There is an old joke that shopping is the UAE’s national sport. The gag may not be completely accurate, but it does have some economic basis.

According to a report released by Dubai Chamber of Commerce and Industry (DCCI) on 11 April, retail accounts for close to 30 per cent of the emirate’s GDP. For the UAE, retail makes up 11 per cent of GDP and the sector is expected to reach AED200bn ($54.4bn) by 2017, growing by 5 per cent on average each year.

Fast growth

The data shows that despite concerns in the market, shopping in the UAE has not been negatively affected by expectations of decelerating economic growth in the region. Instead, retail sales and consumer spending show the industry is growing faster than the UAE economy.

“When you start to talk with single shops, they sometimes complain that revenues are down or profitability is down,” Hamad Buamim, president and CEO of DCCI tells MEED. ”With this report we have proved there is growth. The overall size of the sector is growing. We are talking about going from AED130bn to close to AED200bn and that by itself about 50 per cent in four or five years.”

There are headwinds. At the World Retail Congress in Dubai on 12 April, speakers and delegates discussed the issues that threaten to disrupt growth in the future, including the ever-crowded marketplace and the growing problems that traditional retailers face from online competitors. “There are challenges,” says Buamim. "There is more competition and when you start talking with these individuals, they say they are still profitable, but they are not as profitable as they used to be. There used to be double-digit profits of 20-25 per cent, which is abnormal in a market that is starting to mature.”

Online retailers

The competition becomes even greater once online retailers come into the picture. “Today your competitor is not only the shop next door, your competitor is someone sitting somewhere else who might be providing the same service to customers and shipping online,” says Buamim.

The online challenge is one the CEO sees as an opportunity for Dubai rather than a threat. “The survivors nowadays are the ones who know how to manage costs and start to become more innovative in delivering their services,” says Buamim. “This is where the online shopping comes in, because [in Dubai] it is not as good as if you are in New York or London, where the cost of shipping is included and you can exchange. We still don’t have these things here in Dubai. And this is the opportunity for those who want to sell more. Maybe retailers do not need to expand with more shops in other shopping malls anymore and instead enhance online shopping.”

Online sellers do not have to pay rent for stores in expensive locations that attract high levels of footfall. While some retailers complain about the prices charged by landlords for retail space, Buamim says the benefit of being in a prime location should be considered. “When retailers complain about [rents], they are talking about a couple of malls [Mall of the Emirates and Dubai Mall]. When you look at the overall sector, I would say rents are reasonable,” he says. “These two malls, I remember asking a retailer: ‘You complain about the rent so why don’t you go somewhere else?’ He says: 'My sales in this single shop is equivalent to sales in my five other shops.' You pay a premium for what you get. It is supply and demand.”

More malls

With strong rentals, developers are building more malls. DCCI says retail space increased by 7 per cent during 2014 to reach 1.6 million square metres. Furthermore, there are projects under way to expand existing malls and plans for constructing new malls.

Dubai’s leading malls can charge a premium for space because they have become more than just places to shop, they are destinations that offer entertainment in a safe temperature-controlled environment. “I remember having a lot of conversations with [operators of] American shopping malls and they see Dubai malls as destinations versus their malls, which are more of transactional places. Here we have more of these malls where you can ski, ice skate, watch a movie, or dine. These things are great innovations from the mall operators and Dubai is ahead of the competition.”

For the future Buamim expects Dubai to respond to the challenges the retail sector faces with new innovative products and ideas. “I expect many things will start to happen," he says. "I expect mergers and acquisitions. The smaller ones will need to consolidate more. The old idea of starting a simple shop might not be the way. Whoever is bringing franchises as a single outlet, they will struggle to survive. I expect to see local players to start innovating and creating their own brands, and instead of paying royalties for franchises from overseas they will start creating their own brands to be able to compete.”

Developing home-grown brands is a far cry from just acting as a franchisee for an international brand. “In the old days, people just thought of international brands, opened a place in a big mall and that would guarantee success. Well-known brands were coming and charging whatever they liked because if you didn’t buy it, somebody coming from Africa or the CIS [Commonwealth of Independent States] countries would,” says Buamim. “They need to think differently now.”