essential economic driver along with real estate, transportation, and tourism.
Labeled as the “Middle East’s shopping capital,” UAE’s Dubai plays a regional key role in retail and wholesale and driving new brands across the region. UAE’s retail industry, along with wholesale and repair, contributed 28.4% to GDP in 2015, whereas prominent malls recorded the higher footfall and managed to maintain occupancy rates. Despite preserving high occupancy rates giant malls in the sector is deemed to cross certain challenges regarding supply and competition with online shopping, according to Forbes Middle East.
Market Performance
Ranking eighth most attractive market globally for retailers, according to the retail operation index released by Arcadis, UAE’s retail industry has recorded a continuity of low consumer demand in the fourth quarter of 2016 (Q4-16) regardless of its improved sales rates, stated Forbes. However, the market has experienced softening in Q1-17 whereas prominent malls are challenged by delivering an additional retail supply which is expected to affect occupancy rates, according to Real Estate Consultancy Knight Frank.
It is important to highlight that the purchasing power in UAE is driven mainly by tourists who seek to engage in entertainment experiences and are selective in their retail choices, thus pushing growth of high-end retail outlets.
Factors currently affecting consumer demand and expenditure, according to Euro Monitor, included the recent decline in oil prices and the dominance of US dollar, hence recording a declined value in growth.
Starting 2014 retail space has been increasing to reach a current 1.6 million square meters while sales has been growing by more than 6% compared to 2013, according to Gulf News. It has also been reported that card spending in the UAE has reached by end of May 2017 a total of $ 2.9 billion which is approximately the total spend in the region.
The food and grocery sector is receiving the major share in the industry along with E-commerce that boosted growth, according to Ken Research. The growth is attributed to the settled living standards of residents who in return raise demand, rise in population, tourism, and advancing government policies, as reported by Trade Arabia.
Ongoing Retail Projects
Several projects continue to commence in the international shopping hub including the $ 6.81 billion Mall of the World developed by Dubai Holding and is expected to include 744,000 square meters of retail, completing in 2018.
Leading real estate developer, Nakheel is also developing ten new retail projects including Deira Mall, The Pointe in Palm Jumeirah that was completed in 2016 featuring 135 retail outlets, and circle mall that will host 235 retail outlets. Palm Jumeirah in UAE is also witnessing the launch of Nakheel Mall that will contain 300 retail outlets to be finalized in 2018.
Market Opportunities
Subject to many open opportunities ahead, the retail industry has potential to growing and already-established online grocery market according to Khaleej Times. The country is also open to achieve sustainable growth through inviting international retailers such as Bloomingdale and Macy’s.
The country’s retail market is set with opportunities driven by disposable incomes, the residency of young people, high-end lifestyles, and tourism. The demand for international retailers is expected to increase due to the upcoming Expo 2020 that is expected to host 25 million visitors, and Fifa World Cup 2022, making the country a prosperous hub for retailers than other GCC countries, whereas the UAE’s $ 7,159 sales per capita is considered to be the highest in the region according to A.T.Kearney.
Retail growth in UAE features promising opportunities as the available gross leasable area (GLA) in Dubai mall will witness a 22% increase by end of 2017, according to Oxford Business Group. Cosmopolitan city, Dubai will witness a visitor 7% to 8% visitor increase per annum and offer a diversified culture that will encourage retail opportunities, added OGB.
UAE is among the top countries driving the luxury market globally as an advancing consumer market along with Russia and China where luxury spending has increased by 70% in the past five years, according to a report by Deloitte.
Prominent international brand Apple is planning to open its second UAE store at Yas Mall amid the current market saturation which research firm A.T Kearney identified; however mentioned that potential growth will commence. Yas Mall in Abu Dhabi has also recently opened Tyrano a retail outlet developed by Chalhoub Group and expands on 20,000 square feet, featuring 250 local and international brands.
Market Challenges
Regardless of the prosperous opportunities the sector features, the retail industry is also set to come across several challenges apart from the pressure of providing an additional supply. International and national retailers seeking to enter the market will be challenged by the increasing costs of launching a business in the country, including the Value Added Tax (VAT) and adaptation of a traditional business model and using technology to enhance customer experience.
Ambitious retailers are also obliged to have an online presence in efforts to co-exist among rising competitors. The competition among retailers in the region is also a considerable drawback that includes E-commerce leaders such as Amazon that has recently acquired Souq.com. E-commerce sales are expected to amount a total of $ 1.5 billion extracted from the gulf’s high-end luxury segment within the next four years, according to Knight Frank report.
The strong Emirati currency continues to affect retail sales which triggered landlords in shopping malls to offer feasible payment plans for retailers to help them overcome their losses, added the report. As declining consumer demand and confidence continue to take place, several retail outlets are introducing promotions and price reductions to preserve a strong footfall in the market.
Government Attempts to Boost Growth
After heavily depending on oil production, UAE’s government is now diversifying its economy through formulating policies in the non-oil sectors that will promote growth. The government seeks to increase public and Foreign Direct Investments in the country, according to Trade Arabia.
One of the major government policies recently established, states the country’s intention to foster growth in the industry through directing investments on locations that hold a potential of becoming an international retail destination. Some of these destinations include Yas Island. The government aims to increase tourism turnout through these measures that will boost the retail industry, according to Gulf News.
Emerging Market Trends
Driven by innovated market trends, the retail industry has been featuring the rise of outdoor living including the renovation of concept of “Souq” (Arabic term for commercial market). Nakheel has been implementing the newly renovated concept through its 37,000 square meters retail space called the Golden Mile Galleria that will include Spinneys among other stores. The project features landscaped gardens and jogging paths, embracing the true concept of outdoor living according to OBG.
Emaar additionally implemented the Souq concept by rebranding its community malls that has been already developed; this includes The Ranches Souk located in Arabian Ranches II.
Another rising trend is internet retailing, as highlighted by Euro Monitor which has launched major landmark events and created feasible payment methods which in return increased consumer confidence in online payments. E-commerce has contributed a 2% growth in total retail industry in 2016. The online retailing has also combined groceries to its market. Emaar has recently launched an internet retail venture called Noon.com that is funded by the Saudi Public Investment Fund, pumping $ 500 million in the project. Noon.com will offer 20 million products online, making a rival competition with the established Souq.com. The online retail sector is expected to establish a total of $ 1.5 billion serving the high-end segment in the upcoming four years according to Forbes.
Among other trends partaking the market include promotions and price reductions introduced by mall operators as retail strategies, boosting a 4.7% growth amounting $ 3 billion by 2020 in the electronic segment in the retail market, and diversifying the traditional retail sector through introducing urban lifestyle destinations.
Key Players in Retail Industry
The industry is ignited by several key players; however the major companies leading the market include Nakheel which is well known for building Palm Jumeirah, The World Islands, Ibn Battuta Mall, Dargon Mart, and Palm Jebel Ali; the company has achieved the highest net profit in its history amounting a total of AED 4.96 billion in 2016, according to their official website. The company has a retail portfolio with a total of 316,000 square meters and an additional 1.07 million square meters in the pipeline.
Another key player in the industry is Emaar Malls Group that built the Dubai Mall gas achieved total revenues of AED 435 million in 2016 which is 5.5% higher than the previous year, according to The National. The company has previously reported that approximately 80 million people visited The Dubai Mall in 2014 and is said to have contributed by 5% to Dubai’s GDP.
Dubai-based Holding Company Meraas has also contributed to the retail market where it has developed the outlet village in Jebel Ali that holds prestigious brands such as Tom Ford, Jimmy Choo, and Givenchy among others.
The market has also been led by Majid Al Futtaim Group, which owns 100% of the Carrefour franchise, where it established AED 29.9 billion in 2016 raising revenues by 9% year-on year, according to their official website. The group is hosting numerous international brands that entered the region for the first time and will be carrying agreements with retail outlets such as Halston Heritage, Juicy Couture, and Hollister among others.
Future Outlook
Despite the market saturation in the retail industry, promising opportunities for further growth is expected to continue to rise, encouraging consumer spending to increase and stabilizing at an average 4% per year which will amount AED 750 billion in 2017, according to OBG.
Reports conducted on the market performance including research firm Ventures Middle East, indicate that the GCC region with witness a collective annual 7% growth rate by 2018 in the sector, recording a total of $ 285 billion. Amid the current 900,000 square meters worth of retail space that is expected to be added in the upcoming years, expansion of shopping centers and malls will cater the rising demand of a cosmopolitan touristic destination.
By Fatma Khaled
