UAE retail e-commerce market reached a record $3.9 billion in 2020 while m-commerce reached $1.6 billion

The UAE retail e-commerce market reached a record $3.9 billion in 2020, a 53 percent year-over-year increase driven by the Covid-19-led digital shift, while e-commerce accounted for 8 percent share of the retail market during the same year, new analysis from Dubai Chamber of Commerce and Industry has revealed.

The study, based on recent data from Euromonitor, projected the value of the market to grow by a compound annual growth rate (CAGR) to reach $8 billion by 2025, a growth trend supporting by several key factors such as high-income potential, high Internet penetration rate (99 percent), developed transport logistics network, modern digital payment systems, growing tech-savvy youth population, and strong government support.

The UAE has the highest Smartphone penetration rate in the MENA region that has influenced the growth of mobile-commerce (or m-commerce). The share of m-commerce in the UAE e-commerce market increased from 29 percent in 2015 to 42 percent in 2020. Moreover, in 2020, UAE retail m-commerce retail market value reached $1.6 billion, 56 percent higher than the previous year. The retail m-commerce market of UAE is projected to reach USD 3.9 billion by 2025, and grow with a CAGR of 18.9 percent between 2020 and 2025.

The UAE and Dubai in particular, remain hubs for e-commerce growth in the MENA region. Changing consumer habits during Covid-19 has accelerated the growth of digital shopping. 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.

Despite some growth opportunities, there are some challenges in the e-commerce market. Apart from picking, packing and delivery cost, one of the biggest costs is high returns of products. Experts have found that people return 15 to 40 percent of what they buy online, compared to 5 to 10 percent for in-store shopping. However, the improvements of online product details, customer support and visualisation, the product returns are expected to go down.

E-commerce has been predominant during the COVID-19 outbreak, and many retailers have put much effort into building, improving, and promoting their online shops. Several small retailers in UAE that did not manage online stores before the shutdown, developed temporary solutions to sell their products online, for instance, posted their products on Amazon or social media and provided pick-up or delivery services. Companies that were selling high-demand products, e.g. food and computers, increased their share in UAE’s e-commerce market during the pandemic.

According to Euromonitor data, in 2020 apparel and footwear e-commerce category had the highest share of 33 percent ($1.3 billion) in the UAE retail e-commerce market. Despite some lockdown measures, the online share of this category slightly increased in 2020, due to the growing demand for comfortable style clothing, such as T-shirts, sweatshirts and hoodies.

The next biggest category in UAE retail e-commerce was consumer electronics with a share of 31 percent ($1.2 billion). 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 percent or $400 million) in the UAE retail e-commerce market in 2020. The online demand in this category was especially high for staple food, ready to eat food and healthy food products.

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. The purchase on mobile apps is highly especially among Gen Z, but millennials were feeling more comfortable on a desktop, as reported by Euromonitor.

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 percent from 2020 to 2025, followed by media products, pet care and home care products.

E-commerce trends expected to gain momentum with consumers include quicker, safer, more intuitive and personalised experiences, voice-activated shopping, contextual and social commerce, virtual instant reordering, and product subscriptions combined with conveniences such as same-day delivery and competitive pricing will draw more consumers to choose Ecommerce over traditional face-to-face channels.