The Future of Retail in the UAE: Part 1 — Digital Transformation During and After COVID
COVID-19 has rewritten the retail rulebook. Health and safety concerns are now a purchase driver, and retailers are implementing digital transformations in months rather than years. Success will come to businesses who can harmonize the need for speed with a long-term strategy. This means "looking for new revenue models, like subscriptions or memberships, and forming new partnerships and alliances to create a profitable and digital omnichannel experience."1
For some brick-and-mortar retailers, this means partnering with digital-native companies to increase efficiency across various processes. In many cases, these team-ups are resulting in more cross-channel opportunities and customer base expansion for both parties.2
In the first of this two-part series of the future of retail in the United Arab Emirates (UAE), we will look at the importance of digital transformation to the country’s retailers and forecasted economic growth. We will also examine the impact that COVID has had on cultural trends and digital challenges in the retail sector.
Digital transformation is crucial to the future of retail in the UAE
Globally, retailers have several important questions to resolve. In the UAE, where digital transformation has been more of a nice-to-have tactic than a business-critical strategy, knowing the answers to two of these questions is vital to sustainable growth:
- Will consumers return to a reshaped retail environment? If so, when?
- Will the pandemic’s digital adoption be the new baseline, or will consumers’ pent-up demand for interaction and experience drive them to rally around local shops that give them a taste of pre-pandemic life?
Investments in innovation can help ensure that UAE retailers are prepared for new consumer behaviors that reflect the answers to these questions. However, in the context of the pandemic, many UAE retailers are late in their digital transformations. If ignored or executed improperly, they will fail to meet new customer insistence on/demand for greater data security, personal safety, and total transparency. To provide the enhanced customer experience their customers expect, UAE retailers need to integrate previously unused technologies into their current business models — a requirement they can meet through innovative approaches to retail.
The UAE retail sector — economic growth and forecast
Valued at USD 55 billion, the UAE retail market was thriving in 2020.3 The COVID pandemic had a significant impact on the market's forecasted 2020 growth, reducing it from 5.8% (pre-COVID) to 0.4% (post-COVID, representing a loss of USD 3.7bn in sales). Despite this downward trend, the country's luxury market is expected to grow to USD 15.1 billion in 2022 as UAE consumers tend to commit a greater share-of-wallet to luxury purchases. This is especially true of the UAE's younger generations — nearly half of the country's population is under 24 and has, on average, more disposable income to spend on luxury items.4
Pre-COVID projections valued the UAE retail market at USD 75 billion in 2025. While the pandemic is likely to reduce the forecasted value, retailers can rely on a well-integrated national logistics network, which has produced a robust environment for a modernized retail market.5 The dominant supermarket/hypermarket segment is followed by exclusive stores, specialty stores, and department stores.
Of the country's four regions, Dubai generates the largest share of total retail market value. This is due in part to international visitor spending, which we can expect to drop as the UAE is likely to tighten up its travel restrictions due to the pandemic.6 While the impact of reduced tourism will undoubtedly be significant, the Dubai retail market have opportunities to leverage other growth-driving factors, including:
- high consumer demand driven by frequent super-sales and shopping festivals
- steadily growing e-commerce activities
- rise in use of traditional and app-based delivery services
- sector expansion in preparation for Expo 2020
The UAE retail sector — cultural trends
Regarded as leisure destinations rather than utilities, shopping malls in the UAE are among the world's largest and most visited. They are extremely popular tourist attractions and, for the local population, meeting places. The Dubai Mall alone welcomes over 80 million consumers annually7, and travelers have ranked the mall no. 2 on TripAdvisor's 15 Best Things to Do in Dubai8. The prevalence of shopping malls in daily UAE life can be attributed in part to the weather — in addition to offering a wealth of shared experiences, malls provide welcome relief from temperatures that can exceed 40 °C. On a blazing hot and humid summer day, the convenience of e-commerce simply can't compete with the cool comfort of air conditioning.
The UAE retail sector — digital challenges
Clearly retailers need to innovate their customer experiences with the right technology. But with all the advantages technology offers to retailers come a number of challenges. COVID has reduced customer-facing revenue, forcing retailers to be more active in digital channels. At the same time, they need to maintain direct links with consumers.
Compared to the rest of the world, existing UAE e-commerce platforms tend to contain less items, provide minimal product details, and have few product reviews.9 Many retailers lack the technological platforms they need to run their businesses digitally. Another hurdle retailers considering digital must overcome is the fact that the mall is an integral part of the UAE's social fabric. While consumer shopping habits are changing, these factors still make shopping malls a more appealing option than e-commerce.
The UAE retail sector — COVID has ramped up digital challenges
UAE malls closed their doors during the March 2020 lockdown. Because retailers are so heavily dependent on foot traffic, few had an e-commerce strategy in place. The pandemic forced them to quickly adopt an omnichannel approach, and rather than build their own digital infrastructure, some formed partnerships with technology solution providers to use their platforms.10 Notable examples include
- Supermarkets partnering with ride-sharing companies like Careem
- Dubai Mall opening a virtual store with noon.com
- Restaurants teaming up with food and grocery delivery apps
Next time: Trends, opportunities, action!
To conclude this series, we will take you through the key digital opportunities available to UAE retailers. You will also gain practical insights into actions businesses in this sector can take to benefit from these opportunities.
U+ can help UAE retailers innovate
By applying the U+ Method, we can help UAE retailers plan, implement, and improve digital transformation programs to ensure they meet their strategic objectives and deliver fast ROI. Our four-step product development methodology focuses on executing the risky stages of product development before initiating large build–outs.
We conduct initial idea validation and market testing, during which we evaluate whether an idea satisfies the wants and needs of a specific market and target demographics.
When we find a market-verified value proposition, we define the product and determine ways of taking it to the market. During this stage, we build prototypes, run smoke tests (a software testing process that determines the stability of a software build), and evaluate launch channels and features.
Our developers and designers build a minimum viable product (MVP) as we simultaneously move to launch with early customers.
When the MVP launch goes well, we scale up the product based on market feedback. This stage typically includes support for internal operational processes and product modifications based on early customer feedback.
Contact us to learn more about how U+ can drive your innovation projects to success.