Lower profits for UAE retailers this summer

Retailers in the UAE are expected to post lower profit margins this summer compared with the same period in 2014 due to a strong US dollar and weaker oil prices.

  
Some will offer promotions and discounts to reel in consumers
May 21, 2015

Dubai: Retailers in the UAE are expected to post lower profit margins this summer compared with the same period in 2014 due to a strong US dollar and weaker oil prices, according to analysts.

The strong dollar has led to reduced spending of visitors from the Eurozone, while lower oil prices have crimped spending of tourists from Russia and Gulf countries this year, according to Nikola Kosutic, research manager at consultancy Euromonitor International.

"Both oil prices and the strong dirham [which is pegged to the dollar] are expected to have negative effect on retailing industry in upcoming summer months," he said.

International benchmark Brent crude has dropped from a high of around $115 per barrel in June to around $65 on Thursday.

The euro has dropped from 1.36 against the dollar to 1.11 over the past year, while the rouble is 50 to the dollar today from 34 in July 2014.

Colin Beaton, managing director of retail consultancy Limelight Creative Services, said that the retail sector has been "resilient" so far this year but there has been a decline in demand in sectors like luxury.

While average consumer spending is expected to be lower this summer compared to the same period in 2014, the "overall market will continue to grow because the population is growing", Kosutic said.

The UAE retail sector is heavily influenced by tourists who account for more than 50 per cent of total sales of some products, such as fine jewellery and watches, he said.

Retail demand has traditionally declined during the summer months, but it is likely to be lower this summer due to the weaker oil prices and strong dollar.

In order to attract shoppers, retailers will need to adjust their strategy to cope with reduced summer demand, Kosutic said.

Beaton said that retailers will offer more discounted items this summer than in previous years to keep sales and revenue up. "Margins will be sacrificed but it is likely an acceptably trade-off in order to keep consumers coming into the stores and maintain those relationships," he added.

Consumer electronics retailer Emax has already launched promotions for home appliances and plans to roll out the same for smartphones and cameras just before Eid, said Neelesh Bhatnagar, its chief executive.

Similarly, Al Ghurair Retail, part of Dubai-based Al Ghurair Investment, plans to offer discounted products this summer.

"We will be giving everyone simply the best deals possible on all of our products with substantial discounts and a lot of the very latest stock will be included in this," Laurent Cabioch, general manager at the company, said in an email.

Fashion retailer Sana plans on investing heavily in advertising to reel in consumers. "With Ramadan and Eid on the anvil, we have invested heavily this year in advertising to target shoppers for our grand launch, summer collection and Ramadan deals. We have invested close to 2.5 million dirhams in this endeavour," Shivam Sharma, the company's chief executive, said in an email.

Average spend by tourists is expected to slow down for the full year compared with 2014, according to Kosutic.

"Expenditure by tourists increased by 7.8 per cent in 2014 and is expected to increase by 5.3 per cent in 2015," he said.

© Gulf News 2015