Online retail to shake up UAE’s bricks-and-mortar sector

The announcement of Noon.com and speculation around Amazon’s ambitions in the region suggest a challenging year lies ahead for traditional retailers.

Mohamed Alabbar, chairman of Emaar Properties, centre, who announced the launch of Noon.com last month, has said: 'Today you’re digital, or you die.' Kamran Jebreili / AP Photo

Online retailers could be a new threat to the UAE’s bricks-and-mortar retailers next year. Retailers were under pressure this year from a sluggish economy and global macro conditions that made the UAE an expensive place to shop for many international visitors. The hope that 2017 may be an easier year is complicated by the rise of home-grown online retail channels that further threaten the status quo.

The trend crystallised at a press conference in Dubai on the noon-hour of November 13.

That is when Mohamed Alabbar, the billionaire chairman of Emaar Properties, said that next month a group of investors would launch Noon.com, an online retailer carrying 20 million products. To give that number some relevance, your typical mall carries about 1.5 million items, and Amazon, the world’s biggest online retailer, carries about 20 million products.

The Saudi Public Investment Fund paid US$500 million for a 50 per cent stake in Noon.com, with the rest held by 65 private UAE investors, including Mr Alabbar.

“Today you’re digital, or you die,” said Mr Alabbar, speaking at the launch of Noon.com. When asked about the new venture threatening his own malls such as The Dubai Mall, he said Emaar has digital players already eating into its profits and it was better to be the one feeding than getting eaten. “We will dominate the e-commerce space with our capital, our advanced technology and our focus on the customer.”

This year was the year that the UAE woke up and saw the exponential growth in digital platforms. The most recent upstart that caused a splash – but not strictly in terms of retail – is Careem. The chauffeur-driven car booking service, a regional competitor to Uber with a crucial first-mover advantage, has just secured funding to expand its services. Careem was driven from the bottom-up, it provided a service and a technology savvy public fuelled its growth.

The same could be said of Souq.com, the region’s answer to Amazon. Souq.com has been in existence for 10 years as an online retailer, and for the past few years it has become the dominant online player in the region but has barely scratched the surface of total retail sales. It shipped 1.2 million products over its “White Friday” weekend, doubling the amount of products sold last year, yet online retail accounts for between 1 per cent and 2 per cent of total retail sales in the UAE.

The speculation suggesting Amazon would make a bid for Souq.com was strengthened when Jeff Bezos, the founder and chief executive of Amazon, visited Dubai the weekend before Mr Alabbar announced the launch of Noon.com. The chance of an online battle between Amazon and Noon.com – call it a high-noon showdown – is a very real prospect for next year.

While e-commerce sales remain minuscule compared with the overall market size, the switch to digital is a worldwide phenomenon.

This year, 17 per cent of all retail sales in the UK were made online, although this rapid growth of online shopping has had a severe effect on the high street in the UK and elsewhere in Europe. The biggest mall developer in Dubai currently is Nakheel, with about 4 million square feet of retail space delivered and about 11 million sq ft to be delivered by 2021. It is phlegmatic about the online surge.

“While I think online retail will obviously have an effect on sales in our malls, I think it is very hard to say just what the impact will be,” said Ali Rashid Lootah, the chairman of Nakheel.

“The UAE is not the UK. Our seasons and our cultures are not the same and, therefore, our shopping habits do not always correlate. We are not finding any problems in leasing out the spaces we are providing and that is both local and international retailers, so I think they believe customers will still be shopping in shops.”

The bricks-and-mortar players are not just sitting back and allowing digital platforms to steal a march, but bricks are different from clicks and a digital strategy has to be a commitment rather than a fad.

Tarek El Goweiny, the chief executive of catering firm NCC Group, said: “While e-commerce will not take over traditional retailers any time soon, brands in the region need to place the consumer at the heart of their online strategy if they want to remain relevant to the next generation.

“To achieve this, online and bricks and mortar need to complement each other. Integration of IoT [Internet of Things] into traditional operations is thus essential. The deployment of technologies that seamlessly connect the physical with the virtual, to provide real-time information, will be a necessity in the future.”

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