Dubai: As we approach the end of the year, the stronger US dollar continues to put pressure on the UAE retail market, according to industry experts.
Retail sales have softened this year as a result of weaker consumer sentiment caused by the effect of falling oil prices on the regional economy and a stronger dollar. Tourists from the UK and other countries where the currencies have depreciated against the dollar have spent less money on shopping in the UAE, whose dirham is pegged to the dollar, since it has become more expensive.
“Tourists in the UAE with weakened currencies against dollar might express conservative expenditure during their visit to UAE,” said Rabia Yasmeen, research analyst at consultancy Euromonitor International.
“Tourists would look for combo packages in terms of attractions such as sailing over the cruise through group deals, and also in terms of food,” she added.
Luxury retailers especially have been hit hard by the appreciation of the dollar.
“The super dollar has been a large issue for retailers, particularly luxury retailers, as some brands became more expensive in Dubai than in Europe,” said Cyrille Fabre, partner at consultancy Bain & Company in Dubai.
However, Ashraf Ali M.A, executive director of Lulu Group, which operates supermarkets and hypermarkets in the UAE, said that the stronger dollar has not had a significant impact on the supermarket and hypermarket sector in the UAE.
“We don’t see any adverse impact of this in hypermarket/supermarket sector as predominantly our customers are local residents and not so much tourists. If the dollar continues to be strong, then in the long term, we might see a drop in imported products, which is good news for us and shoppers,” he said.
David Macadam, chief executive of the Middle East Council of Shopping Centres, expects UAE retailers to quickly adjust to the lower retail profit margins, given that the retail market here is mature.
“Mature retail markets live with margins somewhat lower than what emerging markets normally provide. As a mature retail market, the UAE retailers will quickly adjust to the somewhat lower retail profit margins. The most important consideration for successful retailers today is to manage the expense side of the ledger,” he said.
To reel in consumers and drive sales, retailers are rolling out deep discounts on items. Colin Beaton, managing director of consultancy Limelight Creative Services, also expects retailers in the country next year to renovate stores to be more efficient and train staff to provide a better shopping experience.
Meanwhile, the stronger dollar allows retailers “to import quality brands to UAE, as compared to other competitive markets where currency devalued would become cautious in imports from stronger economies,” Yasmeen said.
Industry experts expect the dollar to continue its upward climb next year.
“The Fed [US Federal Reserve] is widely expected to increase rates at least twice in 2017, which would support US dollar strength, so we do see this global macro-economic trend extending into 2017,” Beaton said.
However, he pointed out that there are a number of events that could happen in 2017 “ [such as] US-China trade issues, the UK pound or euro strengthening, and rise in oil prices that would force the Fed to leave rates unchanged, which would weaken the US dollar.”
— With inputs from Sarah Diaa, Staff Reporter
(Sarah Algethami is a freelancer with Gulf News)