UAE Retailers Go Omni-Channel Amidst Tough Competition

The UAE’s retail sector has seen consistent growth in the last few years aided by a booming population and an influx of tourists from all around the world.

According to a recent report released by consulting firm Ventures Middle east, the retail sector in the UAE is expected to grow 33 per cent by 2015.

This was seconded by another report from Dubai FDI, the investment development agency in the Department of economic Development, which said that the industry is estimated to grow around 32.9 per cent from Dhs114 billion in 2012 to reach Dhs151 billion by 2015.

As per the government agency, the UAE’s retail sector is poised for strong growth- aided by high disposable incomes, retail real estate expansion, a steady inflow of international retailers, population growth, and rising fashion consciousness.

In line with the growth forecast, the UAE was also found to be quite attractive for retail investments. The country ranked fourth-its highest ever in consulting firm A.T Kearney’s latest global retail development index, which rated around 30 developing countries for retail investments in 2014.

According to the report, retail sales in the UAE grew five per cent during 2013 as annual sales surged to $66 billion. Although a few global retailers entered the local market in 2013, many existing brands expanded their footprints, A.T Kearney said.

Local distributor Chalhoub Group that owns rights to distribute international brands in the UAe opened 50 stores last year while Dubai retail conglomerate Apparel Group opened another 40 stores. UK-based toy retailer The entertainer opened an outlet in the UAE while British grocer Waitrose opened its third store in Abu Dhabi.

Proximity is key

“As a rapidly maturing market, the UAE has a growing need for more sophisticated formats to cater to changing consumer needs,” said Martin Fabel, partner and head of consumer industry and retail practice at A.T. Kearney Middle East.

“Consumers are demanding more proximity and retail saturation has brought about some interesting and innovative concepts.”

Homing in on the growing demand, retailers and mall developers are planning more community or neighborhood malls.

Dubai-based mall developer Majid Al Futtaim announced the launch of the first community mall in the International Media production Zone while Nakheel announced the opening of Jumeirah Park Pavillion, the first of five community retail malls being built by the company across Dubai.

The explosion of retail units has also raised the bar for existing retailers in the UAE which are facing increasing pressure to keep up with the pace.

“Some of the challenges that retailers face today include increased information and choice for customers, proliferation of new products that outpace the ability of retailers to stock, rising use of technology that brings in more risk and dealing with new channels such as social media and e-commerce,” said Chris Sims, managing partner at Xarla, a retail consultancy.

However, he said that most of the challenges, faced by the retailers, could also be transformed into opportunities.

“Increased customer information and the use of technology means more ways to reach them, new products would result in additional sales while new channels will lead to more returns as it helps reach a larger target of people when selling,” Sims said.

Effective use of technology is vital for the success of retail and will shape crucial industry trends, he argues, emphasising that retailers have to master the art of omni-channel retail, keeping customers at the focal point of their business.

E-COMMERCE — A DIFFICULT TRANSITION?

As the demand for omni-channel retail rises, retailers in the region are faced with the inevitable transition to e-commerce.

Experts say that retailers are transitioning but at a slower pace as bricks and mortar stores are still the stars in the region.

Despite a massive rate of smartphone penetration, industry stakeholders say that the regional crowd has yet to embrace e-commerce fully.

“There are still some obstacles to e-commerce in the region, so it will evolve more slowly compared to the West,” said Mark Pilkington, CEO of Kamal Osman Jamjoom Group that operates brands such as Nayomi and Mikajy.

Mohammed Abdul Rahim Al Fahim, CEO of the Paris Gallery group of companies, said that it would also be worth asking if e-commerce fits a business’ strategy before proceeding with it.

“In our business, we sell luxury goods such as perfumes, so it is not easy to do e-commerce. Therefore it will take more time for the customers to demand e-commerce (in our business),” he said.

“E-commerce is growing in China and the US but in this region it is different as people go out to malls for their leisure.”

For many retailers, the challenge in e-commerce is being able to provide the same level of service to customers both in store and online.

“E-commerce should give the same experience as the in-store shopping,” said Geoff Upham, managing director of Dean & Deluca, a US based grocery chain.

“Any online offering needs to be seamlessly integrated because a good or a bad experience can go viral affecting the performance of the company.”

But retailers who have made the shift to e-commerce say that consistency in services is not just the challenge they face.

“The transition (to e-commerce) is not a short one but a long one over a period of months and years and it is not something which is going to stop once we have launched the service,” Renuka Jagthiani, vice chairperson of the UAE-based Landmark Group told Gulf Business.

“As a retailer, you are used to working in a certain way with your supply chain and logistics but this challenges you in a different way. You’ve got to create content in a different way, photograph it in a different form, your IT has to be geared up for it and you have to be ready to deliver one dress to a customer instead of 100 dresses to a shop. It is a challenge.”

But despite these challenges, Jagthiani said that launching an e-commerce option Is the need of the hour and retailers have to be ready for such a shift.

“It is not the question of how attractive it is. You don’t do it because it is attractive but that is where the customers are. I think they are going to use both e-commerce and brick and mortar quite seamlessly and when that happens, you need to be able to work both ways.”