The UAE retail e-commerce market reached a record $3.9 billion in 2020, a 53 percent year-over-year increase driven by the COVID-19-led digital shift, while e-commerce accounted for 8 percent share of the retail market during the same year, new analysis from Dubai Chamber of Commerce and Industry has revealed.
The study projected the value of the market to grow by a compound annual growth rate (CAGR) to reach US$8 billion by 2025, a growth trend supported by several key factors, such as high-income potential, high Internet penetration rate (99 percent), developed transport logistics network, modern digital payment systems, growing tech-savvy youth population, and strong government support.
The UAE has the highest Smartphone penetration rate in the MENA region, which influenced the growth of mobile-commerce (or m-commerce) from 29 percent in 2015 to 42 percent in 2020. Moreover, in 2020, UAE retail m-commerce retail market value reached US$1.6 billion, 56 percent higher than the previous year. The retail m-commerce market of UAE is projected to reach USD 3.9 billion by 2025, and grow with a CAGR of 18.9 percent between 2020 and 2025.
The UAE, and Dubai in particular, remain hubs for e-commerce growth in the MENA region. Changing consumer habits during COVID-19 has accelerated the growth of digital shopping. According to data from the UAE National Economic Register, the UAE e-commerce sector issued the highest number of licenses of 196 in May 2020.
Despite some growth opportunities, there are some challenges in the e-commerce market, such as cash on delivery. However, during the pandemic the share of this payment method was significantly reduced, due to hygienic measures and development of contactless payments.
Moreover, some online retailers faced financial pressure to due high costs. Apart from picking, packing and delivery cost, one of the biggest costs is high returns of products. Experts have found that people return 15 percent to 40 percent of what they buy online, compared to 5 percent to 10 percent for in-store shopping. However, the improvements of online product details, customer support and visualization, the product returns are expected to go down.
According to Euromonitor data, in 2020 apparel and footwear e-commerce category had the highest share of 33 percent (US$1.3 billion) in the UAE retail e-commerce market. Despite some lockdown measures, the online share of this category slightly increased in 2020, due to the growing demand for comfortable style clothing, such as T-shirts, sweatshirts and hoodies.
The next biggest category in UAE retail e-commerce was consumer electronics with a share of 31 percent (US$1.2 billion). In this category, the demand was high especially for laptops, personal computers and tablets, due to the remote working and online education. Food and drink were the third largest category (11 percent or US$400 million) in the UAE retail e-commerce market in 2020.
Many big retailers developed and enhanced mobile apps to increase online sales and to improve customer’s access to the products. According to the latest data of the Telecommunications Regulatory Authority of UAE, there are in total 52 purchasing apps in the UAE that specialized in food, beverage and pharmaceutical products.
According to Euromonitor, during the COVID-19 pandemic (2019-2020), the retail e-commerce of Food and Drink, and Consumer Electronics products had triple-digit growth rates. Other product groups which had more than 50 percent growth rates include beauty and personal care, pet care, and apparel and footwear.
It is expected that the highest growing product in the UAE e-commerce market will be personal accessories and eyewear with a CAGR of 20 percent from 2020 to 2025, followed by media products, pet care and home care products.
E-commerce trends expected to gain momentum with consumers include quicker, safer, more intuitive and personalized experiences, voice-activated shopping, contextual and social commerce, virtual instant reordering, and product subscriptions combined with conveniences, such as same-day delivery and competitive pricing will draw more consumers to choose e-commerce over traditional face-to-face channels.