Dubai businesses continue discounting to stay competitive

Dubai Tourism

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Dubai retailers have continued to cut prices in a bid to remain competitive and clear inventory, according to industry experts.

Demand has held strong, and costs have now stabilised, with supply chain issues easing.

This month’s S&P Global Dubai Purchasing Managers’ Index (PMI), showed non-oil business activity in the emirate hit its post-pandemic peak five months ago.

“The Dubai PMI dropped to an 11-month low in January to provide a further signal that post-pandemic growth across the emirate peaked in the third quarter of 2022,” said David Owen, senior economist at S&P Global Market Intelligence.

“Nonetheless, the index was still well above the 50.0 no change mark at 54.5, supported by robust expansions in both output and new orders.”

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The PMI found that Dubai’s non-oil business sector has continued to show strong demand as it moved into the first month of 2023, with a rise in new orders, bookings and project launches, particularly in the construction sector, which saw the strongest increase in new work for three-and-a-half years.

“Dubai companies continued to benefit from relatively benign supply side and pricing conditions,” said Owen.

“Delivery times improved at the strongest rate in three-and-a-half years, while overall input costs were largely unchanged following a slight drop in December.

“These factors helped firms to increase their headcounts and boost inventory levels.”

These factors, combined with stabilising costs – which hit a four-and-half-year high in the summer of 2022 – means Dubai businesses have been able to continue discounting prices to remain competitive.

Sam Achampong, a board member of the British Business Group Dubai and Northern Emirates, and regional head of the Middle East and North Africa at the Chartered Institute of Procurement and Supply, said the improved supply chain situation had resulted in a backlog of inventory, allowing companies to discount to clear stock.

“We see organisations using reduced pricing strategies to stay competitive and keep their inventories fluid,” he said. 

“Companies in Dubai are able to maintain this competitive approach as they’ve built resilience within their supply chains based on their newly found understanding of operating in a continually volatile business environment.”

Ritesh Mohan, director of global sales at Liht Organics and founder of the retail blog RetailRitesh.com, agreed that Dubai had peaked in the third quarter of last year.

He believed that many retailers discounted in December during the holiday season in order to shift excess stock and boost their end of year sales.

“January saw reality bite as the retail demand showed a slight downfall (which is also shown in PMI index) despite good customer footfall or tourist influx,” he said.

However, Mohan warned retailers to be cautious of continued long-term discounting as it will turn consumers into ‘deal seekers’ and ‘bargain hunters’ and make it difficult to maintain healthy margins going forward.

“I believe Middle Eastern retail will gradually become more mature with time and would thrive even in the non-promotional periods. The key for retailers is to stay agile and keep their ears and eyes on to their shop floors,” he said.

Unsplash/Mostafa Meraji

Similar to the retail sector, the food and beverage industry has also seen businesses offer discounts in order to remain competitive. However Naim Maadad, chief executive and founder of Gates Hospitality and a board member of UAE Restaurant Group (URG), a trade body representing around 15,000 outlets, said this is not a sustainable long-term strategy.

“Inflation has an impact on our cost of goods and services, and the cost of running a business in general, such as licenses and municipal fees, not forgetting the wage increase syndrome,” he said.

“Ultimately it all boils down to supply and demand and, with the amount of venues we have (one of the highest per capita globally) on hand, the formula will not tally up if a business bases itself on discount philosophy.”

A URG survey last year found that 69 percent of respondents said they were in a stronger financial position than pre-pandemic times in 2019.