Disrupting the norm: Navigating retail challenges in the Middle East

The retail landscape in the Middle East is undergoing a seismic shift, confronting unprecedented challenges, including rapid technological advancements, supply chain disruptions, changing consumer behaviours and a complex regulatory landscape. This evolving environment presents unique opportunities for CxOs to turn challenges into competitive advantages. Understanding these dynamics is crucial for executives aiming to thrive.

Middle East retail sector trends: Key challenges observed in the market

Supply chain disruptions: Global supply chain issues, exacerbated by geopolitical tensions and the COVID-19 pandemic, have led to delays and increased costs for retailers. These disruptions affect inventory management and product availability, making it difficult for businesses to meet consumer demands consistently. A Deloitte survey found that 46% of retailers want to increase end-to-end supply chain visibility using Generative AI.

Consumer behaviour shifts: Consumer preferences are shifting in notable ways, including paying more attention to product sustainability or requiring new channels of product purchase and delivery. Retailers must adapt their strategies to align with these values or risk alienating a growing segment of environmentally and digitally conscious consumers. Most retailers (62%) agree that sustainability represents an opportunity for growth, despite an initial spike in costs, as they expect more revenues to come from circular business models in the next five years.

Technological integration: Many retailers in the region face challenges in integrating advanced technologies such as AI, data analytics and omnichannel solutions into their operations. The lack of effective technology integration may lead to a dip in customer engagement and operational efficiency. Only 13% of retailers globally, however, have omnichannel capability expansion as a priority.

Regulatory compliance: The retail sector in the Middle East is subject to varying regulations across different countries, including import tariffs, labour laws and consumer protection standards.

Strategic responses to retail challenges

Improving supply chain management with advanced analytics: Implementing advanced analytics and AI-driven forecasting tools can significantly enhance supply chain management. By analysing historical sales data, market trends and external factors such as economic indicators, retailers can better predict demand and optimise inventory levels. This proactive approach helps mitigate stockouts and overstock situations, leading to improved customer satisfaction and reduced costs.

Adopting agile methodologies for business model innovation: Retailers should embrace agile methodologies to quickly test and implement new business models that align with changing consumer preferences. They can use techniques like design thinking workshops and rapid prototyping to develop innovative product lines or services, such as sustainable product lines or recycling take-back programmes, to enhance brand loyalty.

Leveraging cloud-based solutions: Migrating to cloud-based solutions enables retailers to scale their operations efficiently while accessing powerful tools for data analytics, customer relationship management, inventory management etc. These platforms provide scalable frameworks and pipelines for analytics, enhancing collaboration across teams and improving operational efficiency without heavy upfront IT infrastructure investments.

 Navigating regulatory compliance with GenAI: GenAI can assist retailers in navigating complex regulatory environments by automating compliance processes. AI-driven tools can analyse legal documents, monitor regulatory changes across different markets and generate reports to ensure adherence to local laws. This reduces the manual workload on compliance teams and minimises the risk of non-compliance penalties.

Transforming the retail business model: From space and time to digital and efficiency

Technology has led to the disintegration of traditional barriers such as space and time. Historically, large retail chains triumphed by expanding their physical footprint – the more stores they operated, the more competitive they became. More space meant better market coverage, higher inventory capacities and greater consumer touchpoints. However, these advantages are rapidly becoming obsolete in the face of digital innovation. Embracing future trends and integrating them into business models will likely be key to sustaining growth in an increasingly dynamic and complex market.

Some business model change trends one can observe that are specific to the retail sector:

• Hyper-personalisation: 42% of retailers say they will use GenAI to enable more personalised product recommendations to customers. Advances in AI and machine learning will drive the shift to hyper-personalisation, with retailers leveraging consumer data to offer highly personalised shopping and marketing experiences and dynamic pricing models based on individual consumer profiles.
• Subscription-based models: Subscription services are set to become more prevalent in retail. By offering curated products and exclusive benefits, retailers can build more consistent revenue streams and foster greater customer loyalty. Examples include fashion box subscriptions, meal kits and even everyday essentials delivered on a regular schedule.
• Omnichannel integration: Seamless integration between online and offline channels will become crucial. Retailers will need to provide a cohesive experience across physical stores, websites and mobile apps. This could include features like buy-online-pick-up-in-store, real-time inventory checks and cross-channel loyalty programmes.
• Community and social commerce: Social media platforms are increasingly becoming shopping destinations where users can discover and purchase products directly. Building online communities around brands and engaging consumers through social media will become a key strategy.
• Blockchain and transparency: Blockchain technology has the potential to revolutionise retail by providing transparent and tamper proof records of transactions. This can enhance trust in product authenticity, ethical sourcing and supply chain transparency.

The retail sector in the Middle East can embrace adaptability, technological advancements and evolving consumer preferences to remain competitive in an increasingly complex ecosystem.

Contributed by Sundeep Khanna, Partner & Anush Viswanathan, Director & AI Institute Leader, Deloitte