News & Articles

Phygital experiences, sustainability and resilient supply chains to define retail in 2023

December 22, 2022

By Mohammad A. Baker, Deputy Chairman and CEO of GMG

The UAE retail sector has put the country on the global map; its robust post-pandemic rebound is a lesson in resilience. While rife with opportunities, the new year will require retail business leaders to make crucial decisions, particularly toward digital transformation. 

This expansion in the recent past has been spurred partly by the rapid growth of eCommerce. A Dubai Chamber report says eCommerce sales in the UAE reached $4.8b in 2021, compared to $2.6bn in 2019, as the Covid pandemic accelerated a global shift towards online shopping. However, unlike other markets in the west where online shopping has devastated physical shopping, brick-and-mortar retail remains relevant in the country where malls are an essential part of the social fabric. 

Instead of online replacing physical stores, we have seen the emergence of a hybrid retail environment, referred to as phygital, that combines the strengths of online and offline shopping and where both play a complementary role. The challenge then for retailers in the new year is to make the eCommerce store feel like a brick-and-mortar store where staff reacts to customers' needs in real time. For this to happen, we will need to bridge the gap between physical and virtual retail experiences. Customers no longer distinguish between online and offline shopping; they often start shopping in one and check out in either. I.e., retailers shouldn't differentiate between online and offline because their customers won't. 

Retailers with a developed eCommerce strategy are being rewarded with valuable data whose insights they can use to enrich the customer experience. Improved access to advanced AI tools, even for smaller retailers, means they can leverage these insights to anticipate what consumers want, improve customer service at the individual level, and herald a new hyper-personalization age. Therefore, we expect to see further investment in digital transformation in 2023 to lower costs, streamline supply chains and improve customer service.  

An ideal eCommerce strategy has the mobile at its heart, and we expect to see smartphones gradually replacing desktops as the shopping platform of choice in the new year and beyond. Indeed, the Dubai Chamber report highlighted the impact mobile devices have in eCommerce, used to drive $2.6bn in sales, accounting for 44 percent of the total eCommerce market value. Additionally, mobile retail sales are expected to record a 15.6 percent annual growth over the 2022-2026 period to reach $4.6 billion. Moreover, smartphones have lowered the barrier to entry for cutting-edge technologies such as augmented reality (AR) and virtual reality (VR). Experts see AR/VR as the next evolution in online shopping, allowing customers to do virtual try-ons for fashion, accessories and makeup in the comfort of their homes. Customers have embraced these interactive, immersive experiences that turn shopping into a fun, shared experience. These virtual try-ons also help reduce the burden of product returns, which costs $761 billion annually to US retailers alone

Mobile devices are also vital to unlocking the emerging social commerce (sCommerce) opportunity, where the entire shopping journey takes place on social media platforms. Social media is near-ubiquitous in the region, with 98 percent of young Saudis surveyed by the Arab Youth Survey country saying they use Snapchat daily. Social media's interactive nature leads to higher sales conversions than traditional eCommerce. Snap Inc.research shows that the so-called Snapchat Generation possessed $425B in spending power in MENA last year.

The increased digitization of retail is the key to attracting younger shoppers. Gen Z overtook millennials last year, accounting for 32% of the global population. With almost $100 billion in spending power,empowering this digital-native demographic with a streamlined digital shopping experience is essential to thriving in 2023 and beyond. 

However, Gen Z shoppers differ fundamentally from previous generations. They are highly value-driven and often compare prices online to find the best offer. This makes it more challenging for brands to compete on price and highlights the need to consider other ways to attract their attention. 

Additionally, younger shoppers are more environmentally conscious and are a critical driver for the general rise in environmental and health consciousness among consumers. Retailers, therefore, need to align with social causes that resonate with their customers. Sustainability will take new impetus in 2023, particularly with COP27 and COP28 taking place in the region. Efforts such as greening the supply chain and choosing sustainable products can motivate suppliers to develop eco-friendly products. Retailers should also demand accurate information on products' sustainability credentials from suppliers through track and trace procedures.

There are, however, some challenges on the horizon.The pandemic strained global supply chains to near breaking point. Some of those disruptions remain, driven by a tense global geopolitical environment. The resulting inflation will keep pressure on consumer spending across the region in 2023. It is, therefore, critical to building resilient supply chains. These measures should include implementing decentralized supply chains and having an in-country presence. Modern fleet management software can automate back-end and other administrative processes to optimize delivery.Research shows that AI-enabled supply-chain management enables retailers to improve logistic costs by 15 percent, inventory levels by 35 percent, and service levels by 65 percent, compared with slower-moving competitors.

The retail sector is a critical pillar of the UAE's economy and its continuous evolution helps the country maintain its competitive edge. As we head into 2023, the opportunity to inspire socioeconomic growth, herald a new sustainable future and support our communities is within reach.