Dubai is a thriving retail hub that keeps attracting international brands and innovative entrepreneurs alike. Brick-and-mortar stores and online commerce are equally creating tremendous opportunities for retailers. Faced with fierce competition, a new investor is required to plan carefully and to have a reliable feasibility report that ensures differentiation, value creation and survival. This article lays out a roadmap to having a viable retail business in Dubai.
The Dubai retail market
Dubai has close to 100 shopping malls that range from regional shopping centres to community malls. The city’s retail gross leasing area (known as GLA) was measured at 5.8 Million square meters in 2023. The Dubai retail market was measured at AED 160 Billion in 2022.
The food sub-sector amounts to 50% of the total retail market size in the emirate. Clothing and footwear are valued at 14%, furniture, kitchen, home accessories and beddings at 12%, electrical appliances and consumer electronics at 10%, health and beauty products at 8% while the rest constitutes 6%.
Community malls mostly emphasize the value driver. Here, the target visitor is a serious shopper; someone who has visited the mall to make a specific purchase. Footfall there has a very high conversion to sales ratio; almost everyone who visits end up spending money. While super malls such as Dubai Mall and Mall of the Emirates provide value and unique attractions to draw tourists and residents; the higher footfall doesn’t necessarily convert into as high a sales ratio as in the location-driven malls.
Reasons to conduct a feasibility study before launching a retail business in Dubai
The goal of a feasibility study is to see if a project is technically, financially, and operationally profitable within specific conditions.
The findings from a feasibility report provide investors with the insights needed to see if it’s profitable to move forward with the project, change it, or abandon it.
A feasibility plan is critical in planning the project. It minimizes the risk of investing capital, efforts and time into a project is likely to fail.
Making sense of the retail market in Dubai
Trends and Opportunities
The retail market in Dubai is growing mainly because of these factors:
- Population growth and purchasing power.
Dubai’s population is growing at a rate of 2% a year as the emirate is attracting highly affluent new expatriates who are making it their permanent residence.
- Changing demographics
Dubai is attracting younger professionals who see Dubai as the preferred place to live, work, and visit.
- Luxury and middle range
Demand is concentrated around the middle and high-end market segments.
- Channels of distribution
A highly digitized population is driving the exponential growth of e-commerce in particular.
- Promotion
Dubai is a global leader in promoting its festival and exhibition seasons around the world.
Tourism and Retail
The UAE has a very high percentage of non-national shoppers among its customers. The retail and tourism sectors are closely interrelated.
| Tourist Source Countries | Share of Incoming Tourists |
| South Asia | 29% |
| Africa | 6% |
| Eastern Europe | 11% |
| Other Arab Countries | 12% |
| GCC | 14% |
| Western Nations | 28% |
| Total | 100% |
The average spending per tourist was measured at around AED 5,700. Female tourists constitute 48% of incoming visitors while male visitors form 52%.
Tourists spend around 40% on making retail purchases, which equals AED 2,280 per visitor divided between low range products (14%), mid-range (42%) and high-range items (46%).
Purchasing behaviour analysis
UAE shoppers have high expectations and earning their loyalty isn’t easy. They are hard to impress.
- Customer service is super important
75% of customers in the Middle East prefer shopping from a single brand store (as opposed to a multi-branded one) because they believe it will provide the best possible customer experience. But by customer service, they mean more than just a seamless order, delivery and returns process. 65% of customers expect brands to know them personally and treat them individually. This can take the form of exclusive rewards and benefits, a draw for 69% of Emirati shoppers. Millennials are no longer interested in the brand name alone but also consider the consumer experience provided by brands.
- Luxury mind-set
The UAE is a ready-made market for luxury brands – wealthy citizens and tourism are big drivers for the sector. In fact, Dubai alone accounts for 30% of the Middle East’s luxury market. UAE citizens spend around 30% of their salary, or AED 7,500 a month, on luxury goods. To appeal to this luxury mind-set, emphasize the quality, craftsmanship and status of your brand. The UAE was recently eighth in a list of countries whose consumers are trading up from mid-market brands.
- Established brand abroad
Having an established brand abroad will also stand a seller in good stead, as overseas products account for 58% of all purchases.
- Digitization
Most retailers in the UAE are becoming digitalized due to the increased demand from the millennial consumers. According to estimates, UAE millennials on average spend between 4.5-6.5 hours browsing social media and over 51% of them make their purchases online.
- Online shopping
UAE millennials prefer online shopping as it is convenient, easy and affordable compared to in-store shopping. Also, due to access to smartphones and WiFi, over 60% of millennials in the UAE research, read reviews, compare prices before purchasing a product.
- Influencers
Businesses also understand the importance of social media influencers and their role in influencing purchase decisions of millennials. For instance, 63% of millennial consumers are more likely to buy a product which has been recommended by a social media influencer.
- Sustainability
Due to the rising awareness of the environment, many millennials expect brands to be sustainable. Therefore, there is a spurt in the growth of sustainable brands in Dubai.
Why a feasibility report is needed for a new retailer
A feasibility study provides investors with unique insights into market demand size, precise risk assessment, best investment size, and accurate ROI forecast. These 4 elements are the keys to a reliable feasibility study and a successful project.
Components of a Comprehensive Feasibility Study
- Retail concept and business model
- Economic factors
- Regulatory and risk factors
- Location analysis
- Operational factors
- Market factors
- Management factors
- Financial analysis
- Project management schedule
- Recommendations
Key drivers in Dubai's Retail Market
Time is really money for retailers. Units sold are plotted against time. No product should sit long on the shelf for long or else it’s removed.
Any failure in continuously updating product and service assortments encourages consumers to seek alternatives.
Some retailers don’t differentiate their goods and services or private labels and lack adequate consumer insights and engagements. A majority almost exclusively depend on price-point as their sole competitive edge out of a wide arsenal of remarkable tools. Retailers that give consumers little to no incentives to pay price premiums and to have brand loyalty soon see their margins erode as online and brick-and-mortar competition intensifies.
Key success drivers include:
- Add value in key success areas such as assortment depth and range of products, and assortment renewal.
- Introduce differentiators that enable a retailer to collect price premiums.
- Create a valuable and meaningful customer experience via immersive shopping experiences, in-store experience and merchandising.
- Provide personalized shopping experience such as virtual showrooms and one-on-one consultations.
- Adopt tech-driven customer engagement tools such as digitized loyalty programs and geofencing etc.
- Propose more effective promotion and marketing campaigns.
Key obstacles to expect
- High entry barriers
Landlords and shopping malls require potential lessees to have highly innovative products with ambitious business plans. Retail space is high in demand and supply is more or less restricted to famous brands.
- High operating costs
The costs of doing business in Dubai are high as are rental costs which can reach 15% – 20% of gross sales (for premium locations). Labour costs can vary between 8% – 12%. Utilities and maintenance: 2% to 4%, advertising and marketing: 3% to 5%, while other overheads can vary between 2% to 4%.
- Fierce competition
The retail market in Dubai is highly developed and complex. The city features all brands from around the world and locally grown ones.
- Cultural nuances
Dubai hosts more than 170 nationalities as it sits at a crossroads between Asia, Africa and Europe. Cultural-specific buying behaviours are highly pronounced and require proper understanding and catering for.
- Technological integration
New retailers are expected to adopt the latest technologies in terms of providing optimal customer experience and in managing their supply chains and operations.
- Volatility
The UAE market is highly volatile with steep fluctuations showing in no time. Changes in direction and amplitude are directly affected by surrounding geo-political factors and the sentiments of the local business community.
Milestones In a typical feasibility process
| Main task | Summarized description |
| 1. Brief | − Collect a detailed brief about the project from the client. |
| 2. First draft | − Conduct marketing, technical, management, location and risk analyses. |
| 3. Second draft | − Set timeframes for the programs and define manpower needs. |
| 4. Final report | − Finalize the budgets and financial analysis, and conduct desk research and market survey. |
| 5. Post feasibility | − Take a “Go” or “No-go” decision about investing. |
| 6. Project kick-off | − Allocate the budget and hire recruits. |
| 7. Operation | − Mobilize the manpower and equipment to start work. |
Case studies
- Noon.com
- Home centre
Reasons for failing
- Poor planning and market research.
- Fast over-expansion and making misleading assumptions about the market size and expected sales.
- Below average knowledge of demographics and psychographics: Dubai is one of the most complex markets for retail businesses. Buying behaviours vary wildly from one ethnic community to another; they even change within the same community and segment.
- Poor cost management: many businesses incur high set up and operating expenses assuming they’d be able to recuperate them immediately through high cash inflows.
- Little to no differentiation: in a highly competitive market where choices are almost endless, the absence of clear distinctive features earmarks a retailer for failure.
- Poor location: Dubai is dominated by the mall culture. Failing to select the right location inside a mall where footfall and access are the most suitable positions a retailer for failure.
- Poor to no online presence.
Recommendation
Dubai offers tremendous growth opportunities for the right retailers. With its strong economy, amazing infrastructure, and clear interest in innovative products and services, investors should begin with cautious investments to learn how to handle the challenges of doing business in the Emirates, and most importantly, to understand the many different ways consumers behave.
Many investors moving to Dubai assume they will find instant success because of the city’s strong reputation and the high earning power of its people. But in reality, Dubai is a difficult market to enter, even for well-known brands. A proper feasibility study should help set a practical market entry plan and refine the business approach before a retailer can make the most of the many opportunities Dubai has to offer.
Explore The Benefits
When you hire The Seven Wise Men to optimize your value creation process in the retail industry, you can expect benefits like:
- Outstanding customer experience
- Higher brand loyalty
- Differentiated products and services
- Increased market share
- Higher sales turnover
- More points of sale
- Quicker order replenishment times
- Higher return on marketing spend
- Improved cash flows with shorter conversion cycles
Interested in launching your retail business in Dubai? Contact us for a detailed feasibility study tailored to your business needs.
Contact
- Author Fadi Gargas
- E: [email protected]
- P: +971 4 441 9135
