UAE retail e-commerce market reaches $3.9bn in 2020

The UAE retail e-commerce market reached $3.9bn in 2020, a 53 per cent year-on-year increase.

Also, e-commerce accounted for an 8 per cent share of the retail market during the same year, analysis from Dubai Chamber of Commerce and Industry has revealed.

The study projected the value of the market to reach $8bn by 2025. The growth it said will be supported by several key factors including high-income potential, high Internet penetration rate (99 per cent), developed transport logistics network, modern digital payment systems, growing tech-savvy youth population, and strong government support within the UAE.

The UAE has the highest smartphone penetration rate in the MENA region, which has contributed to the growth of mobile-commerce (m-commerce) from 29 per cent in 2015 to 42 per cent in 2020.

Moreover, in 2020, UAE retail m-commerce market value reached $1.6bn, 56 per cent higher than the previous year.

The retail m-commerce market of the UAE is projected to reach $3.9bn by 2025, and grow with at a CAGR of 18.9 per cent between 2020 and 2025.

The UAE, and Dubai in particular, remain hubs for e-commerce growth in the MENA region. 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, reported state news agency WAM.

The immediate challenges to the e-commerce market remain issues like a preference of cash on delivery for some consumers. However, during the pandemic the share of this payment method was significantly reduced, due to hygienic measures and development of contactless payments.

Also, some online retailers faced financial pressure due to high costs. Apart from picking, packing and delivery cost, one of the biggest costs is high returns of products. Reportedly, people return 15-40 per cent of what they buy online, compared to 5-10 per cent of what they buy for while shopping in-store. However, with improvements to online product details, customer support and visualisation, the product returns are expected to decrease.

According to Euromonitor data, in 2020 apparel and footwear e-commerce category had the highest share of 33 per cent ($1.3bn) in the UAE retail e-commerce market. The online share of this category slightly increased in 2020.

The next biggest category in UAE retail e-commerce was consumer electronics with a share of 31 per cent ($1.2bn). 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 per cent or $400m) 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 specialised in food, beverage and pharmaceutical products.

As per the Euromonitor report, 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 per cent 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 per cent from 2020 to 2025, followed by media products, pet care and home care products.

Supporting the UAE’s e-commerce ecosystem, in April, new e-commerce free zone Dubai CommerCity (DCC) launched 470,000 sq ft of new facilities as part of its first stage. Spread across 2.1 million sq ft in Dubai’s Umm Ramool area, the Dhs3.2bn development claims to be the first dedicated e-commerce free zone in the Middle East, North Africa and South Asia (MENASA) region.

Read: E-commerce freezone Dubai CommerCity opens new facilities as part of first phase launch

Startups and payment enablers have also worked towards spurring this category within the UAE. Earlier this month, UAE-based lender Abu Dhabi Islamic Bank (ADIB) has partnered with Visa, to introduce the UAE’s first biometric authentication solution for e-commerce transactions. Meanwhile, Opontia, a startup that acquires and grows e-commerce brands, also raised $20m in seed funding in June.

Read also: ADIB partners with Visa to unveil UAE’s first biometric authentication solution for e-commerce

Read more: Dubai-based Opontia raises $20m to acquire MENA e-commerce brands