Retailers operating in the GCC, and international players thinking of entering the GCC market, are fast becoming aware that they can’t afford to overlook the benefits of having an omni-channel strategy.

The omni-channel mode is expected to fuel retail growth due to the fact that millennial and high income consumers are looking for a multitude of shopping channels in line with their digital connectivity, a report prepared by Millennial Partners & Co (MPC), has found.

Traditionally, retailers entered new markets via a multitude of methods including direct selling, licensing, franchising, and investing. A key consideration in selecting appropriate market entry mode is to assess the level of growth and maturity in targeted foreign markets. In the GCC, international retailers have relied on the franchise and joint venture model by developing traditional trade relationships with regional retailers including Majid Al Futtaim and Al Tayer.

Today, the omni-channel modus operandi is emerging as a successful market entry strategy due to key drivers including internet infrastructure, consumer behavior, and degree of digitisation.

The Middle East, including the GCC, has been ranked by Strategy& amongst the top 10 global omni-channel growth markets.

“The focus on omni-channel echoes the exceptionally strong annual growth in e-commerce globally, as well as the increased role of the Internet throughout the customer’s path to purchase and the supply chain. However, delivering on omni-channel potential is widely recognised as a challenge,” said Anurag Bajpai, partner with KPMG in the lower Gulf and head of retail.

David Macadam, CEO of the Middle East Council of Shopping Centres, also noted the importance of innovation when reaching out to consumers: “What is important for a retailer today is to have innovation in everything that you do in the retail world. This doesn’t mean that you should be following the same old path, but that you should be trying new things, and if the worst happens, then you can get back up and start in another direction. Today, retail is all about trying something new; and this is how a retailer will stand out from his competition.”

UAE, KSA, and Qatar are attractive markets

The GCC region is one of the most attractive retail destinations globally with three countries ranked in the top 10 global retail growth markets, specifically the UAE, Saudi Arabia, and Qatar.

MPC’s report revealed that the retail and consumer products (RCP) sector remains a high growth sector globally, supported by the rising middle class in emerging markets, the millennial consumer group, and a digitally connected society.

The RCP sector in the GCC is valued at around $110 billion, with the UAE and Saudi Arabia being the largest retail geographies, with a total retail sales value of $33 billion and $59 billion respectively. This is expected to grow at a six per cent compound annual growth rate by 2020.

“The UAE has become the preferred market entry point for international brands looking to expand in the GCC due to drivers such as the easiness of doing business, being 26th in the global rankings and first in the Middle East and North Africa region, an expected double-digit growth in the regional Internet retailing segment, and the emergence of millennial shoppers and connected consumers. As of 2016, the retail sector in the UAE remains fragmented between traditional store-based retailers, and emerging e-tailers/e-commerce participants leaving room for omni-channel brands to capitalise on the lack of integration across distribution channels,” said Andreea Danila, founder and managing director of Millennial Partners & Co.

The UAE’s RCP sector is expected to reach $46 billion by 2020 – driven by growth in the non-oil sector, and healthy indicators in other industries such as tourism, financial services, and upcoming events such Dubai Expo 2020. Non-grocery retailers continue to dominate the retail value chain thanks to inbound tourists, high fashion consciousness, and high disposable income per capita, while grocery retailers face growth challenges due to government price controls.

In addition, MPC’s report found that the UAE’s consumer confidence index indicated a five-year average of 108, with an all-time high of 115 during 2015. The consumer confidence index measures the level of optimism that consumers have about job prospects, personal finances, and spending intentions; an above 100 figure signal a strong interest in spending.

Despite the fact that Internet retailing in the GCC remains low as compared to store retailing at only one per cent, as opposed to the global average of seven per cent, their growth factors include internet penetration of 59 per cent, mobile penetration of 150 per cent, a high disposable income of $33,000 and a young population with 30 per cent of the GCC below the age of 14-years old.

The UAE ranks among the highest in the world in terms of smartphone penetration with a 62 per cent rate – the high level of connectivity leads to a sustained m-commerce activity, which accounted for 28 per cent of all online purchases.

rohma@khaleejtimes.com

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