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The new retail landscape: What’s happening on the ground?

The seismic changes provoked by the global megatrends continue to have an impact on the retail sector: younger populations with more of them living in cities, and more of them using digital technology. There are opportunities here for retailers, as well as challenges. Online shopping is the most obvious example, with even relatively small operators now able to cross borders and reach global buyers, if they do digital well. But increasing urbanisation also offers new and different possibilities for physical stores, and the growing numbers of middle-class consumers in emerging economies have more to spend, and an appetite for brands.

Population pyramids

The Middle East has one of the fastest-growing populations in the world, and one of the youngest: the number of people in the Arab world is set to almost double to 500 million by 2100, and half of these people will be under 24.


Retail in the Middle East

The rise of online shopping continues to influence the role of the physical store. Many cases are seeing a significant polarisation, with smaller local outlets offering immediacy and convenience, and larger ‘destination’ stores reinventing themselves to attract customers looking for an experience that includes shopping, eating and entertainment. It’s the stores in the middle ground that are struggling, with lower footfall, and price pressures from online pushing down both margins and profitability.

Loving the store...

Middle Eastern consumers love to shop. Going to the mall is an integral part of the region’s culture and character, and this is one reason why it has taken a while for online shopping to catch on. But now it has!

There is a powerful and very distinctive shopping culture in the Middle East, and especially in the UAE and Saudi Arabia. Dubai, for example, has a long-term strategy to become the world-leading hospitality and leisure destination, and as part of that has positioned itself as one of the shopping capitals of the world.

More than three billion people are within a four-hour flight from the city, which welcomed over 14 million visitors in 2015. And many of those people came specifically to shop - Dubai probably has more malls per square kilometre than any other city in the world, offering a showcase of the world’s leading brands, as well as places to eat and socialise, and added attractions such as aquariums, indoor sky diving, and children’s play centres. There are also special shopping festivals throughout the year, with a focus on times when it is too hot to be outside, and malls in other major cities in the Middle East offer similar experiences.

It is no surprise, then, that the region’s own populations see shopping malls as both social spaces and entertainment destinations, fulfilling a far wider function than they would typically play in a Western economy. And this, in turn, makes the region’s physical stores far more resilient in the face of the online challenge.

...but getting savvier online

Consumers in the region have generally been slower to adopt online shopping than those elsewhere in the world, and the concept is less well-developed. There is a huge opportunity here, not least because the region has a young population eager to exploit digital technology, but sustainable growth will mean overcoming consumer concerns about security.

Turning to the retailers, there are some significant issues that currently hamper the full development of online shopping. Many retailers are local franchisees for global brands, for example, and don’t own the online rights. And while some shopping websites are showing phenomenal growth, this is from a very low base, and the market in general is fragmented, with little collaboration between shopping sites and the brand owners, who would prefer to run their own online operations. In fashion, in particular, there is still a fairly low level of knowledge about how to run an online operation, though this is a category with particular potential in the region, alongside electronics, jewellery, and cosmetics. Grocery is another area that has tremendous potential, but has barely got off the ground as yet.

There are also practical issues relating to delivery. The postal address system is fairly rudimentary in some parts of the region, which means consumers either need or prefer to use collection depots or Click & Collect services. This, in turn, is changing the role of the store, and mall operators are adapting their rental contracts to include these sales. Some operators have their own small-scale delivery capabilities, but this tends to be at the top end of the market; the majority of the online retailers use third parties to manage logistics and shipping; proving very costly and eroding margins. 45% of those surveyed in the region said one of the biggest challenges with online shopping is that delivery takes too long. This explains why so many customers in the region are willing to pay a premium for speedy delivery.

63% of those in the UAE would pay more for same-day delivery, and 54% in Saudi Arabia

What is your preferred methos of payment?

The other practical problem is payment – relatively few people have credit cards and online payment systems are in their infancy, and that means the region still relies heavily on cash-on-delivery – the vast majority of online purchases are done that way. That makes an online shopping operation even more difficult to manage, as it can result in problems with returns or undelivered items, and often means higher costs. In general, people in the Middle East prefer to use cash when they shop (80% said this in the survey, compared to a global average of 75%), with credit card being the next preference.

What retailers say:

“We should have launched our online shopping at least two years earlier than we did – what held us back were the difficulties setting up reliable payment processing and logistics services.”

“You need to invest in the look and feel of your website, as well as the functionality. That’s important in driving traffic. Features like customer recommendations are really useful.”

Online retail in the region is generally developing either in the form of marketplaces and multi-brand site formats such as the likes of, and, or single brand formats developed by the region’s large retailers, such as Al Futtaim’s Ace and Azadea’s Virgin Megastore. is a relatively rare example of an online only platform in the Middle East that has made serious headway – in February 2016 it announced it had raised $275m from international investors in its latest round of funding. More recently, Amazon is said to be eyeing the platform for a potential acquisition. Although challenges still remain in this space, many of the region’s largest retailers have made the strategic decision to also develop online platforms.

An interesting finding from this year’s Total Retail survey is that the shopping experience would be improved if the retailers integrated their online and instore offerings more effectively: 34% would have a better instore shopping experience if they could access real-time personalised offers on their mobiles, or could see screens instore showing a wider range of products.

What retailers say:

“One of the major drivers of success in online retail is repeat business. Businesses typically show losses in the beginning as shipping, packaging and marketing expenses eat into their margins. Therefore price points and margins are key. Doing online with low-margin products is very tough.”

“When we first looked at online we had to decide whether to wait for a system to develop or create it ourselves. We decided to do the latter, which meant dealing with issues like the lack of a ‘last mile’ delivery system and the low level of credit card use.”

Contact us

Norma Taki

Transaction Services Partner and Consumer Markets Leader, PwC Middle East

Tel: +971 4 304 3100

Leo Vera

CF Managing Director, PwC Middle East

Tel: +971 (0)50 900 3582

Rand Shuqair

Manager, PwC Middle East

Tel: +971 (0)4304 3788

Imad Matar

Middle East Transaction Services Leader, PwC Middle East

Tel: +966 (11) 211 0400 (ext 1501)

Roy Hintze

Partner, Middle East Consumer Markets, PwC Middle East

Tel: +971 56 682 0528

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