The changing retail landscape in the UAE

Dubai is expected to receive 20 million visitors in 2020, compared to the current 16 million and retail sales are expected to see 5.6% average growth between 2018 and 2021, according to a new Dubai Chamber study released in May 2018.

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In the next two years, Dubai will see extensions of the metro lines, airports and the opening of new shopping malls, hotels, residential projects and leisure attractions. This interplay of tourism, real estate, leisure and retail all bode well for the retail sector.

Luxury redefined

Positioning itself as a luxury hub bolstered by high per capita incomes, Dubai has some of the highest concentrations of high net worth individuals in the region and luxury tourists from further afield. However, the luxury segment has taken a hit in the last few years with retail sales declining by 15-20% for some of the major luxury brands.

A number of regional and international factors have contributed to this: plummeting oil prices affecting the Gulf customers, plus troubles in the Chinese and Russian economies resulting in fewer Russian tourists. In addition, changing spending patterns of Chinese customers who are switching from high-end luxury shopping to family budget holidays, experiences and corporate holidays affect the region.

The flip side of the decline in high-end luxury spending is the opportunities created in other segments in the market. While there is a growing demand for ‘value’ brands, this does not appeal to the luxury shopper. The luxury customer might be shying away from high-end luxury, but they are still interested in quality, provenance, great design, artisanship and a great brand story. For UK companies, this is a sweet spot in the premium and ‘affordable luxury’ space. There is a lot of affinity for UK brands, especially those ‘Made in the UK’.

Expectations from new international brands

Retail buyers are being quite conservative and cautious when looking at bringing new retail brands into the market. They are looking for brands that meet the quality, strong provenance criteria and are fairly established in their home markets. The importance of PR and effective social media, especially Instagram, is more important than ever.

Instead of straightforward distribution agreements and franchising, partnerships and joint ventures are gaining popularity. In the last few years, we have seen UK brands such as Cath Kidston, All Saints, Olivia Burton watches, Mint Velvet, Seraphine and Shearer Candles entering the UAE market successfully, either through stand-alone stores or via stockists.

UAE retail partners today are looking for more investment and ‘skin in the game’ from their international brand partners. This increases the barriers to entry for smaller and relatively new companies. A lot of department stores are experimenting with pop-up shops to test new brands before taking them on. Spaces like Dubai Design District have also become relevant for brand collaborations and emerging or relatively newer designers to test the market.

Sukhjeevan Nat, Head of Retail and Wholesale Sector, Santander Corporate and Commercial, says:

For businesses in the UK’s retail sector, the appeal of international expansion is considerable. Benefits include capturing new revenue, de-risking concentration to the UK market, and offsetting currency fluctuations, as well as enhancing brand values from ‘globalising’.

The UAE retail sector continues to benefit from tourist arrival and expatriates seeking British brands, as well as being a hub for over 2 billion people who live less than a four hour flight away from Dubai.

Growing opportunities and e-commerce

The biggest opportunity in the market at the moment is e-commerce. The online and digital space is booming in the UAE. While e-commerce was only 2% of the retail consumer spend in 2015, it has seen growth of 15-20% CAGR (Compound Annual Growth Rate) in 2017 and will continue to grow further, according to reports by KPMG.

Unsurprisingly, many retailers are looking to establish an e-commerce presence. While traditionally, e-commerce in the UAE was only concentrated in the ‘commodities’ segments such as consumer electronics and video games, we are now seeing massive growth in fashion, lifestyle, home, beauty and food and drink.

While the entry of big players like Amazon, through its acquisition of souq.com, and noon.com has changed the dynamics in the mass category, there have also been exciting developments in some niche categories. The Al Tayer Group launched Ounass, a luxury e-commerce platform, in December 2016 and then Nissnass, a mobile e-commerce platform targeting millennials for the ‘high street’ segment, in 2018. Namshi, also catering to millennials, has evolved into a multicategory e-commerce platform, now featuring home, beauty, giftware, as well as premium and modest fashion categories.

Modest fashion is another growing category which captured a revenue of USD$44 billion globally in 2016, according to Thomson Reuters. One of the most exciting entrants in this space has been The Modist which targets the luxury modest fashion customer through a highly curated fashion edit that offers modest styles from mainstream designer brands, as well as personal styling and shopping services. At the same time, the platform also has a strong editorial voice: featuring women who are fashionable and modest but also achievers and changemakers.

Customer experience is king

In this tough and changing landscape, retailers are having to reinvent themselves. From luxury groups like Chalhoub and Al Tayer to mass market ones like the Landmark Group, all are incorporating great ‘experiences’ into their retail strategies and making e-commerce, digital and social media an integral part of their business. It’s no longer about a purely offline or online approach but an ‘omnichannel’ experience for customers. International brands have to be aware of these developments to take advantage of the opportunities, as well as how to work with UAE partners who are forward-looking and driving the change.

For businesses looking to expand into the UAE, it is important to have a good understanding of the local market. At Santander we have a team of sector and country specialists that could help you navigate your way into the UAE. With our connectivity programmes, trade missions and meet the buyer events, we can create opportunities for businesses.

In September this year, Santander and the British Centres for Business are partnering to host a trade mission for ‘lifestyle brands’ to the UAE.

Author: Tamreez Inam, Head of Consumer & Retail, British Centres for Business

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