World Retail Congress held for the first time out of Europe in the UAE from April 12 to 14, 2016 explained the unprecedented growth of retail sector in the Arab nation.
Accounting for 11% of the UAE and 30% of Dubai GDP, retail is an important arm in economic diversification strategy and shift from dependence upon oil.
With a total consumer spending of over 700 Billion AED in 2016, retail spending is expected to touch 200 Billion AED in 2017 with a 5% CAGR more than the GDP growth of the nation as per Euromonitor data.
Having a look at the breakup of consumer spending in the UAE; Consumers spend most of their income on housing, more than 41 percent of total consumer spending. This is comparable to almost 25 percent of the country’s GDP. Food and beverage is the second most significant consumer spending category, with a 14 percent share, followed by transport spending at 9 percent, Communications at 7.8 percent, apparel and footwear at 7.4 percent, while all other items account for less than 5 percent of private expenditure.
Consumer spending in retail accounts for about 30% of overall consumer spending. Thus, it has been able to gain investors’ confidence despite successive low prices of oil in the region as per the reports of Dubai Chamber of Commerce.
But, challenges lie ahead for luxury consumer markets in the UAE, since it has shown signs of saturation. When the effective currency of a nation reduces, it leads to less purchase of luxury items. With oil crunch in Gulf economy as a whole, this has greatly been felt.
With the UAE among the top 10 consumer spenders in the world, there is relatively low price consciousness. Shopping here has emerged as an experience rather than need. Thus, retail in the UAE has flourished against its otherwise potential rival, The Digital Marketplace.
However, the introduction of 5% VAT from Jan 1, 2018, is going to turn the tables for the Retail sector in UAE, if not dealt with strategically as per the reports from KPMG.
The firms, therefore, need to revamp their business models including operating models and IT systems, as well as training their front and back office staff. This should bring in huge opportunities for professionals with relevant background and experience.