GCC retail – the market is looking ahead

Interest in the GCC retail market is high, given the rapid changes taking place as a consequence of socioeconomic development, evolving consumer behaviour and cutting-edge technology. RetailME presents four snapshots of retail in the region –from real estate services firm Jones Lang LaSalle, market intelligence firm Euromonitor International, management consulting firm AT Kearney and payment gateway Visa Middle East

JONES LANG LASALLE: Sovereign and pension funds are big investors

The big story is that a lot of investment is happening across the world in pension and sovereign funds, with significant capital finding its way into the retail industry. Up-and-coming target areas in this part of the world include the GCC, North Africa and Sub-Saharan Africa.
“It hasn’t happened yet in the GCC, while the UAE is in a transitional phase. But things could start moving as transparency in real estate increases and the market matures. Investors will probably buy existing malls, bring new facilities and marketing ideas, leading to greater profits,” says Andrew Williamson, head of retail – MENA, Jones Lang LaSalle.

As retail moves forward towards 2020, he sees some very dynamic changes happening in the sector, with those embracing change emerging as winners, leaving behind those maintaining the status quo.

“You can’t ignore the consumers either. They’re getting smarter, accessing information real-time. That’s leading to narrowing margins for retailers, who are now looking to offer better services and facilities. Shopping centres will have to work to create unique environments to attract retailers and consumers, adding to the developer costs,” cautions
Williamson.

He draws attention to a lot of real estate developments taking place in Dubai, with several malls scheduled to come up. Large super-regional and regional centres are expected to continue to dominate the market, with most announced and under-construction malls in the pipeline having GLAs of over 322,917 sqft. “Overall, Dubai can expect around 9 million sqft of new retail space to enter the market by 2016,” says Williamson.

The picture is similar in Abu Dhabi. In addition to super regional malls, a number of retail centres within mixed-use developments are expected to enter the market by end-2013, with total retail space expected to touch 28 million sqft of GLA by 2015.

“Overall, the regional retail industry will continue to thrive due to increasing purchasing power, a growing expatriate population and expanding tourism and hospitality sectors,” Williamson concludes.

EUROMONITOR INTERNATIONAL: Saudi Arabia, UAE are the biggest drivers of retail growth

“If you compare the GCC with other regions such as MENA, Asia-Pacific or even Latin America and Eastern Europe, what’s obviously evident is its position at the top-end of the scale. The region grew 5% in 2012-13 based on our preliminary estimates, and is expected to up the rate to a CAGR of over 7.5% over the next five years,” says Antonia Branston, global senior retail analyst at Euromonitor International.
“There’s something special about the GCC, quite differentiated from adjoining regions rocked by major political and economic issues. It’s a beacon of stability and healthy retail development. That’s why international brands are always eyeing the region,” she observes.

Branston points out that modern grocery has already overtaken traditional grocery in the GCC, with supermarkets and convenience stores doing quite well. But the real sales driver is non-grocery products, including luxury stores in malls. The significant amount of discretionary spend in the region is more akin to buying behaviour in developed as opposed to emerging markets.

Another differentiating factor for the region is that internet retailing is forecast to account for only a small portion of sales till 2018, which is again different from Western European and North American markets.

“Nowhere in the world is retail such a great leisure activity as in the GCC. This makes it extremely difficult for online retailers to penetrate the region. People go to malls to engage in retail therapy. They would not if they faced problems reaching a mall or carting shopped items home. They don’t. The region has an average of two cars per household, so visiting and shopping at malls is easy. Plus, nearly 80% of the population are urban dwellers,” adds Branston.

“High disposable incomes in the region make it a lucrative playing ground for retailers belonging to all categories – luxury, mid-end as well as value. There’s enormous concentration of wealth in the region, a Knight Frank survey showing the UAE and Saudi Arabia accounting for three out of ten high net worth individuals in the MENA region. The UAE is also an outstanding luxury retail destination, having the third highest per capita spend on luxury goods globally,” she continues.

Branston points out that smartphone and social networking penetration is very high in the region, somewhat bridging the gap between online and in-store retail. ‘We are now noticing the reverse of show-rooming, web-rooming, wherein consumers research products online and buy them offline, positively impacting the retail industry as a whole,” she states.

These factors are boosting retail development in the region, making it easy for retailers to invest their money, with Saudi Arabia driving regional retail growth over the next five years, while the UAE continues to remain a high growth area, Branston concludes.

AT Kearney: Competition and margin pressures could weed out some players

“Our mapping of global markets in four segments as per consumers – basic, emerging, escalating and established – places the GCC countries among ‘emerging consumer’ markets. That’s because this group is expected to continue spending more on basic items such as food and education than on discretionary items such as leisure and luxury goods. Take the example of the UAE. It is actually composed of more than three markets due to its dichotomous market structure in terms of GDP per capita, with a large value segment driving the market. The highest consumer spend is still on food covering basic needs but its share in the total wallet is witnessing a dramatic decline,” points out Martin Fabel, partner and global head of strategy, marketing & sales practices at AT Kearney.
The firm’s Global Retail Development Index (GRDI) has four GCC markets – the UAE, Kuwait, Saudi Arabia and Oman – among the top 20 emerging markets, making the region very attractive for retailers. “But it isn’t an easy process,” cautions Fabel. “The UAE retail market is starting to show signs of saturation. There are also several hurdles to enter the Kingdom that otherwise offers significant growth potential.”

He sees the GCC markets becoming even more competitive in the days to come. “There is opportunity for growth but retailers face the risk of losing market share to stronger players and eventually collapsing to margin pressures. They require more sophisticated retail management practices, including diversifying formats to suit consumer demand – more convenience stores alongside hypermarkets; more convenient and healthy food concepts that are witnessing high demand; and more private labels to improve margins while also gaining customer trust in the brand,” says Fabel.

VISA MIDDLE EAST: Brick-and-click is the way forward for GCC retailers

“Are we thinking enough about our business environment and the changes taking place in the way business is conducted today?” asks Mohanish Agni, head of acceptance – MENA region, Visa Middle East. He points to two areas that require closer scrutiny – the kinds of customers coming to the region and the ways in which technology such as near field communication (NFC)-enabled cards or even phones can be leveraged at the point-of-sale to make it easier and faster for customers to move through the tills.
“Some regions in the GCC, especially the UAE, are seeing strong growth in specific in-bound corridors and retailers should target these particular customers. For example, the UAE receives a lot of in-bound customers from the UK, the US, Saudi Arabia, Russia and China, accounting for almost 30% or more of spends through credit cards used at retail stores,” says Agni.

Equally important, domestic customers across the MENA are also changing, with many of them shopping online and looking outwards to do this, he points out. “The popular perception is that online shopping isn’t big enough. Actually, it’s a significant percentage of spend in this part of the world. Fashion retail, for example, is experiencing 40% growth in online spend, although 94% of this spend is with overseas retailers. Crossborder online sales now account for over 48% of all online sales in the MENA region as international brands create global delivery systems and other logistical support to tap into this trend in a much bigger way,” reveals Agni.

“We have a young and vibrant population that’s quite comfortable with products being delivered at their doorstep. Retailers operating in the region need to take note and ensure a sophisticated brick-and-click set-up to keep pace with this changing world,” he concludes.