Dubai retailers adapt to changing trends in consumer behaviour

Due in part to local demographic changes and broader economic factors, retailers in Dubai have noticed an evolution in the profile of the typical consumer. As such, the success of retail offerings in the coming years will depend on stakeholders’ ability to predict new trends in the emirate’s shifting consumer spending patterns. As for the purchasing power of visitors from the region and further afield, much will depend on broader economic factors as countries navigate a lower oil price environment.

Demographic Challenge

GDP per capita is one of the base indicators for spending power and retail growth. As Dubai’s population growth has surpassed GDP expansion, spending power among consumers has decreased. Dubai’s GDP at constant prices grew by 1.9% from Dh390.5bn ($106.3bn) in 2017 to reach Dh398.1bn ($108.4bn) in 2018. Over that same period, Dubai’s population expanded more than three times faster than the economy, recording growth of 7.25% and reaching 3.19m people in 2018. As a result, GDP per capita fell, from Dh131,000 ($35,700) in 2017 to Dh125,000 ($34,000) in 2018.

Against this backdrop, retailers have shifted their value proposition to appeal to a broader cross-section of the population. In its “GCC Retail Report 2019”, Dubai-headquartered investment banking advisory firm Alpen Capital noted that reduced spending power was leading to increased price and quality consciousness among consumers. “The middle-income group has grown very substantially over the past decade,” Taimur Khan, associate partner at real estate consultancy Knight Frank UAE, told OBG. “As it has grown in size, the average retail spend has gone down. Of course, this means there are more people spending, but retailers are having to realign their position as well. As a result, I think there is more room for mid-range brands and retailers in Dubai,” he added.

This pattern is likely to continue going forward. The IMF forecast GDP per capita growth of less than 1% for most countries in the GCC during the 2018-23 period, with the UAE expected to grow by a marginal 0.2% during the five-year term.

Housing

One mitigating factor in falling purchasing power among residents is a dip in the emirate’s rental market. According to Dubai-based property portal Bayut, rental prices in Dubai’s most popular areas showed almost uniform year-on-year decline in the first half of 2019. Out of 30 rental categories, only two-bed apartments in Dubai Silicon Oasis became more expensive, increasing by 1.4%, while two-bed apartments in Dubai Sports City posted the largest drop, at 8.1%. Decreasing housing costs provide residents with more disposable income despite the challenges in the broader economic context. According to Deutsche Bank’s “Mapping the World’s Prices 2019” report, Dubai was ranked the world’s 11th-best city for disposable income after rent, a figure the index estimated at around $2068 per person.

Regional Factors

Beyond mid-level spenders, the retail market will continue being supported by the concentration of high-net-worth individuals in the region. A low-tax environment, favourable welfare benefits for nationals and a proximity to oil-rich economies has long sustained high levels of disposable income among GCC nationals and formed a core element of Dubai retail sales revenue. According to Alpen Capital, the collective wealth of high-net-worth individuals in the Middle East experienced a compound annual growth rate of around 5.7% between 2010 and 2017, increasing from $1.7trn to $2.5trn.

However, whether this group maintains its high spending power in the longer term will depend in part on global oil price fluctuations. While estimates vary, in August 2019 analysts from the Institute of International Finance forecast that oil prices would stay above $62 per barrel in 2019 and 2020, while further ahead, the World Bank expects that oil prices will continue to rise on average, reaching $70 per barrel by 2030.