Analysis
Retail

UAE retailers face rising costs as shoppers demand more

December 18, 2024, 12:39 PM

Retailers in the UAE are focusing on store fit-outs and events among other approaches to keep customers loyal

Spending increased 4.8% in Q3
Some retailers cut marketing budget
Rising population to spur industry in 2025

Rising costs for UAE retailers risk hitting marketing budgets in 2025 – even though consumers are spending more cash.

Increases in raw material costs and supply chain delays are tightening the margins for companies, experts have pointed out.

Still, a sharp increase in the use of artificial intelligence in the retail industry next year is expected to be a central trend.

Customers are now demanding a more personalised shopping experience through loyalty programmes and this will help drive sales.

A survey from consumer intelligence company NielsenIQ found that spending in the UAE on fast-moving consumer goods, technology and durable products reached $3.7 billion in the third quarter, an increase of 4.8 percent.

Its Q3 Retail Spend Barometer reported that growth was driven by back-to-school sales and the growing prominence of convenience retail. But some UAE retailers are finding the reality distinctly different.

Natasha Hatherall-Shawe, CEO of TishTash PR agency, says several clients have reported that consumer spending is down, forcing them to cut next year’s marketing budgets by up to 50 percent. This is a “knock-on from a tricky year in the retail segment,” she tells AGBI.

Rising rents also continue to be a factor. Ashish Panjabi, chief operating officer at UAE electrical retailer Jacky’s, says foot traffic and sales have been healthy, but the rent has been “increasing at rates far outpacing the rise in sales volumes”.

“As retailers, we need to continuously re-invest in technology, fit-outs, training and experiences if we want to remain world-class,” Panjabi says.

“But landlords need to realise that by increasing rents, they are holding back what we could potentially be investing into retail.”

Panjabi says sales of televisions and home appliances have been on the rise this year. In luxury villas, “it isn’t uncommon to see between six to twelve televisions being installed.”

Julia Moore, commercial director at bed manufacturer Helmii, has noticed a change in consumer behaviour in the last 18 months. Clients are seeking genuine deals, which are affecting business margins in a competitive market.

“Clients are now ordering smaller and narrower beds than before to accommodate smaller room sizes, more aligned to European-sized products,” Moore says.

But David Cantatore, retail lead at NielsenIQ Middle East, says there is still significant growth potential in the UAE. This was being fuelled by “a growing population and the development of new areas.”

Cantatore also makes it clear that loyalty programmes and advertising campaigns are emerging as growth drivers in the retail industry.

“Success hinges on offering the right product assortment at competitive prices, complemented by a compelling loyalty programme to engage customers,” he says. To get a proper return on ad spend, retailers need strong loyalty card adoption, advanced analytics capabilities, and technology-driven personalised targeting.

Anita Baker, managing director at cosmetics retailer Lush Middle East, says the company focuses on making its stores more than just places to buy products with events and workshops.

“It’s about building a sense of community and turning a simple visit into something memorable,” Baker says.

Technology is another component in managing businesses more efficiently.

Máire Morris, CEO of Morris Global Consulting, says AI and data analytics are “big in retail”: “It’s easy to train AI tools with your business tone of voice and automate [customer services], rather than a robotic engagement that leaves the customer feeling frustrated and unwanted.”

Most retailers will have an ecommerce presence along with a brick-and-mortar operation. Done well, it can be a major source of sales.

Landmark Group has an annual revenue of $7 billion, and has 12 independent ecommerce stores that contribute up to 20 percent of total sales.

But Kabir Lumba, CEO of Landmark Retail, says more needs to be done about cross-border ecommerce businesses: “While the emergence of [these] players is welcome, we need to have a level playing field and uniform regulations across businesses that access the GCC market.”