GCC retail sector set to hit $313B
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.