UAE e-commerce market hits record $3.9b in 2020

Dubai - Market value projected to reach $8 billion by 2025, supported by high Internet penetration, modern digital payment systems and strong government support

The UAE’s retail e-commerce market reached a record $3.9 billion in 2020, a 53 per cent year-over-year increase which was driven by the Covid-19-led digital shift, new analysis from the Dubai Chamber of Commerce and Industry has revealed.

The analysis, based on recent data from Euromonitor, projected the value of the market to grow by a compound annual growth rate (CAGR) to reach $8 billion by 2025, supported by several key factors such as high-income potential, a high Internet penetration rate, developed transport logistics network, modern digital payment systems, a growing tech-savvy youth population, and strong government support.

Euromonitor’s data showed that e-commerce accounted for an eight per cent share of the retail market during 2020. The share of mobile-commerce, or m-commerce, in the UAE e-commerce market increased from 29 per cent in 2015 to 42 per cent in 2020. Moreover, in 2020, UAE the retail m-commerce retail market value reached $1.6 billion, 56 per cent higher than the previous year. The retail m-commerce market of UAE is projected to reach $3.9 billion by 2025, and grow with a CAGR of 18.9 per cent between 2020 and 2025.

Hussein Doughan, GM of Euromonitor International in Dubai, said that the digital revolution has been rewiring retail for years, leading to new business models, commerce ecosystems and channels for reaching and engaging consumers. The Covid-19 pandemic, he said, has accelerated this transition, as e-commerce became the default option for many homebound consumers.

“Euromonitor International projects that half of the absolute value growth for the global retail sector over the 2020-2025 period will be digital,” he said. “That equates to $1.4 trillion in absolute value growth as more goods are sold online. To put that projected e-commerce growth in context, that would be roughly the size of the total value of products sold across all retail channels just five years ago. Likewise, the e-commerce sector in the UAE and broader Middle East region is poised for growth. Euromonitor International’s Digital Connectivity Index reveals that the UAE is outpacing its emerging market counterparts on the index given its well-developed e-commerce infrastructure, coupled with its tech-savvy population."

According to data from the UAE National Economic Register, the UAE e-commerce sector issued the highest number of licenses - 196 licenses - in May 2020. Many companies had a significant investment in online sales activity during the pandemic and managed to grow or keep stable their businesses using omni-channel methods.

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. Experts have also found that people return 15-40 per cent of what they buy online, compared to 5-10 per cent for in-store shopping. However, the improvements of online product details, customer support and visualisation, the product returns are expected to go down.

Mohsen Ahmad, CEO of the Logistics District - Dubai South, said that the transition to online payment and the transformation of technological capabilities into quicker, safer and personalised experiences are among the key trends affecting regional e-commerce.

"E-commerce continues to be an upward trend in the UAE, and this is a great opportunity for logistics players to expand their operations and capture the untapped potential of cross-border e-commerce,” he said. “The sector played a major role in boosting Dubai’s economy and that of the UAE, consolidating the emirate’s position as a regional hub for e-commerce by attracting leading movers and creating a sustainable ecosystem for a number of corporations.”

According to Euromonitor data, in 2020, apparel and footwear e-commerce category had the highest share of 33 per cent, logging in $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 per cent, logging in $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, coming in at 11 per cent or $400 million in the UAE retail e-commerce market in 2020. The online demand in this category was especially high for staple food, ready to eat food and healthy food products.

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 specialised in food, beverage and pharmaceutical products. The purchase on mobile apps is highly especially among Gen Z, but millennials were feeling more comfortable on a desktop, as reported by Euromonitor.

rohma@khaleejtimes.com