The current economic scenario in UAE is in process of restructuring and on its way to economic turnaround. The future of UAE economy seems promising. This article takes an overview of the economic prospects of the UAE retail sector.
Fueled by trade, financial services and tourism, Dubai's economy has shown 2.4 per cent growth in 2010 and is projected to expand by another 3 to 3.5 per cent this year. The government initiatives to stablise and revamp the economy have re-imposed the faith of the investors and businesses. The federal investment policy to focus on non oil trade and give push to sectors like health, agriculture, real estate, alternative energy, services, industry, education and finance etc has evoked positive response among businesses and entrepreneurs. Several other sectors including, automotives, aviation, IT, telecom, financial services, electronics, health care, education and pharmaceuticals etc will also be given priority. It indicates a clear tactical shift in the government’s point of view to over haul the emirates economy by reducing its dependency on the oil trade revenues. This will offer immense scope for investment and opportunity to diversify the investment portfolio to mitigate risk.
Opportune time to enter UAE retail market
The region has been through a low economic cycle, recently. One may wonder if this is the right time to make the business investment and/or foray into the UAE retail market. According to the expert’s opinion, one can bank upon the low cost opportunity for new starts ups and also for expansion of the existing business on account of lower real estate prices and proactive federal support. Therefore, this positive after math of the economic crisis would make way for the new entrants to the entrepreneurial community as well as those who could not scale up earlier due to the high capital requirements.
Key growth factors
As per studies, the UAE retail sector is continuing with rapid growth for the past few years. The trend projections for its growth are pegged at CAGR of around eight per cent during 2011 to 2014. The development of the retail sector owing to:
Heightened construction activity: The emirates are witnessing heightened construction activity for building retail mall space. Therefore, availability of huge retail space and current low real estate prices has encouraged several international and local retailers to enter the market. The total retail space supply is predicted to touch 5.75 Million sq. mt by end of 2014.
Shopping Capital of the Middle East: Dubai truly serves its reputation of the ‘shopping Capital of the Middle East’ due to its world class infrastructure and tax free/ low tax regime. The retail infrastructure includes likes of Deira City Centre (DCC), Sahara Mall (Sharjah), Ibn Battuta Mall, Burjuman, Wafi City Mall and the Mall of Emirates.
Upcoming trend of hypermarkets: The trend of hypermarkets, supermarkets, and organised chains in the emirates has pushed the country’s retail sector. Also, there are projects like the Palm Jumeriah, Palm Deira, and The World, lending thrust to the retail sector in the UAE.
Shopping festivals: Boosters for the retail industry in form of shopping festivals i.e. DSF and DSS play an important role in increasing retail sales by presenting various brands and also offering attractive deals to the visiting shoppers. Many retailers participating in these events report swelling sales figures during these festivals.
UAE is the emerging international financial hub and witnesses’ large share of global economic and trade activity. The region is hall marked by its high income population and its luxurious life style. The economic crisis has given a new dimension to the consumer spending behavior. Now the Value/Budget Retail Brands are also getting fair retail market share. Although, the luxury brands are here to stay and grow, a parallel market for value retail brands or budget brands is also developing and many malls are giving space to these brands catering to budget consumer segment. Moreover, retail franchising, online retail sales are also important growth drivers for the retail sector in the region.
The challenge for the retail sector in UAE is to continue with its growing momentum. The government has taken several steps to restore the economy, debt re-structuring and gain investor confidence. But to avoid stagnation, the country needs ample economic diversification, less dependence on the oil trade and also keeps the inflation in check. The retailers have to deal with the ethical, religious and cultural sensitivities of the region for launching their retail concepts. Also, the regulatory authorities would require taking care of influx of counterfeit or imitation products that adversely impact the health and profitability of the retail industry.
To conclude, it can be said that the UAE retail sector is robust and poised for positive growth in future. The strong economic fundamentals, government support, enthusiasm of the retailers, a large domestic consumer base, emergence of Dubai as the global economic hub and the most preferred tourist destination will further boost the UAE retail industry.
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