The Arab Spring did not only have long-lasting political repercussions for Middle East and North Africa, but it has also altered the region’s retail landscape and shaped the future for businesses and consumers.
A new report by the Euromonitor International, titled ‘Retail in the Middle East and North Africa: A Look into a Polarised Region’, highlights how the retail sector in the region has gained international prominence and large global retailers are focusing their attention towards developing the market. To be successful in the market, these retailers need to be fully aware about growth opportunities by carefully studying the evolving market trends and consumer needs.
Large retailers cannot adopt a single strategy in all countries of Middle East and North Africa. Even though these countries are similar in terms of culture and linguistics, lack of regional integration and a fragmented retail landscape requires businesses to understand the risks of operating in each local market. The Gulf countries, in particular, have a very well developed and two-tier retail landscape compared to other regional countries.
Although disposable incomes are on the rise, many consumers still prefer to shop at smaller neighborhood stores and small scale traders. The traditional grocery stores remain popular as limited number of households own a car and fewer women are involved in the active workforce compared to developed countries.
The burgeoning young population in these countries are both risk and asset. The Arab Spring was largely organized by the young population to express their frustration against weak economic reforms and high unemployment in these states. Social media played a key role in organizing the Arab Spring movement, but the penetration of internet retail is still in its infancy in the region. As internet penetration continues to improve, retailers and payment operators can tap the market to promote online shopping.
The total online sales of the Amazon and Carrefour e-commerce sites were only USD 200 million in MENA. Groupon clone websites that offer bargains and discount deals have become immensely popular in the region after the recession. Local players are required to advertise in a more effective manner to attract customers and become competitive in a saturated market.
Modern retailing is still seen as a hallmark of global retail chains. These large Western European and U.S. chains enjoy a major share in apparel and electronic goods. They have gained a strong foothold in the MENA market by entering as a franchise or establishing joint ventures mainly because of entry restrictions and the need for local expertise.
According to Euromonitor, the future of global retail growth in the MENA looks promising as it was among the fastest growing regions for retailing in 2012. This feat was achieved on the back of high oil prices and sustained consumer demand. While local franchises will continue to promote large brands in the Gulf, North African countries are expected to struggle to attract retailers because of a slowdown in tourism. The MENA countries will continue to drive the retail landscape due to strong demand from High Net Worth Individuals (HNWI), increase in disposable incomes, organic growth and continued modernization of the retail landscape.
The Euromonitor report also forecasts that the UAE will almost double its retail growth to record the best performance in 2013. The country will continue to attract foreign investment and interest because of a strong economy, stable political environment and reputation as a trade and financial hub in the Arab world. Saudi Arabia and Algeria are also expected to show encouraging performance due to high oil prices and consistent consumer demand. Tunisia, Morocco, Syria and Egypt are likely to struggle because of an uncertain political future and weak tourism demand.