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19 March 2024

Regional retail sector to grow at 13%

Emirati households account for the lion's share of spending in the UAE, with an average of $23,000 per annum. (EB FILE)

Published
By Vicky Kapur

The region's retail industry is expected to grow at a CAGR (compounded annual growth rate) of around 13 per cent during the next four years and will be valued at more than $675 billion (Dh2.48 trillion) by 2013, according to a new study, with the UAE contributing a quarter of the overall sales.

According to the report titled 'Middle East Retail Sector Forecast to 2013', issued by industry research firm RNCOS, the Middle East's retail sector, which has witnessed rapid transformation in activities on the back of changing market dynamics and fast-paced economic development, was valued at around $418bn in 2009.

According to another recent report by Business Monitor International (BMI), the UAE's retail sales are forecast to grow from $107.26bn in 2009 to $150.52bn by 2014. Key factors behind the forecast are strong underlying economic growth, increasing household consumption, growing acceptance of modern retailing concepts and expatriate wealth.

The BMI report put the average household spending power in the UAE at $14,400 per annum, quoting data from property consultants Colliers International. Emirati households account for the lion's share of this spending, the report highlights, with an average of $23,000, while Western, other Arab and Asian households have annual spending power of $19,500, $13,500 and $10,000, respectively, it said.

While Emiratis actively contributed to retail sales, the buying power of the country's expatriate residents was the major source of success, the RNCOS study said. Tourism is also a massive factor in stimulating retail growth, with the UAE expecting more than 11 million tourists in 2010.

Growing urbanisation is also a factor in the buoyancy of the retail sector. Abu Dhabi in particular is highly urbanised, with the Urban Planning Council projecting that Abu Dhabi city's population will rise to 1.3 million by 2013. BMI indicators predicted strong growth during the forecast period in the country's over-the-counter (OTC) pharmaceuticals sector, with sales expected to increase by 71 per cent, from $0.27bn in 2009 to $0.45bn by 2014.

Automotive sales are forecast to rise by 55 per cent, from $10.01bn to $15.50bn during the forecast period. Sales of consumer electronics are predicted to increase from $2.56bn in 2009 to $3.62bn by 2014, a rise of 41 per cent.

"Retail sales for our set of Middle East and Africa countries in 2009 amounted to an estimated $407.66bn, based on the varying national definitions. Total consumer spending for the region based on BMI's macro-economic database amounts to $704.94bn. In 2009, the UAE, Saudi Arabia, Egypt and South Africa together accounted for an estimated 78.4 per cent of regional retail sales, and their combined share is expected to rise to 81.3 per cent by 2014," the BMI report stated. "For the UAE, the estimated 2009 market share of 26.3 per cent is expected to reduce to 23.6 per cent by 2014," it added.

The RNCOS report identified the UAE and Saudi Arabia as the most potential and dynamic retail markets in the region. "These two markets have been sustaining their dominance on the retail landscape for more than a decade and will continue to do the same in coming years. The presence of a large expatriate population and [the] majority of [the] region's retail investment in these countries have helped to maintain the growth momentum," the report said.

It added that the Middle East has emerged as a key market for retailers across the world.

"The retail culture has evolved from traditional outlets to large shopping malls, hypermarkets, supermarkets and organised chains. Changing consumer demographics in countries such as Saudi Arabia and the UAE, presence of large expatriate population, improving purchasing power and abundance of petrodollars have attracted premium and luxury brands to the region," it stated.

It further pointed out that all the countries in the region did not react in the same way to economic downturn. "While some economies like Kuwait slumped, others such as Qatar thrived due to high demand for its gas. We anticipate that the Middle East retail industry will grow at a CAGR of around 13 per cent during 2009-2013 to more than $675bn."

The report covered GCC nations along with the retail industry of Turkey, Egypt, Iran and Jordan. High growth in Gross Leasable Area in the GCC is the key driver for booming retail in the region, it pointed out. Food retailing is another important growth area with food categories like "halal" growing rapidly, it said.

Turkey is expected to continue accounting for a majority of the retail sales in the region, while Oman is set to witness the maximum growth rate of around 33 per cent CAGR during 2010-2013, it said.