The Impact of the Global Economic Downturn on the UAE Consumer Retail Sector: Implications for 2009

While the economic downturn hit the UAE late in 2008, it will continue to be felt for at least the next four quarters. And, while a lag exists between declining levels of confidence in the macro and micro economy and changed consumption behavior, most retailers and manufactures need to start altering their business model now in preparation for slowing growth

Report Highlights
41% of UAE consumer survey respondents told Datamonitor that wealth or income was 'very important' in creating a feeling of wellness or wellbeing compared to an average of 26% of respondents in 15 other countries. This reflects the comparatively higher propensity to save in the UAE

UAE retailers and manufactures must adapt to succeed during 2009. The UAE economy, while fundamentally strong, has not been immune to the substantial slowdown in the global economy. UAE consumer sentiment has shifted, and will continue to shift in the months ahead

Maintaining brand support through difficult times helps take advantage of competitors who often reduce marketing efforts. As consumers spend more time considering options before they spend money, this increases the likelihood of getting their attention with effective communications
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Table of Contents 3
Table of figures 4
Table of tables 5
THE FUTURE DECODED 6
INTRODUCTION: UAE retailers and manufactures must adapt to succeed during 2009 6
TREND: Macro economic indicators point to a robust, if unspectacular, 2009 for the UAE 6
Fiscal injections will continue to stimulate the UAE market although weaker oil prices are apparent 6
Rising unemployment and population decline is anticipated in 2009 7
Shortage of credit and high debt servicing is a likely scenario impacting UAE shoppers 7
Commodity prices will ease to reduce stress on household income and buttress retail sales 8
Stabilization in retail prices will also be important to reduced price inflation and sustained retail spending 8
The appreciation of the US dollar favors UAE consumers and this should help the economy in 2009 9
Saving is common practice among UAE residents and this will intensify 11
Key takeouts and implications: while overall retail sales in the UAE will remain robust throughout 2009, some sub-sectors will have a tough year 12
TREND: Historically low levels of consumer confidence are a concern for retail spend levels 13
UAE residents consider wealth to be important to a feeling of wellbeing 14
Future expectations remain relatively strong in the UAE and this has prevented consumer confidence levels from falling in line with many other nations 15
A time lag typically exists between movements in consumer confidence and shifting expenditure patterns 16
Key takeouts and implications: falling consumer confidence in the UAE will impact consumption behavior 16
INSIGHT: Consumption patterns in the food and beverage space will remain relatively unchanged in the UAE but cost consciousness will intensify 17
Value and cost are increasingly important to UAE consumers 17
Down-trading and product substitution in the on-premise heralds increased share of basket for FMCG retailers 19
Sales of food and beverage products which provide instant and powerful sensory gratification will be stronger 20
Key takeouts and implications: retail sales of food products in the UAE should remain strong in 2009 21
INSIGHT: Personal care product sales are expected to record mixed results in 2009 21
Price and value will become increasingly important in the personal care space 21
UAE cosmetic sales are still relatively robust 23
Toiletries, certainly relative to cosmetics, suffer more from sacrificial consumption and down-trading in periods of economic downturn 24
Key takeouts and implications: personal care items which have more emotional significance will continue to sell well in the UAE 25
INSIGHT: Household care products sold in the UAE are expected to have a tough 2009 with brand strength likely to emerge as a key success factor 25
Price is expected to be the key factor determining consumer purchasing behavior going forward 25
Worsening Q4 2008 results for household care players may set the tone for a more difficult operating environment in 2009 26
Key takeouts and implications: household care products will potentially suffer in 2009 and well recognized, trustworthy brands may help facilitate habitual buying 27
INSIGHT: UAE consumer electronics sales are expected to soften but opportunities remain 28
Opportunities exist as UAE consumers still plan on buying electronic products but margins are being squeezed 28
Creating buzz and establishing a reason to buy will be important in maintaining store traffic 30
Phones, computers, and liquid crystal display (LCD) televisions will continue to make up the bulk of UAE electronic retail sales in 2009 31
Key takeouts and implications: consumers are still buying electronics, but more often at the lowest prices 31
INSIGHT: Luxury goods brands to have a relatively hard year amidst intense competition 31
There is reason for optimism about luxury brand performance in the UAE but industry players should anticipate some weaknesses going forward 32
Many exclusive 'absolute luxury' brands are still doing well in the difficult economic circumstances 34
To down-trade or sacrifice consumption: the choice UAE consumers are making in the luxury goods space 34
Increased competition in the luxury goods space will be an ongoing scenario 35
Key takeouts and implications: luxury goods sales will suffer in 2009 as consumers consume sacrificially 35
ACTION POINTS 36
ACTION: Adopt an 'informative' marketing approach, emphasizing the value proposition of individual products 36
Be wary of over-reliance on price reductions 37
Marketing should emphasize value not cheapness 38
ACTION: Price leaders should plan to increase market share 38
Increasing share of basket in the FMCG market 38
Increasing market share in the electronics sector 39
ACTION: Maintain or increase marketing investment to help offset difficulties of operating in an uncertain economic environment 39
ACTION: Employ techniques which reduce the price elasticity of demand for your products 40
Improve customer service 40
Increase product depth and assortment where appropriate 42
Emphasize the quality and/or freshness of your products 42
ACTION: Use this period to increase efficiency and drive down costs 43
ACTION: Consider conducting the due diligence for M&A activity 43
CONCLUSION: A unique opportunity for strong companies in 2009 44
APPENDIX 45
Definitions 45
Methodology 45
Further reading and references 46
Ask the analyst 49
Datamonitor consulting 49
Disclaimer 49
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Table 1: Consumer survey: the influence of price, habit/ preferred brand and brand image on household cleaning and laundry product choices in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008 26
Figure 1: US dollar appreciation has been a notable feature of the broader economic environment in 2008 and going into 2009 9
Figure 2: The one major currency which the US dollar has not appreciated against is the Japanese yen 11
Figure 3: UAE residents have a high marginal propensity to save 12
Figure 4: UAE consumer confidence has fallen in recent times but remains comparatively high 14
Figure 5: Consumers in the UAE consider wealth to be highly in creating a feeling of wellbeing or wellness 15
Figure 6: Over a third of UAE shoppers expect to become more cost/value conscious in the next six months but this behavioral shift is less significant than that reported in other countries in 2008 18
Figure 7: Product benefits such as quality and freshness and store location determine where UAE shoppers do their shopping 19
Figure 8: UAE consumers have a similar mentality to consumers from other countries when it comes to value conscious personal care consumption 23
Figure 9: Less than a third of UAE consumers anticipate buying household products on the basis of value or cost in the next 6 months 27
Figure 10: Most UAE consumers are planning to purchase at least one 'large ticket' electronic item in the first half of 2009 29
Figure 11: UAE consumers continue to stand out for their high levels of luxury goods consumption 32
Figure 12: UAE shoppers least anticipate cutting back on luxury food and beverage products in 2009 33
Figure 13: A snap poll of luxury store consumers in the UAE reveals relatively poor levels of satisfaction 41
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