Margins tighten for UAE retailers ahead of holiday season

• Retailers expect busy season
• Inventory increases raise costs
• Reluctance to raise prices

In the run-up to the holiday season, the UAE’s retailers are enjoying a healthy rise in new business and stocking up on inventory to meet demand.

While a busy period is expected, costs continue to increase. To remain competitive, businesses are not increasing prices, meaning margins are being squeezed even further.

The latest S&P Global UAE Purchase Managers Index reported that the non-oil sector reported a “sharp rise” in new business and businesses had recorded “the greatest expansion of inventory levels for close to six years”.

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The rush for new stock has put pressure on supply chains, contributing to already rising costs. The S&P survey reported that costs in November “remained stronger”, but prices have not followed suit and stay “largely stable”.

“This is true,” Halima Jumani, founder and CEO of family-owned food delivery company Kibsons, told AGBI. She conceded that inventory levels and costs were running high, meaning it was very much a shoppers’ market.

“In short, competition is high and this is good news for the consumers as they can benefit from variety as well as affordability.”

Anita Baker, managing director at Lush Fresh Handmade Cosmetics in the Middle East, said the rise in new orders started in September and October. Companies such as hers, which operate in fresh produce, where there is an eight-week lead time on the order of new stock, are susceptible to supply chain challenges.

“This freshness and handmade [stock] comes at a cost, some inevitable air freight rather than sea freight and overtime costs at the factory level have added some cost pressures,” she said.

Erika Doyle, CEO of Drink Dry, which imports non-alcoholic beverages to the UAE, said her stock levels were at an all time high.

However, she said operational costs have also risen sharply compared with when the company was launched three years ago. “We have received multiple price increases over the last 12 months from our suppliers and have been incredibly conscious to not immediately pass this on to our customers,” Doyle said.

“The much anticipated decrease in shipping and logistics costs is still to be seen and we are still seeing high shipping costs across the globe.”

Drawing in customers

With retailers unable to increase prices to counter the rise in costs, mall operators have encouraged tenants to engage in marketing activities to entice shoppers.

“Collaborative initiatives and exclusive events can enhance the shopping experience, attracting more customers and mitigating the impact of squeezed margins,” said Nancy Ozbek, general manager of the Times Square Center mall in Dubai.

A study of consumer behaviour released this week by consultancy Simon Kucher found that shoppers are certainly buying. The survey found that 94 percent of UAE consumers plan to make purchases during the sales on offer this holiday season.

Despite the rising cost of living, 43 percent said they plan to spend more than in the same period last year, with just 27 percent saying they will cut back.

The most popular sector shoppers are targeting is clothing and shoes (favoured by 86 percent), followed by groceries (52 percent) and technology (50 percent).

Pamela Lilburne Opie, CEO and founder of homewear company Linen Obsession Textile Trading, said there was a lot of discounting occurring in the retail sector as many consumers are still opting to spend their disposable income on travel and dining after Covid.

"We know that the festive season brings increased revenue,” said Katy Holmes, general manager at the British Business Group in Dubai and Northern Emirates.

“But the S&P report of pressures on margins is a reminder that success lies in the strategies that sustain profitability throughout the year."