Abu Dhabi- The UAE continued its strong growth as a dynamic retail market, securing the fourth spot in the 2014 A.T. Kearney Global Retail Development Index™ (GRDI). Retail sales in the UAE grew 5 percent in 2013, boosting annual sales to $66 billion and seeing the UAE climb one spot in the GRDI from last year, to claim its highest position ever on the index.
Factors influencing the growth of the UAE’s retail industry include the construction and infrastructure boom,a growing and young population, strong GDP growth, and increasing consumer confidence and spending.Dubai’s winning bid for Expo 2020 highlights the country’s massive infrastructure and development projects in the pipeline.The expected influx of visitors around Expo 2020 will see retail and tourism benefit, combining with a continued rise in consumer spending per capita to result in further significant retail development.
Changing consumer demands has also had a positive effect on retail development in the UAE. On one hand, consumers are seeking greater proximity of outlets, leading to more community formats like Majid Al Futtaim’s My City Centre in Sharjah, which caters to local community residents with retail and lifestyle-orientated store. On the other hand, retail saturation has led to innovative concepts like The Beach, the outdoor cinema and beachfront mall at Jumeirah Beach Residence in Dubai.
Commenting on the index findings, Dr. Martin Fabel, Partner and Head of Consumer Industry and Retail Practice at A. T. Kearney Middle East, said: “The GCC retail sector continues to be considered among the leading markets globally. The UAE has a growing need for more sophisticated formats to cater to changing consumer needs. Consumers are demanding more proximity and retail saturation has brought about some interesting and innovative concepts, including increased use of social media to communicate with increasingly tech savvy consumers in the UAE.
“The statistics point to sustained future growth for the UAE, maintaining the upward trend seen in previous GRDIs. Continued year-on-year increases in GDP per capita, retail spending per capita and retail sales points in conjunction with significant retailer entry and expansion from local retailers points to a bright future in retail for the UAE,” added Fabel.
The growth of the segment is reflected in the retailer entries, with several major brands establishing outlets in the UAE and others expanding their presence. New entrants in the market include UK-based toy retailer, The Entertainer, which is launching its first store in Dubai and prominent UK department store House of Fraser establishing a branch in Abu Dhabi. UAE luxury retailer, Chalhoub Group, is leading the growth from a local brand perspective, with 50 new stores planned.
Regional retailers are also becoming important players in emerging markets by using their proximity as a competitive advantage to secure a share of neighboring markets, such as UAE-based LuLu Hypermarkets and Majid Al Futtaim that have continued to expand throughout the Gulf region in recent years.
The wider GCC also performed strongly, with Kuwait climbing one spot to rank in 8th position in this year’s index. Saudi Arabia continues to remain fundamentally attractive to retailers looking to expand, and maintains 16th spot in this year’s GRDI and Oman, underpinned by strong growth in the grocery sector in particular, ranks 17th in the 2014 index.
The report suggests there are four stages markets pass through as part of retail development – opening, peaking, declining and closing – as they evolve from emerging to mature markets, a process that typically spans five to 10 years. The underlying theory is the retail ‘window of opportunity’ opens when the population becomes wealthier, when logistics start improving, when ownership regulations become more friendly to international firms, and when the country’s various economic, political and social risks settle down to acceptable levels.
Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide (see chart below). The Index, in its fourteenth year,analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities.These variables fall under four main ingredients which are evaluated in determining where a country comes in the GRDI. These are market attractiveness, country risk, market saturation and time pressure. The score for each segment contributes to the overall GRDI score, determining the ranking.