Dubai’s shift to digital retail

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Online shopping is expected to drive retail growth in Dubai in the coming years, though migration toward e-payment remains a stumbling block for some consumers.

Digital retail is expected to account for 21.5% of global sales by 2018, according to data from the Centre of Retail Research, with Dubai on course to post some of the strongest e-commerce growth in the region.

This was one of the key messages at the 10th World Retail Congress, which took place in the emirate from April 12 to 14.

Industry leaders highlighted the need for adaptability and flexibility as online retail grows, while advising against adopting a purely on- or offline approach to customer engagement.

Cultivating the broader customer experience and tapping into lifestyle trends were also suggested as possible routes to success, which could help conventional retailers maintain market share.

Groundwork laid for growth

High penetration rates for smartphones and tablets in Dubai, along with greater use of credit and debit cards, have laid the foundation for rapid expansion of online retail, according to a new report issued by Dubai Chamber.

Medium-term growth for internet retailing is forecast to increase at a compound annual growth rate (CAGR) of up to 34%.

Dubai’s wider retail industry, meanwhile, is projected to expand by 7.7% this year, before growing at a CAGR of 8.1% from 2017 through to 2020. This should see sector turnover rise from an estimated $35.4bn in 2015 to more than $52bn by the end of the decade, according to Dubai Chamber.

For its part, the broader MENA e-commerce market has the potential to expand at low double-digit rates through to 2020, roughly half the rate forecast for Dubai, according to German business intelligence firm yStats.com.

Success story

The emirate’s online retail prospects are strengthened by the presence of the region’s largest e-commerce platform, Souq.com.

The Dubai-based firm completed a funding round of over Dh1bn ($272m) in late February, to be channelled into technology, scaling marketplace operations, launching new product categories and recruitment, Ronaldo Mouchawar, CEO and co-founder of Souq.com, told media.

While online retailing in Dubai will see its market share increase considerably in the coming years, the Dubai Chamber report noted the segment will likely still account for a relatively small share of total sales.

The retail sector cannot afford to ignore e-commerce as an avenue for development, Nisreen Shocair, president of Virgin Megastore, MENA, told OBG.

“E-commerce is the largest threat and the biggest opportunity,” she said. “When we look at absolute numbers across the Middle East, online sales are still not significant compared to physical retail, but the double-digit growth is there. As retailers continue to chase growth, the online channel will be one to take a lot more seriously.”

Steady progress

Smart Dubai, the emirate-wide drive to increase the range of services available online, has supported e-commerce growth, while also helping to familiarise citizens with electronic services and instil trust in online payment systems.

However, migration to e-payment has proved to be a slow process in Dubai, with cash and cheques still the preferred method of payment for many consumers.

Other obstacles include a move by over-the-counter retailers to develop shopping into a broader experience by building in added social and entertainment attractions, according to Ashish Panjabi, COO of electronics retailer, Jacky’s Group of Companies.

“While e-commerce is definitely growing in Dubai, its penetration is still behind markets in the West,” he told OBG.

Online shopping currently accounts for less than 2% of Dubai’s total retail sales by value, according to Dubai Chamber, significantly lower than in US and European markets, where the figure is between 17% and 20%.

Panjabi added that the gap in e-commerce penetration could be explained in part by the late-night opening hours in Dubai’s malls and the fact that community shopping centres are easily reachable for customers.

“The situation is different in some other cities, where people need to drive a long way to reach a shopping mall,” he said.

Best of both worlds

Aarti Jagtiani, director of the Dubai-based Landmark Group, believes retailers should move away from viewing industry growth as brick-and-mortar versus e-commerce, and instead aim to reach their customers via both channels.

“It’s about looking at the challenge more holistically and putting the customer in the front,” he told local media in April. “Both online infrastructure and store expansion must grow together, so I don’t think it can be split up, and we should have one strategy across both.”

For its part, Souq.com has sought to bridge the gap between the traditional and the digital by accepting cash on delivery, which is preferred by many consumers in the region.

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