Online does fine: Internet shopping expected to grow to $1bn by 2020

Perhaps the biggest lesson for the potential of online retail shopping has come from the country with the biggest population. November 11 has been traditionally celebrated by male bachelors in China by having a drink to help fight the blues caused by their unmarried status. Five years ago the country’s largest online shopping company embarked on a campaign to transform this into a massive shopping event.

On November 11, 2013 Alibaba, which owns several e-commerce websites, processed more than $5.75bn in its online payments system – a global record total for one day. Although there is no suggestion that all 402m unique visitors to Alibaba sites on that “Singles Day” were made by forlorn bachelors, it was the adoption of this tradition as an excuse to shop that was the catalyst to achieving such growth. As a slew of reports from various international consultancies have pointed out throughout 2013, the similarities resulting in internet shopping practices between the world’s most populous country and one of its smallest are much greater than the differences. According to a report by Tata Consultancy Services online retail in the UAE was worth around $280m in 2012, a total that is expected to rise by around 250% to reach $1bn by 2020.

The 18% annual rate of growth needed to reach this figure is well within reach. Bain & Company consultancy group estimated that that the US will average 13% growth up to 2015, while the rate in China will slow from 71% seen in the 2009-12 period, to around 32% over the next couple of years.


According to the Global Retail E-Commerce Index compiled by consultants AT Kearney, the UAE has the 25th strongest potential in the world for online retail growth in the next five years. Its inclusion in the top 30 of 186 countries examined by AT Kearney is based on the level of bricks and mortar retail development as well as other factors, including the use of modern technology. Mike Moriarty, an AT Kearney partner and co-author of the study said on launching the report, “Consumers in developing markets are fast adopting behaviours similar to those in more developed countries. For example, mobile phones per capita in Russia (1.8) and the UAE (1.7) are much higher than many developed markets, including the US (1) and France (1). Consumers in these countries use their phones to research products, compare prices and seek input from their friends on social media.” In the first hour of Alibaba’s November 11 China super sale, 24% of the orders were submitted from smartphones. The Tata survey, released at the InRetail Summit in Dubai in September 2013, estimated smartphone penetration at 61% and social media penetration at 73%, “making the UAE favourable for internet shopping”. Although this and other online retail surveys examine the UAE as a whole, and not specifically Dubai, the majority of input comes from Dubai and Abu Dhabi because of their retail development, and especially from Dubai because the modern retail sector is almost three times the size of that in Abu Dhabi.


 Indeed the size, quality and range of the UAE malls underpinning the online potential has helped to push the country up in another retail index measured by AT Kearney. The UAE moved two places from seventh to fifth in the 2013 index of top ranked emerging markets for global retail investment. Three other GCC countries stayed in the top 20, Kuwait was nine, Saudi Arabia (16) and Oman (17), while Brazil, Chile and Uruguay occupied the top three slots. Kearney attributed the UAE’s improved position to its high retail sales and per-capita consumer spending, rising consumer confidence, slight population increase and its position as a regional tourism hub, noting that despite being saturated with global brands Dubai was continuing to grow.

In fact, global brands are so ubiquitous as to create challenges for local producers. Sudhir Chavan, the managing director of Unipex Dairy Products (London Dairy), told OBG, “The UAE is a challenging market for development of local premium products in the fast-moving consumer good category as there is a large expatriate population which keeps on changing, so global brands which are already known by the consumers find it easier than local brands to establish. Also, relative perception of international brand tends to be better, with some exceptions.”

Checking Out

 Tata’s results found that about a sixth of people who use the internet already shop online. However, store websites are used by up to half of all shoppers before they visit the actual outlet, according to Tata. That figure may be even higher.

Mike Bermingham, the head of merchandising and e-commerce at Landmark Group, said at the September retail conference in Dubai, “Two thirds of the customers in this market already are researching online before they go to shop.” Landmark Group, which operates the Oasis Centre, added online retailing to its activities in 2012. Although use of the internet to promote sales is on the agenda of other retail groups, the most efficient way of putting that into practice is still often a matter of debate. Tata said that more than three-quarters of retail establishments are working on ideas for online development, although only a few sell items online.

Landmark made forays into e-commerce with three brands. Its CEO, Vipen Sethi, told OBG the whole concept is new to the Middle East, but “will catch on bit by bit and is undoubtedly the future. The uptake of e-commerce has been a bit slower than in more developed regions, as physical outings to shopping arenas are part of the region’s culture,” he added. Iyad Malas, CEO of Majid Al Futtaim Holding, told OBG, “E-commerce in this region continues to pick up at a slower pace than other more developed regions due to the penetration rate of credit cards and the perceived risk of using a credit card online.”

And one area where e-commerce may take even longer to become established practice is the jewellery trade. Mehran Mahallati, vice president of Mahallati Jewellery, told OBG, “Despite the rapidly expanding presence of e-commerce within the broader UAE retail sector, the online marketplace is not expected to become a relevant distribution channel for higher end jewellery. “Although the luxury retail sector continues to see a strong resurgence, the jewellery segment is not expected to follow suit due to a generational shift in consumer buying behaviour toward other luxury items.”

For George Kostas, the CEO of Majid Al Futtaim Properties, the move into online retailing provided Dubai with an opportunity to learn from what had happened in the rest of the world, particularly the ways in which the internet has evolved and the means by which user engagement has changed. “The creation of a virtual online mall could well be an attraction for smaller, family owned retail outlets,” Kostas told OBG. “There are also opportunities for logistics services. Obviously we are in the mall business and we are studying the best use of the internet.”

Online Mall

 The idea for a virtual mall was taken up in 2013 by, which is based in Dubai and provides online sales for the kind of retailer that Kostas was describing. The company’s managing director, Ayaz Maqbool, explained to local press in September 2013, “We are not a retailer. We are a mall operator, so our success is very much driven by the number of stores that have joined Tejuri in the last six months and it has 100% increased from where we started in March [2013] and where we are today.”

Maqbool told reporters that there had been approximately 1m visitors to the site in the first six months and he wanted to increase that number to 1m a month over the coming two years. He too stressed the number of smartphones in the area as an advantage to operating a virtual mall, adding that there is “so much of a youth population here which enjoys the highest penetration in the internet across the globe that e-commerce will penetrate here faster than anywhere else in the world.”

At least four others, alshop, dubaibazaar, crazydeals and uae.souq, are ploughing a similar furrow. The Chinese experience overall has set the country on course to supplant the US as the largest online shopping market in the world. Forrester Research estimates that China will take in $290bn in 2013, $30bn more than the total for the US. Other forecasts put the Chinese total at approximately $500bn by 2015.

According to Martin Fabel, a partner and head of consumer industry and retail practice at AT Kearney Middle East, “The UAE retail e-commerce sector is varied when looked at in relation to three key indicator areas: it’s above the median on growth potential and infrastructure, meaning cheap delivery; below the median on consumer behaviour; and bottom of the table when it comes to market size.”

“The vital ingredients exist, however, to exploit the growth potential of e-commerce, consumer behaviour in the UAE must change. For instance, online shopping needs to provide an experience to rival the allure of shopping malls,” Fabel told OBG.

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The Report: Dubai 2014

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