UAE's retailers will need to keep picking up digital skills fast

It is strange how we find solace and comfort in calendars, believing a change of year will also change fortunes. It is said that the greatest human invention is time and its measurement.

It is perhaps the pivotal factor in our lives, guiding all actions. But its march is relentless and I am not sure the change of a date or month will make any difference to its ebb and flow.

Nonetheless, it gives us an opportunity to take stock of where we find ourselves at the end of these last 12 months... and where we hope to be going in the next 12.

Soured quickly

Retail started 2020 full of optimism with the first two months booming for most businesses. No one anticipated the Black Swan of the pandemic. Looking at the year now, the most noteworthy development has been the explosion of ecommerce of all types.

Worldwide growth is estimated in 2020 to be around 16 per cent. This is actually 2 per cent lower than their projected growth of 18.4 per cent. However, the growth of eretailing looks more dramatic when contrasted with the serious reduction in physical retail, which according to emarketer, dropped 10 per cent from the positive projection of 4.4 per cent for the year.

More than keeping up

The growth of retail in the UAE is always difficult to quantify; however statista.com estimates that 2020 will see a 37.5 per cent growth in ecommerce to $5,754 billion, with a 5.6 per cent growth in users to 6.7 million. This means a user penetration of 67.8 per cent in 2020.

Retail growth in UAE is estimated by GlobalData to grow at 0.4 per cent in 2020, compared to a forecast of 5.8 per cent. This would translate to a drop of Dh13.5 billion from the original 2020 forecast.

Visa’s estimates on ecommerce are even more bullish, assessing the increase in online purchases in the UAE post-COVID-19 at 52 per cent (in Saudi Arabia, the increase is estimated at 80 per cent). What is more interesting is that during the COVID-19 period, 68 per cent shoppers bought groceries online the first time.

High spending ways

The other segments that showed high growth in first-time online shoppers were pharmacy at 70 per cent; luxury and fashion stores with 46 per cent; and delivery services at 42 per cent. It is should be noted, according to Visa, the average spend by online customers in UAE in the 12 months from March 2019 to April 2020 was $122, compared to $76 in mature markets.

It is quite evident, that there has been a massive adoption of online buying in this market and it is likely that many of these customers will continue with their Ecommerce buying even after the physical markets come back into vogue. So the new world of retail will look quite different when compared to early 2020.

Retailers have reacted differently to the crisis in this period. Many, especially those who were smaller and less liquid, have had to close shutters due to the lack of customers. As anticipated, a walk through malls reveals many hoarded stores.

On the other hand, some retailers have seen this as an opportunity. The responses of retailers lie somewhere between the two extremes:

• Review operations with a critical eye and shave off non-essentials. This has included people, stores, real estate and processes. While many retailers have been able to survive in this way, now many are working so close to the bone that the results could be counterproductive.

To illustrate this, a recent visit to a restaurant presented a very poor experience as harried staff tried their best to meet the requirements of customers who were getting more and more irate with delays and goof ups in service. There just were not enough people to run the show.

• See this as a growth opportunity and aggressively expand the network. Cash-rich players have seen the withering competition as the time for them to grow. Though bold, this approach needs to recognize the new buying pattern, which we saw due to the growth of ecommerce. The future market scenario will not be the same as before.

It is evident, that customers would continue to prefer retail stores when they want immediate access to products and the availability of better information and service. There are also a few categories such as health, optical, jewellery, fine dining and high-end fashion, where physical presence is still favored over buying online.

No time for lethargy

With time perhaps, many of the advantages of stores in these categories will lose salience. For example, websites like Robb Report and Hodinkee are able to provide much richer product information and stories on high-end products than the average sales associate. So stores that are in these categories need to find ways to outdo these sources if they want to maintain their present edge.

As we look to 2021, filling the gap that has been created by tourism entries falling off the cliff will be extremely difficult. The flow has been particularly hard hit from countries from where big buyers were coming.

The authorities are doing admirable work to create attractions for tourists to feel safe and welcome, and this will have a gradual effect. The Expo from October will also make its own statement.

Hopefully, the vaccine will also be widespread by then, so that people will feel confident to fly again. Till then, retailers will have to continue to face headwinds such as they have never had to face before.

- Ajai Kumar Dayal is a columnist on retail, ecommerce and marketing and can be contacted on twitter @ajaitwit.