Khaleej Times

GCC re­tail sec­tor set to hit $313B

- Is­sac John

dubai — The GCC re­tail sec­tor is ex­pected to re­cover in 2018 and grow at a stead pace through 2021 to reach $313.2 bil­lion driven by a rise in pop­u­la­tion, in­ter­na­tional tourist ar­rivals and a surge in per capita in­come.

In 2017, re­tail sales are likely to grow at a slow pace in view of the pre­vail­ing eco­nomic en­vi­ron­ment, af­ter wit­ness­ing a drop in 2016 to $250.5 bil­lion.

From 2016 to 2021, the size of the GCC re­tail sec­tor is ex­pected to grow at a com­pound an­nual growth rate of 4.6 per cent, Alpen Cap­i­tal, an in­vest­ment bank­ing ad­vi­sory firm, said in a study.

The re­gion will also wit­ness ma­jor ex­pan­sion in re­tail e-com­merce, given the in­creas­ing use of in­ter­net and so­cial me­dia, bet­ter ac­cess to se­cure pay­ment gate­ways and grad­ual im­prove­ment in the de­liv­ery sys­tem.

The re­gion’s e-com­merce sale is ex­pected to touch $41.5 bil­lion by 2020. The UAE is the largest on­line re­tail mar­ket in the GCC with a mar­ket share of 53 per cent, fol­lowed by Saudi Ara­bia (14 per cent), Oman (12 per cent) and Qatar (10 per cent).

As de­mand in­creases, the re­gion is likely to see emer­gence of new e-tail­ers and re­vamp of on­line por­tals by tra­di­tional re­tail­ers, said the re­port.

The long-term fun­da­men­tals of the re­tail sec­tor re­main strong and are ex­pected to grow steadily through 2021, said Sameena Ah­mad, man­ag­ing di­rec­tor, Alpen Cap­i­tal (ME) Lim­ited.

“A fa­vor­able de­mog­ra­phy, high per capita in­come and an ac­tive tourism in­dus­try have at­tracted renowned in­ter­na­tional re­tail brands to the GCC. Chang­ing con­sumer pref­er­ences and pro­lif­er­a­tion of dig­i­tal de­vices are fur­ther re­form­ing the re­gion’s re­tail land­scape,” said Ah­mad.

The nu­mer­ous mall de­vel­op­ments in the pipe­line and grow­ing pen­e­tra­tion of mod­ern store for­mats are a tes­ta­ment to im­mense op­por­tu­ni­ties in the sec­tor. Gov­ern­ment ef­forts to en­cour­age for­eign in­vest­ments, strengthen tourism in­fra­struc­ture and pre­vent en­try of coun­ter­feit prod­ucts are lend­ing im­pe­tus to the GCC re­tail sec­tor, she said.

Mah­boob Mur­shed, man­ag­ing di­rec­tor, Alpen Cap­i­tal (ME) Lim­ited, said there is a huge scope of re­tail pen­e­tra­tion on the sup­ply side as most of the ci­ties in the re­gion have a low re­tail GLA per capita com­pared

We ex­pect for­eign com­pa­nies to in­vest in re­gional re­tail en­ti­ties to es­tab­lish a strong foothold in the re­gion Mah­boob Mur­shed, man­ag­ing di­rec­tor, Alpen Cap­i­tal (ME) Lim­ited

to the de­vel­oped na­tions.

“This cou­pled with pos­i­tive longterm de­mand prospects, has paved way for de­vel­op­ment of sev­eral mega malls and neigh­bour­hood shop­ping cen­ters in the re­gion. De­spite chal­lenges such as in­creas­ing com­pe­ti­tion, staff turnover, cur­rency fluc­tu­a­tions, the sec­tor con­tin­ued to see a range of in­tra-re­gional M&A trans­ac­tions aimed at busi­ness ex­pan­sion and fi­nan­cial in­vest­ments. We also ex­pect for­eign com­pa­nies to in­vest in re­gional re­tail en­ti­ties to es­tab­lish a strong foothold in the re­gion said Mur­shed.

Ac­cord­ing to Alpen Cap­i­tal, be­tween 2016 and 2021, non-food re­tail sales are an­tic­i­pated to grow at an an­nu­alised rate of 5.3 per cent led by the in­creas­ing num­ber of young­sters and ex­pa­tri­ates, who are pro­pel­ling de­mand for in­no­va­tive, trendy and in­ter­na­tional con­sumer prod­ucts. Food re­tail sales are likely to grow a CAGR of 3.5 per cent, driven by the ex­pand­ing con­sumer base and de­mand for health foods, said the re­port.

The GCC pop­u­la­tion is ex­pected to grow at an an­nu­alised rate of 2.3 per cent be­tween 2016 and 2021. An ex­pand­ing con­sumer base, com­pris­ing a high pro­por­tion of young and work­ing-class, is the ma­jor growth driver for the re­tail sec­tor. GDP per capita in the GCC is pro­jected to ex­pand at a CAGR of 4.3 per cent. Go­ing ahead, an an­tic­i­pated re­cov­ery in eco­nomic con­di­tions is likely to boost con­sumer sen­ti­ments and spend­ing.

The re­port noted that with ex­pand­ing or­gan­ised mall space and en­try of sev­eral re­gional and in­ter­na­tional re­tail­ers, com­pe­ti­tion in the GCC re­tail sec­tor is in­creas­ing. In com­par­i­son to the UAE, the other GCC re­tail mar­kets re­main un­der pen­e­trated. Con­se­quently, the in­creas­ing re­tail pen­e­tra­tion is like- ly to heat up com­pe­ti­tion in the re­gion’s re­tail mar­ket, po­ten­tially lead­ing to price wars.

With a large num­ber of projects near­ing com­ple­tion, the re­gion is set to wit­ness an over­hang of re­tail sup­ply in the com­ing years.

“The sit­u­a­tion is more ev­i­dent in Dubai, which has one of the high­est per capita re­tail spa­ces in the world. Be­ing a ma­jor cost com­po­nent, high rents at shop­ping cen­tres are af­fect­ing profitabil­ity of re­tail­ers. Re­tail­ers are also in­creas­ingly re­sort­ing to discounts to at­tract cus­tomers,” said the study. “The rapid rise in sup­ply amidst the eco­nomic slow­down is likely to cre­ate an over­sup­ply sit­u­a­tion in the UAE, Qatar and Oman,” Alpen re­port said.

— iss­sacjohn@khalee­j­times.com

 ?? — KT file ?? An ex­pand­ing con­sumer base, com­pris­ing a high pro­por­tion of young and work­ing-class, is the ma­jor growth driver for the re­tail sec­tor.
— KT file An ex­pand­ing con­sumer base, com­pris­ing a high pro­por­tion of young and work­ing-class, is the ma­jor growth driver for the re­tail sec­tor.
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