The GCC retail market has encountered tough times in recent years, but the sector's long-term fundamentals remain intact. Regional development has been undermined by a prolonged period of low oil prices and domestic demand weakness. However, stabilising oil prices and steps taken by provincial governments in 2018 have been observed, such as streamlining retail infrastructure and improving the investment landscape. Also, it is expected that mega-events would have a positive impact on the retail sector.
The changing trends in the GCC retail sector, such as digitalisation, private labels and increasing healthy lifestyle preferences, have provided traditional retailers with new revenue streams.
GCC Sector Outlook
- The size of the GCC retail sector is expected to rise from US$ 253.2 billion in 2018 to US$ 308.0 billion in 2023 at CAGR 4.0 per cent. Retail sales are likely to rebound and rise by 2023, led by the projected increase in population and international tourist arrivals, after witnessing a decline in 2017.
- Total retail sales in the GCC nations are expected to rise at a CAGR in the range of 2.2 per cent to 5.1 per cent during the forecast period, with the UAE, Qatar and Bahrain growing the fastest.
- Non-food retail sales are projected to rise at a CAGR of 4.7 per cent between 2018 and 2023, driven by the growing expatriate population and travellers and demand for global concepts. Food retail sales are likely to rise at a CAGR of 2.8 per cent over the era, powered by an expanded customer base and demand for healthier food products.
- Airport-based duty-free sales in the GCC are expected to rise at an annualised average of 8.8 per cent during the period. The strong growth can be attributed to the estimated rise in international passenger traffic due to the ease of visa regulations and the upcoming mega-events.
- In the Middle East, sales of personal luxury goods, mainly embodied by the GCC nations, are projected to rise steadily by 4.0 per cent between 2018 and 2023.
- With 80% completion of the expected retail space additions, 5.2 million sq m of retail space is likely to arrive at the GCC in the five years to 2023, amounting to an organised retail gross leasable area (GLA) 20.4 million sq m, that may create an oversupply situation.
- The GCC population is expected to increase at an annualised rate of 2.3 per cent between 2018 and 2023. An increasing consumer base dominated by a high proportion of expatriates, young people, and the working-class population is the main factor.
- In the GCC, GDP (PPP) per capita (at constant prices) is expected to increase during the forecast period at a CAGR of 0.4 per cent. In the future, an expected economic rebound is likely to boost consumer confidence and spending.
- It is expected that the tourism industry will see steady growth, mainly driven by government initiatives to ease visa standards coupled with increasing investments in leisure attractions.
- Several massive malls and shopping centres are currently developing in the GCC, amid investments by governments and private players in infrastructure development to complement the growing population, the rising tourism sector, and rising per capita GDP.
- Due to the growing penetration of mobile phones and social media channels, the GCC’s retail e-commerce sector continues to grow. Also, improved access to safe payment gateways and a steady improvement in logistics capabilities increase penetration, contributing to industry growth.
- The prolonged period of low oil prices has led the GCC region to face several challenges, leading governments to take bold decisions to concentrate on fiscal consolidation by reducing subsidies and curtailing public spending. It has contributed to a decline in infrastructure programmes, cost rationalisation across industries, and a downturn in consumer spending.
- Competition within the retail sector has been exacerbated by the growing number of foreign brands operating in the region. Retailers are introducing aggressive advertising strategies by providing discounts to drive sales further. While such a process should improve top-line growth, margin pressures have resulted.
- Increasing penetration of high-end retailers and demand for retail space in most GCC countries, especially the UAE, has increased rental rates. New labour localisation rules, market-priced utility prices and new tax policies such as value-added tax are pressurised by retailers (VAT).
- The implementation of VAT harmed consumers’ buying power; some distributors chose to bear the tax to continue attracting sales.
- The GCC retail industry continues to be concerned with counterfeit goods of authentic brands, eroding the profit margin and foreign brand recognition.
- Retailers in the GCC are pursuing omnichannel market models with increased acceptance of smartphones, internet penetration and other digitised services.
- The GCC retail sector is expected to experience a significant change with the probable shift introducing Augmented Reality, Virtual Reality, Image Recognition, and Computer Vision Technology for Artificial Intelligence.
- This technology enhancement will increase margins and customer-centricity and, with data analytics, allow for a deeper understanding of evolving consumer preferences.
- For supermarkets and hypermarkets, private labels are gaining popularity and have emerged as an essential revenue source. Furthermore, due to shifts in consumption habits, the recent downturn in economic activity in the GCC has emerged as a driver for distributors to push private labels.
Over the last two years, the GCC retail sector has seen healthy deal-making activity, both intra-regional and cross-border transactions, with a significant focus on e-commerce/online retail space. Despite harsh times, long-term pillars, such as economic fundamentals, moderate growth in the GCC retail sector is driven by revival, expansion of the customer base, increased tourist arrivals, mega international events and growing e-commerce industry.
In GCC countries, a lot of retail space is available, and many projects are underway. Foreign players are growing their presence, and current distributors are also expanding. Up to now, the region has been immune to falling oil prices. Some of the significant growth that has led to the rise of retail sales in the GCC region are economic development, increasing diversification, and a growing population, especially among high-worth individuals. It is advantageous to have a presence online and offline to get the best of both worlds.