The retail sector has been under close observation in the Middle East. Many press articles and industry chatter suggest that consumers have become more price-sensitive and therefore do not shop as much as they did in the past. Some of the articles even suggest a slowdown in the sector. Is this actually the case?
In 2018, the start of the year clearly outlined challenges for the retail sector such as oversupply in the retail space and weak spending patterns fueled by sustained lower oil prices. The end of the year brought some relief, attributed largely to the increasing support of e-Commerce to retail.
At Criteo we have seen many of the retailers we work with in the Middle East have a very successful 2018. When looking at our long-term clients, we witnessed continued growth similar to previous years.
Our experience is also backed by external figures. Market research firm Frost & Sullivan forecasts that the UAE e-Commerce market likely touched US$ 10 billion in 2018 dwarfing the US$ 2.5 billion figure of 2014. Even though these figures are for e-Commerce, concluding that physical retail is suffering would be hasty.
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What we see is rather the impact of the constant change in consumer behavior over the last few years, which reached a peak in 2018. Consumers turned to their smartphones not only for communication, news and entertainment, but also for shopping.
This trend is exactly what we envisioned when we started our business in the Middle East back in 2012 and so did some of the big retailers. These retailers made online shopping extremely convenient for users, determining them to slowly adopt this trend while the vast majority of people were convinced that malls are an integral part of the country’s culture and therefore irreplaceable.
Online purchases rose because of improved convenience, an enhanced user experience and home delivery of products in a short period of time.
People could conveniently compare prices of desired goods and services and sort items according to the price band they are comfortable with. This is probably the reason they are now more price-sensitive – because they have the possibility to find the best deals and also leverage some discounts.
However, physical stores haven’t adapted quickly to this change in consumer behavior. When we look at malls, it would not be right to say that there are fewer people than in the past. But yes, these people are shopping less. However, affordability of products is not the constraint here, rather the changing objective of visiting a mall.
Going to the mall is a leisure activity: be it for a movie, a restaurant, or a café to meet some friends, malls offer an experience for consumers that are looking for more than just a retail destination.
Earlier, shopping was one of the main reasons to visit a mall. But today there are more convenient ways to shop while comfortably sitting in your home or office, thus eliminating the need to physically go to a mall to shop. Take fashion as an example: today you are more likely to buy a pair of trousers because you’re inspired by international trends, rather than doing so because your old ones need to be replaced.
In the future, a successful mall shop will be one that inspires people. This could entail, for example, bringing trends that reflect their customers’ way of living, or by integrated technology such as Augmented Reality into store mirrors, allowing customers to virtually try on outfits to find the best pick at the snap of one’s fingers.
Whatever a retailer does, shopping needs to be entertaining and fun for people, to encourage them to visit the store with their friends, even if it’s just for the experience. Many stores have shelves stuffed with a variety of clothes in different colours and sizes, but this no longer inspires customers to shop.
Some retailers are concerned that providing this experience for entertainment purposes is not going to be profitable. However, it is important to see the bigger picture. Creating demand and achieving sales should be complemented by integrating e-commerce in the retailers’ offline strategy.
It is perhaps this trend that has reflected in PwC’s report analyzing shopper habits in Egypt, Saudi Arabia and the UAE, where the pattern has reversed over the last five years with customers shopping less in-store with the advent of e-commerce.
A great online experience helps customers finalize their purchase, while also making them curious to come to the store for future purchases. Many consumers enjoy the look-and-feel process – they want to test products, feel fabrics, try on multiple sizes to choose the best fit – before they decide to buy online.
Physical stores hold an important place in commerce and will continue to hold it if they are willing to adapt to the new kind of consumers and their evolving demands. I’m convinced that we’ll see innovative approaches in this direction over 2019 where omnichannel will be increasingly embraced.