Regional retailers in the Gulf brace for uncertainty

With key shipping routes such as the Strait of Hormuz facing disruptions as the Iran war continues, retailers are in the midst of yet another supply chain challenge.

But while brands across the globe are bracing for rising energy and freight costs, retailers within the Gulf Cooperation Council (GCC)—countries such as the UAE, Saudi Arabia, and Bahrain—are facing another disruption.

In places like Dubai, one of the Middle East’s largest retail hubs, heightened security concerns and geopolitical uncertainty have forced some global brands to temporarily close stores or operate with reduced staffing in major shopping districts and malls.And unlike in many parts of the West, physical stores are a major driver of sales.

“In the [Middle East], retailing still tends to be very store-focused,” John Mercer, head of global research and managing director of data-driven research at Coresight, told Retail Brew. “E-commerce is a smaller share of the market than it is in Western Europe or in North America, and within physical retail, it’s really very mall-based.”

Although consumers could be afraid to venture out due to safety concerns, there is also a huge psychological factor that might keep them from visiting stores in the near future. “If you’ve got conflict in your region, consumers are going to be less inclined to go out and make frivolous purchases,” Mercer added. “They’re less likely to be going to occasions or possibly even workplaces that require discretionary spending. So the overall [spending] picture, we would assume, would be quite subdued.”

The region remains a huge market for luxury goods because of tourism, but also wealthy expatriates and locals. It’s also why luxury is likely to be the “hardest hit by propensity to shop,” Mercer explained. “[People] move out there because they’ve typically got a decently paying job,” he said, “or they may be an entrepreneur with lower or zero income tax rates, so they’re the people that would have more ability to spend on discretionary categories, certainly versus their peers that stay at home in their country of origin. So if people like that also flee, that’s another minor hit to the market.”

Ultimately, the situation in the Middle East remains unpredictable amid uncertainty about how long the war could continue. In the meantime, the best bet for retailers hoping to retain some business while continuing to connect with their consumers may be a bigger push toward e-commerce.

“It could be that if consumers are reluctant to head out to stores, that could be an increase in online shopping,” Mercer said. “So maybe retailers should be prepared to pivot some of their inventory availability to serving consumers online.”Either way, Mercer believes brands should prepare for a “softer near-term discretionary demand.”