Dubai's international visitors to increase retail spending

Although multiple factors are reshaping Dubai’s retail sector, new changes to visa regulations have helped the emirate achieve a significant increase in the number of international tourists, helping it remain a top global destination.

Demographic Shifts

In January Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE, and ruler of Dubai, approved Cabinet Decision No. 24 of 2017, granting Russian citizens a 30-day visa on arrival at all UAE entry points, with the possibility of renewal for an additional 30 days. This followed the September 2016 announcement that similar visas on arrival would be granted to visitors from mainland China. Prior to the decisions, the UAE’s five GCC neighbours and citizens of 47 other countries, including Hong Kong, were entitled to visas on arrival.

The attractiveness of the UAE as a tourist destination for Russians was also bolstered in 2017 by a stronger rouble. In January 2016 the rate of exchange stood at Dh1:RUB22.4, but in June 2017 Russian visitors saw their spending power boosted by almost 31%, as the exchange rate hit Dh1:RUB15.4. Although the rouble weakened somewhat in the second half of 2017, the emirate’s shops, restaurants and hotels had already felt the impact of a 111% year-on-year (y-o-y) increase in Russian visitors in the first 11 months of 2017, according to Dubai Tourism and Commerce Marketing.

There has also been a boost in tourists coming from Asia. In 2015 the number of Chinese tourists rose by 29% to reach 450,000. As of January 2018 official data showed the number of Chinese visitors in the first 11 months of 2017 had increased by 46% y-o-y, from 478,000 to 696,000. This growth in numbers saw China leapfrog the US and Pakistan to become the fifth-largest source of international guests for the emirate, leading to an upturn in the number of Dubai stores accepting Chinese credit cards such as UnionPay. India maintained its position as the most popular source market for international guests, reaching 1.86m in the first nine months of 2017 with 17% y-o-y growth. Saudi Arabia represented the second-largest market at 1.43m, though this represented a 6% drop, while the UK was third, expanding by 2% to reach 1.14m.

Global Shoppers

In its 2017 Global Destination Cities Index, Dubai was ranked the global leader in annual overnight visitor spending, which grew by around 19% over four years from 2012 ($23.9bn) to 2016 ($28.5bn), and was forecast to have increased by 10.2% over 2017. New York, London and Singapore followed with $17bn, $16.1bn and $15.7bn in collective overnight visitor spending, respectively. Furthermore, the emirate was found to be the top visitor destination in the Middle East and Africa, with 14.9m visitors in 2016 and was forecast to have increased by 7.7% over 2017.

In 2016 around 89.2% of travellers visited Dubai for leisure or other purposes, with the remaining 10.8% coming for business. Shopping took the largest share of visitor spend with 31%, followed by accommodation (29%), food and beverages (22%), local services (10%) and transport (8%).

When compared to other global destinations, the emirate has been considerably more dependent on those coming from abroad. According to Savills, Dubai had 15.3m international overnight guests in 2016, but did not record any domestic overnight visitors. Whereas, London and Paris both had more, with 19.9m and 18m, respectively, while New York had 12.8m. However, these three cities relied on a significant number of domestic overnight travellers, with the proportion of British, French and American visitors to London, Paris and New York accounting for 40%, 48% and 78% of tourism, respectively. Typically, the retail market is seasonal, with the high point coinciding with the Dubai Shopping Festival in January and February, and dipping in the hot summer months during school holidays.

Card Spending

In the UAE, Emirates NBD Bank reported that card spending from January to October 2016 had increased by 7.9%, a slowdown on the 13.2% growth experienced over the same period in 2015. Most of the spending was done with cards issued to local residents, which accounted for 78% of all point-of-sale (POS) transactions. The 3.6% fall in the level of spending on foreign-issued cards for the period may have been a reflection of the strength of the US dollar, and hence the pegged dirham. Cards issued in the US accounted for the highest proportion of foreign spending (22%), but this was 1.7% less than the same period in 2015. Saudis accounted for 14.2% of all foreign card POS transactions, showing a modest growth of 0.6%, while British issued cards accounted for 11.4% of spending, up by 5.7% despite a weaker pound.

According to Emirates NBD data for January and February 2017, typically Dubai’s busiest shopping months, overall spending was 11.8% higher than in the same two months of the previous year, with spending on UAE cards accounting for 74.2% of the total – an increase of 12.6%. This represented a rebound from January and February 2016 when spending on UAE cards fell by 7.8% y-o-y. In terms of foreign card spending over the period, this increased by 9.5%. Additionally, US cards accounted for 21.5% of the total and rose by 14.8% y-o-y. Saudi spending grew by 7.1%, accounting for 14.6% of total UAE POS transactions. British spending was down 0.6%, but UK credit cards represented the third-highest proportion of foreign spending in the UAE at 9.8%. There was a significant boost in card spending by Chinese and Russian tourists in the first two months of 2017, which rose by 10% and 63.1% y-o-y, respectively.

Tourist Arrivals

In a sector so heavily reliant on tourist spending, hospitality and shopping have a symbiotic relationship, and Dubai’s malls have grown alongside the rapid expansion of Emirates Airways, Dubai International Airport (DXB) and Al Maktoum International Airport (DWC). In 2016 DXB retained its ranking as the busiest international passenger airport in the world, with 83.6m passengers. Of those, India accounted for the largest share with 10.4m travellers, followed by Saudi Arabia and the UK with more than 6m each. Over the year, the number of visitors coming from these destinations grew by 10.1%, 11.3% and 6.7%, respectively. Dubai’s second airport, DWC, is being used by an increasing number of passengers, with numbers up 84.5% in 2016 to 850,633 people. In the first half of 2017, DXB handled 43m passengers, up 6.3% y-o-y, while DWC saw y-o-y growth of 35% to 554,993, putting it on course to have handled more than 1m people in 2017.

Challenging Conditions

While headline visitor numbers and POS transactions point to growth opportunities, there are also significant challenges affecting key customer markets. At a national level, key sectors of the UAE’s economy, such as the oil and gas industry, have been subject to job cuts and hiring freezes since the drop in global oil prices in mid-2014, with Abu Dhabi National Oil Company alone laying off more than 5000 staff over 18 months. Brent crude dipped to below $28 a barrel in early 2016, and although the price rose again to surpass $50 a barrel before the end of the year, many GCC producers introduced austerity. Most notable of these was Saudi Arabia, where public sector workers had benefits worth up to 25% of take-home pay cut in September 2016, and only restored in late April 2017. The timing of these belt-tightening measures coincided with the key winter shopping season. In addition, the UK, a key feeder market for tourism and a popular destination for Emirati travellers, saw its currency decline in value after the Brexit vote, thus increasing the price differential between goods in local shops and those in London.

Duty Free

Some of these factors may have contributed to a 5% contraction in revenues at a key retail entity – Dubai Duty Free. In 2016 Dubai Duty Free reported revenues of Dh6.7bn ($1.8bn) against Dh7.1bn ($1.9bn) in 2015. However, while revenues were down slightly, the number of customers increased over the same period. Combined sales transactions at DXB and DWC in 2016 hit 74,097 per day, totalling 27.1m transactions for the year, up from 2015 figures of 73,558 per day and 26.8m. Perfume accounted for 16.6% of annual sales, hitting Dh1.10bn ($299.4m) in 2016, followed by liquor (Dh1.06bn, $288.5m), cigarettes (Dh578.53m, $157.5m) and cosmetics (Dh535.65m, $145.8m).

In February 2016 the 7000-sq-metre Concourse D was opened at DXB, bringing the total retail area at both airports to 36,000 sq metres. With ambitious plans to invest $32bn in expanding DXB’s capacity to 240m passengers per year, Dubai looks set to see the number of international visitors and shoppers increase significantly in the medium to long term.