The GCC retail market has been hit hard in recent years, but the sector's long-term fundamentals remain strong. A prolonged period of low oil prices and weak domestic demand has hampered regional development. However, there has been a stabilization of oil prices and steps taken by provincial governments in 2018, such as streamlining retail infrastructure and improving the investment landscape. Mega-events are also expected to have a positive impact on the retail sector.
Traditional retailers have gained new revenue streams as a result of changing trends in the GCC retail sector, such as digitalization, private labels, and rising healthy lifestyle preferences.
Prospects for the GCC Sector
- The GCC retail sector is expected to grow at a CAGR of 4.0 percent from US$ 253.2 billion in 2018 to US$ 308.0 billion in 2023. Following a decline in 2017, retail sales are expected to rebound and rise by 2023, owing to projected increases in population and international tourist arrivals.
- During the forecast period, total retail sales in the GCC countries are expected to rise at a CAGR ranging from 2.2% to 5.1%, with the UAE, Qatar, and Bahrain growing the fastest.
- Non-food retail sales are expected to grow at a CAGR of 4.7% between 2018 and 2023, driven by an increasing expatriate and traveler population, as well as demand for global concepts. Food retail sales are expected to rise at a CAGR of 2.8% over the next decade, owing to an expanded customer base and increased demand for healthier food products.
- Airport-based duty-free sales in the GCC are expected to increase by 8.8 percent on an annualized basis during the period. The expected increase in international passenger traffic as a result of easier visa regulations and upcoming mega-events can be attributed to the strong growth.
- Personal luxury goods sales in the Middle East, primarily represented by the GCC nations, are expected to rise steadily by 4.0 percent between 2018 and 2023.
- With 80 percent of the expected retail space additions completed, 5.2 million sq m of retail space is likely to arrive in the GCC in the five years to 2023, amounting to an organized retail gross leasable area (GLA) of 20.4 million sq m, potentially creating an oversupply situation.
Growth Factors of GCC Retail Sector
Here is some of the growth factor of GCC Retail Sector
- Between 2018 and 2023, the GCC population is expected to grow at an annualized rate of 2.3%. The main factor is an expanding consumer base dominated by a high proportion of expatriates, young people, and working-class people.
- GDP (PPP) per capita (at constant prices) in the GCC is expected to rise at a CAGR of 0.4% during the forecast period. An expected economic recovery will likely boost consumer confidence and spending in the future.
- The tourism industry is expected to grow steadily, owing primarily to government initiatives to relax visa requirements, as well as increased investments in leisure attractions.
- Several massive malls and shopping centers are currently under construction in the GCC, as governments and private players invest in infrastructure development to support the growing population, the expanding tourism sector, and rising per capita GDP.
- The retail e-commerce sector in the Gulf Cooperation Council (GCC) is expanding due to the increasing penetration of mobile phones and social media channels. Improved access to secure payment gateways, as well as continuous improvement in logistics capabilities, increase penetration and contribute to industry growth.
Challenges of GCC Retail Sector
Some of the challenges faced by the GCC Retail Sector
- The GCC region has faced several challenges as a result of the prolonged period of low oil prices, prompting governments to make bold decisions to focus on fiscal consolidation by reducing subsidies and curtailing public spending. It has contributed to a reduction in infrastructure programmes, cost-cutting across industries, and a decrease in consumer spending.
- The growing number of foreign brands operating in the region has exacerbated competition in the retail sector. Retailers are implementing aggressive advertising strategies such as offering discounts to increase sales. While such a process should improve top-line growth, it has resulted in margin pressures.
- Rental rates have risen due to increased penetration of high-end retailers and demand for retail space in most GCC countries, particularly the UAE. Retailers are putting pressure on new labor localization rules, market-priced utility prices, and new tax policies such as value-added tax (VAT).
- The imposition of VAT harmed consumers' purchasing power; some distributors chose to bear the tax in order to maintain sales.
- The GCC retail industry is still concerned about counterfeit goods of authentic brands, which are eroding profit margins and foreign brand recognition.
Trends of GCC Retail Sector
These are the following trends of GCC Retail Sector
- With the increased acceptance of smart phones, internet penetration, and other digitized services, retailers in the GCC are pursuing omni-channel market models.
- The GCC retail sector is expected to undergo significant change as a result of the likely introduction of Augmented Reality, Virtual Reality, Image Recognition, and Computer Vision Technology for Artificial Intelligence.
- This technological advancement will increase margins and customer-centricity while also allowing for a better understanding of changing consumer preferences through data analytics.
- Private labels are gaining popularity and have emerged as an important revenue source for supermarkets and hypermarkets. Furthermore, the recent downturn in economic activity in the GCC has emerged as a driver for distributors to push private labels, owing to shifts in consumption habits.
Over the last two years, the GCC retail sector has seen healthy deal-making activity, both intra-regional and cross-border, with a strong emphasis on e-commerce/online retail. Despite difficult times and long-term pillars such as economic fundamentals, moderate growth in the GCC retail sector is driven by revival, customer base expansion, increased tourist arrivals, mega international events, and a growing e-commerce industry.
There is a lot of retail space available in the GCC countries, and many projects are in the works. Foreign players are increasing their presence, and current distributors are expanding as well. Until now, the region has remained unaffected by falling oil prices. Economic development, increasing diversification, and a growing population, particularly among high-net-worth individuals, are some of the significant growth factors that have led to an increase in retail sales in the GCC region. To get the best of both worlds, it is advantageous to have a presence both online and offline.
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