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GCC retail industry prospects remain strong despite slowdown

The size of the GCC retail sector is forecast to grow at a CAGR of 4.6 per cent from $250.5 billion in 2016 to $313.2bn in 2021, according to investment banking advisory firm Alpen Capital.

After witnessing a drop in 2016, retail sales are likely to grow at a slow pace in 2017, in view of the prevailing economic environment.

Nevertheless, the sector is expected to recover in 2018 and grow steadily through 2021, driven by the expected rise in population, international tourist arrivals and per capita income.

A new report on the GCC retail industry by Alpen Capital presents an overview of the retail landscape in the GCC as well as a synopsis of the demand-supply dynamics of the industry.

Digital reforming retail landscape

Sameena Ahmad, Managing Director, Alpen Capital, said: “The GCC retail sector continues to remain an active contributor to the region’s economic development. Although it is experiencing a slowdown, the long-term fundamentals of the sector remain strong and are expected to grow steadily through 2021. A favourable demography, high per capita income and an active tourism industry have attracted renowned international retail brands to the GCC.”

“Changing consumer preferences and proliferation of digital devices are further reforming the region’s retail landscape,” Ahmad adds. “The numerous mall developments in the pipeline and the growing penetration of modern store formats are a testament to immense opportunities in the sector. Furthermore, government efforts to encourage foreign investments, to strengthen tourism infrastructure and prevent entry of counterfeit products are lending impetus to the GCC retail sector.”

Mahboob Murshed, Managing Director, Alpen Capital, said: “Though the GCC retail sector has been under pressure for the past couple of years, it is poised to grow at a moderate pace in light of the stabilisation of oil prices and economic revival, expanding consumer base, increase in tourist arrivals, mega international events and a growing e-commerce market.”

He noted: “This, coupled with positive long-term demand prospects, has paved way for development of several mega malls and neighborhood shopping centers in the region. We also expect foreign companies to invest in regional retail entities to establish a strong foothold in the region.”

GCC retail sales growing

Between 2016 and 2021, non-food retail sales are anticipated to grow at an annual rate of 5.3 per cent, led by the increasing number of youngsters and expatriates, who are propelling demand for innovative, trendy and international consumer products.

During the period, food retail sales are likely to grow a CAGR of 3.5 per cent, driven by the expanding consumer base and demand for health foods. The GCC population is expected to grow at an annual rate of 2.3 per cent between 2017 and 2021.

An expanding consumer base, comprising a high proportion of young and working-class customers, is the major growth driver for the retail sector.

GDP per capita (at current prices) in the GCC is projected to expand at a CAGR of 4.3 per cent during the forecast period and is also likely to drive the growth of the sector.

Going ahead, an anticipated recovery in economic conditions is likely to boost consumer sentiments and spending.

Saudi Arabia and Bahrain growing the fastest

During the forecast period, total retail sales in the GCC nations are projected to grow in the range of 3.3 per cent to 5 per cent. Saudi Arabia and Bahrain are expected to register the fastest growth, driven mainly by increase in tourism activity and per capita income.

Supermarket/Hypermarket sales

Sales at supermarkets/hypermarkets are forecast to grow at a CAGR of 4.3 per cent between 2016 and 2020. A faster growth rate than food retail sales indicate the rising penetration of such stores.

The retail e-commerce market in the GCC is expanding, given the increasing use of Internet and social media, better access to secure payment gateways and gradual improvement in the delivery system.

The region’s e-commerce sale is expected to touch $41.5bn by 2021. The UAE is the largest online retail market in the GCC, with a market share of 53 per cent, followed by Saudi Arabia (14 per cent), Oman (12 per cent) and Qatar (ten per cent).

As demand increases, the region is likely to see emergence of new e-tailers and a revamp of online portals by traditional retailers.

Airport duty free sales

During the same period, airport-based duty free sales in the Middle East are projected to grow at an annual average of 7.9 per cent, in anticipation of an increase in passenger traffic at the international airports.

Tourist inflow will continue to rise, as the region is witnessing a spate of infrastructure and tourism-related developments.

The mega events of World Expo 2020 in Dubai, 2022 FIFA World Cup in Qatar as well as increasing number of pilgrims to Saudi Arabia will have an impact on tourist arrivals in the region and boost the retail sector.

Luxury retail sales

The sale of personal luxury goods in the region are expected to witness a steady growth of 3.2 per cent. After declining in the last couple of years due to dampened consumer sentiments and a strong US dollar, sales of personal luxury goods are likely to recover and grow at a stable pace through 2021.

Supply-side estimates – Organised retail sales area

The growth projections of retail area supply in the GCC exceed that of overall retail sales.

Organised retail GLA in the GCC is anticipated to grow at a CAGR of 8.4 per cent between 2016 and 2021 taking the total organised retail GLA in the region to 18.6 million sqm (at 80 per cent occupancy).

The rapid rise in supply amidst the economic slowdown is likely to create an oversupply situation in the UAE, Qatar and Oman.

Watch this space for more updates on the Middle East retail sector.