Optimism prevails in the retail sector of the United Arab Emirates, as retail sales are predicted to expand by 13 percent this year to $58 billion and by 6.6 percent annually to $70.5 billion by 2025 in the country, according to an analysis issued by the Dubai Chamber of Commerce and Industry.

So, what could possibly be fuel this growth? Here’s a quick look:

Fast recovery

“The retail industry in the UAE started to recover much faster than expected, particularly in the fashion and luxury segments,” Cyrille Fabre, a partner and director with the Middle East arm of global management consulting firm Bain & Company, said in an exclusive interview with TRENDS.

In fact, the market has surged ahead and is now trading significantly above 2019 rates, owing to a variety of factors, the most notable of which is an increase in touristic flow, as seen by a more significant percentage of spending by tourists, and the return of the regular life, as evidenced by people’s return to shopping malls, he explained.

However, according to Fabre, the recovery is split into different parts.

The Food and Beverage section, for example, is still worse off than before the pandemic, while the electronics segment did very well during the pandemic as people equipped their homes. Hence, it is only slightly lower than where it was in 2019.

However, the fashion and luxury segments, which were significantly lower in 2020, have recovered faster in 2021.

“During the pandemic, no one was able to travel to Europe to spend their money, so retailers in Dubai were effective in persuading consumers to continue spending and purchasing luxury products in the UAE,” Fabre explained.

“They successfully retained part of the residents’ and nationals’ money that was previously spent abroad,” he continued. “They are now increasing their spending in the country. Never forget Expo 2020, which has revived tourists and a renewed sense of confidence in the Dubai economy, pushing people to spend more.”

Shift in consumer preferences

A study conducted by Bain & Company on global consumer trends and regional trends, combing through more than 1.5 million social media comments, showed that the pandemic accelerated several previously-observed patterns.

According to Fabre, people in the MENA region now place a high value on convenience, health, taste, and price.

“People nowadays, for example, want to save time when shopping by shopping online. They want faster delivery, and they want affordable products. In countries like Saudi Arabia and Egypt, affordability is crucial, and people enjoy good deals more than in the United States and the UAE. People also prefer healthy products that are free of harmful chemicals.”

He continued: “There is a fourth factor in the UAE and the United States, which is experience. People want a pleasant experience; they want experiential shopping, a high price for the product and great packaging, whereas these factors are less influential in Saudi Arabia and Egypt.”

Fully digitalized market

Even though the e-commerce industry expanded during the pandemic, Fabre believes online purchasing will never replace the physical experience. “We feel that there will always be a balance between digital and physical since we require stores for a variety of purposes,” he said.

For example, people in the fashion industry want to view and try products in person from time to time, and they also want to buy them immediately.

However, some categories perform better online than others. For example, buying an iPhone online is different from purchasing a gown since you already know the features of the former.

In those categories, the balance between shops and digital will be heavily skewed toward digital.

Retailers, on the other hand, are thriving in the areas of omnichannel and customer experience. As a result, stores may become more of a showcase than anything else.

Sustainability in the retail sector

The focus on a greener strategy is seen gaining traction across industries, especially in the aftermath of the pandemic.

Unlike carbon-intensive industries such as heavy manufacturing and transportation, retail has the potential for more accessible and easily achieved sustainability.

Thus, the notion of sustainability is seeing a significant increase in the market for used luxury items in the fashion retail industry.

“For example, instead of having a luxury bag sitting in your closet if you don’t use it, you might cycle it or sell it to someone else,” Fabre explained.

“Consumers do it partially because they want to save money and this method is cheaper, and sometimes to discover bags that they couldn’t find elsewhere,” he added.

“We also see sustainability in many of the efforts that retailers are making to inform consumers that they are conscious of their social and environmental responsibilities,” said Fabre.

“Majid Al Futtaim, in my opinion, is a good illustration of this. It has announced numerous steps, such as removing single-use bags and single-use plastics from all their packaging in Carrefour stores by a particular date,” he explained.

“It is also placing solar panels on the roof of the hypermarket to ensure that it is powered sustainably. Many retailers are now taking similar steps to help make the world a better place.”

New regulations needed

Driving tourism is critical for retailers since tourists account for a significant portion of retail sales. The UAE in general and Dubai in particular are already major tourist destinations.

Meanwhile, Saudi Arabia is just getting started, but the prospects are excellent. It is hoped that it will grow significantly in the future and the same in Abu Dhabi.

According to Fabre, another way to improve the sector is to optimize parts of the regulatory framework.

For example, regulations to register a new product are complex, and even more complex are regulations in Saudi for Saudization and employee movement.

Things are also difficult between landlords and the retailers, said Fabre.

When the business is not performing as well as last year, it is difficult for retailers to close the store since they would have to pay quite a bit by way of rent to the landlord.

Fabre said there should also be regulations — in terms of VATs and shipping — to optimize the framework of e-commerce to make it more equitable between the offline and online markets.

This article originally appeared on Trends MENA.