Retail Sector in GCC
February 27, 2023 | Retail Sector | No Comments
Understanding the Retail Sector in GCC
The retail industry in the GCC region is a dynamic and constantly evolving sector. With the rise of e-commerce and changing consumer preferences, the retail market in the region is facing new challenges and opportunities. In this article, we will delve into the current trends and developments in the retail sector in GCC locations and their implications for retailers and consumers.
Why Retail sectors are important in GCC regions?
The retail industry is a vital sector in the GCC (Gulf Cooperation Council) region and plays a crucial role in the region’s economic development. Here are some reasons why the retail industry is important in GCC regions:
Retail Sector on a High Growth Path in the GCC Region:
The retail sector in the GCC region has been growing rapidly in recent years, driven by expanding population, high disposable income, and a rising standard of living. The region’s retail market is dominated by a few large players, such as Saudi Arabian conglomerate Al-Futtaim Group, Al Shaya Group of Kuwait and the UAE-based Majid Al Futtaim. Between them, these large players have more than 50 large retail malls and hundreds of retail franchise brands. Additionally, there are many smaller players and international companies operating in the region. The GCC retail sector is expected to grow between 9 and 10% annual growth between 2022 and 2026, Saudi Arabia is expected to lead this growth over the next five years, accounting for more than half of the total growth.
High Levels of Disposable Income of GCC Families:
The GCC region has high per capita incomes due to its vast oil and gas reserves and low population base. This leads to a high level of disposable income that often range from USD 100,000 to 150,000 per annum. Such high annual incomes allow families to spend on a variety of items including on luxury goods and services. Many GCC countries have favourable tax environment, with no or low taxes on personal incomes. This improves the disposable incomes of families.
Rapid Modernization of the Retail Sector in the GCC:
In recent years, the GCC retail sector has undergone significant modernization, owing to a combination of factors such as evolving consumer preferences, stiff competition among property developers to attract shoppers and technology improvements. Retailers in the Gulf Cooperation Council (GCC) region are adopting omnichannel approach to retailing, which entails integrating their online and offline channels to provide customers with a seamless shopping experience. This includes strategies like click-and-collect, which allows customers to buy products online and pick them up in-store. To improve customer experience and operational efficiency, they are investing in new technologies such as artificial intelligence, machine learning, and big data analytics. Some retailers, for example, use AI-powered chatbots to provide customer service, whereas others use big data analytics to personalise the shopping experience.
International Brands and Luxury Retail in GCC:
Most international retail brands have significant presence in the GCC region. Additionally, there is an ever growing list of local brands that are providing best in class goods and services to consumers. GCC has a large and affluent consumer base and the retailers are capitalising on it by concentrating on luxury retail. High-end brands like Gucci, Louis Vuitton, and Chanel have scores of stores in the region, and malls like The Avenue Mall, Riyadh Park Mall, Dubai Mall and the Mall of the Emirates have become luxury shopping destinations. By the end of 2023, the GCC luxury market is expected to be worth nearly $12 billion, with international brands eyeing to take a large slice of this. According to government spending data, local consumers are spending 45% – 65% of their luxury spending in-country post the travel inhibitions post Covid 19 pandemic; online sales have also increased significantly since 2019. Luxury fashion brands have been developing local strategies to attract consumers in the GCC region; key new players are Al Tayer Group, Etoile Group, AW Rostamani Group, and The Estee Lauder Companies Inc.
E-commerce in GCC:
The rise of e-commerce is another factor contributing to the growth of the GCC retail sector. While online shopping in the region is still in its early stages, it is expected to grow rapidly in the coming years as more consumers become acquainted with the concept and retailers invest in e-commerce platforms. E-commerce growth has transformed the retail sector in the GCC region. Consumers are increasingly shopping online, and retailers are making significant investments in their online systems to meet this demand. E-commerce platforms like Amazon, Souq, Noon, etc. have grown in popularity in the region, allowing consumers to buy products from the comfort of their homes.
Government Support to Retail Sector in GCC:
Governments in the Gulf Cooperation Council (GCC) region have actively supported the development of the retail sector through initiatives such as the establishment of free trade zones, the construction of new infrastructure, and the implementation of favourable regulations. The GCC countries have taken a number of steps to assist the retail sector, particularly in light of the economic impact of the COVID-19 pandemic. They’ve announced stimulus packages to help businesses, including the retail industry. For example, the government of the United Arab Emirates (UAE) announced a 100 billion dirham ($27.2 billion) economic stimulus package that includes measures to help businesses, including retail. Governments of some GCC countries have also offered rent relief, waived or reduced fees, and announced tax relief measures for businesses, including retail. For example, the government of Bahrain has announced a six-month rent waiver for all tenants in government-owned properties, including retail shops; the government of Saudi Arabia has announced a three-month waiver of some commercial and industrial fees; and the government of Oman has announced a temporary reduction in corporate income tax rates for small and medium-sized enterprises (SMEs) in the retail and hospitality sectors.
Increase in Regional Tourism and Its Impact on Retail Sector in GCC:
Over the years, the GCC region has seen a significant increase in regional tourism, with many countries including the UAE, Saudi Arabia, and Qatar, investing heavily in their tourism industries. This expansion has had a significant impact on the GCC retail sector. The rise in demand for luxury goods is one of the most significant effects of increased tourism on the GCC retail sector. Many wealthy visitors to the region want to buy high-end luxury items such as designer clothing, jewellery, and watches. The retail industry has responded by establishing more luxury stores and boutiques in popular tourist destinations such as Riyadh, Dubai, Abu Dhabi, and Doha. Shopping malls in the GCC have become popular tourist destinations, with many of them offering a variety of shopping, dining, and entertainment options. This has increased mall footfall, which has resulted in increased sales for retailers. As per Arabnews, retailers have reported higher turnovers due to inflation rises and consumers increasing spending on necessities, leading to consolidation among major players such as Walmart Inc. and Amazon Inc.
Diversification Of GCC Economies to Retail Sector:
Historically, GCC countries have relied on their oil and gas industries for economic growth and development. However, many of these countries have recognised the need to diversify their economies in recent years to reduce their reliance on oil and gas. The retail trade sector is one that has received a lot of attention for diversification. The retail sector is seen as a potential area for economic diversification in the GCC for several reasons. For starters, the region is home to an increasing number of affluent consumers who are increasingly interested in shopping for luxury goods and experiences. Second, because the GCC countries are strategically located between Europe, Asia, and Africa, they are appealing to international retailers looking to expand their footprint in the region. Third, the rise of e-commerce and digital retailing has opened up new channels for retailers to reach customers in the GCC and beyond. Many GCC countries have implemented policies and initiatives aimed at attracting and supporting retail businesses to encourage economic diversification towards the retail sector. They have, for example, streamlined the process for establishing new retail businesses, provided incentives for retailers to invest in the region, and built modern infrastructure and transportation networks to support the sector’s growth. The retail sector in the GCC region is a diverse and rapidly growing industry that is expected to continue to expand in the coming years.
How Estater helps on retail sectors in GCC locations?
Estater have detailed and comprehensive data on retail malls in the GCC region that can provide intricate details in these trends.
- Market insights: Inventory build-up and occupancy trends.
- Location analysis: Market gaps and retail catchment analysis.
- Competitor Benchmarking: Estater can help businesses understand their competition and make strategic decisions.
- Leasing Trends: Lease rate and tenant mix analysis.
- Demographic analysis: Combining retail sector data with demographics of the areas, Estater can help businesses understand their target audience.