How digital is set to shape the future

No one anticipated at the start of the pandemic in early 2020 that we would be at this point in 2022.

The global economy has seen tumultuous change, with consumer habits and preferences morphing rapidly to adapt with this evolution. One major trend that has undeniably touched most of us – if not all of us – is the shift to digital.

While the pandemic did play a huge role in leading to that change, digital is managing to maintain part of that stickiness, especially in retail, even as the world gradually learns to live with the Covid crisis.

Shopping online is no longer a fad, or something done as a last resort – it is the preferred option for many consumers, mainly youngsters.

In its recently released Economy 2022 report, the Mastercard Economics Institute found that up to 20 per cent of the digital shift in retail is set to remain.

“Digital agility has been a key factor for stronger revenues throughout the pandemic. At the core of this digital shift has been e-commerce,” it said.

While during the pandemic’s peak in 2020, the global share of online spend was roughly 4.3 percentage points above the pre-crisis trend, it did drop to 0.3 percentage points as of September 2021 as people broke out from lockdowns and rushed back to physical stores.

“Overall spending levels for both in-person and online spend remain at unprecedented highs, and the big question as we head into 2022 will be how the composition of online spend settles following the unwind in savings and fade in fiscal support,” the report stated.

It found that the share of online transactions increased more in countries with higher pre-pandemic levels of digital maturity, further widening the digital divide globally.

Looking at the UAE, the online share of spend in the retail sector is on par with the pre-pandemic trend, the report found. It also highlighted another new model gaining traction in the country and globally.

“With the global shift to digital showing significant momentum, we discovered a growing trend: the rise in e-commerce subscriptions, such as wine clubs, weekly grocery delivery and clothing. According to our analysis of the subscription economy across 32 markets, nearly 88 per cent of countries saw a surge in the subscription of things in 2021 compared to the previous year,” the report added.

This new model was prominent among car companies, virtual workout partners, bike rentals and pet services.

In the UAE, retail subscription share of total spend increased by a factor of 1.5x from 2020 to 2021.

“I think that even before the pandemic, people were creating businesses online first, and then in store, and that’s just a trend that’s been accelerated because of the crisis,” Bricklin Dwyer, Mastercard’s chief economist and head of the Mastercard Economics Institute tells Gulf Business.

“So because the supply of everything is just shifting online, it’s going to drive a lot of that demand to be stickier. I think that right now we are going to see some of that over-rotation which is, ‘let’s get back out there, let’s have brunch with friends etc’, but then we are going to cut that proportion of spending back.”

The Mastercard report also anticipates major movement this year in terms of consumer saving and spending. “The biggest shift to watch in 2022 will be in household savings – and its potential impact on consumer spending. Fueled by stimulus funds, households have been saving more than they typically do as they have paid down debt, invested, or just put money in the bank. How quickly consumers return to old saving habits is critical for understanding the growth outlook. Notably, the global household savings rate almost doubled in 2020-2021 compared to before the pandemic,” it stated.

Consumer spending of built-up savings could contribute an additional three percentage points to global GDP growth in 2022. In the UAE, excess savings are expected to reach about Dhs295bn.

“How quickly or slowly consumers spend from their savings will have a ripple effect on the global economy,” the report said.

“Globally, economic growth, vaccine advances and digital transformations that have made businesses large and small more resilient, continue to shape the future. It is against this backdrop that we anticipate consumer demand – and spending power – to grow and the experience economy to reemerge next year,” Dwyer added.