E-commerce accounted for 10% of total retail sales in the U.S in 2017, with Asia-pacific and China also witnessing double digit growth in the last year. In the GCC e-commerce is still at penetration stage and major investors are eyeing the opportunity to take an early lead in a region that has a high disposable income and spending potential growth.
The rapid growth of ecommerce has led to a change in consumer behavior and the way we shop. Today, consumers like to spend time researching online before making a purchase. Buyers want to read online reviews and prefer the purchase to be home delivered. They also want to pay the lowest price, using comparison websites to create competition that favors the customer.
This change in attitude and the ease of shopping online is forcing major brick and mortar retailers to make changes and has a major effect on commercial real estate globally. In the U.S., footfall across shopping centers has declined and, according to a Credit Suisse report, over 8,600 retailers not able to keep pace shut down in 2017. Sears Holdings—one of the U.S.’s major retail giants—closed more than 300 store locations in 2017 alone. This is causing a decrease in demand for retail space as retailers shrink spaces to deal with low revenues.
In the GCC, e-commerce accounts for just 2% of total sales and U.A.E. retailers are now considering whether the impact will be same here as it has been in major markets like the U.S. However, the U.A.E. is a very different market. The spike in visitors witnessed during the Dubai shopping festival, as reported by WAM, indicates that shopping is still an important component for travelers visiting the U.A.E.
While many brick and mortar retailers see e-commerce as a threat, others have evolved to provide customers with an integrated shopping experience across online and physical stores. Major retail businesses have reconfigured their stores and business models, integrating with an online presence to benefit from multi-channel sales and an expanded geographical radius.
In the U.A.E., major electronics and fashion brands offer customers the opportunity to buy from physical or online stores. Trained salespeople help consumers to understand the features of the product at the brick and mortar locations and the consumer can then buy online or through a Kiosk located within the store. Retailers also offer discounted prices on certain products that are only available online, encouraging people to use the digital channel. This reduces the need for larger real estate spending.
Over time this reconfiguration will affect most retailers and the need for larger spaces will deteriorate. Developers will have to rethink development strategies, taking into account current and future effects of e-commerce on real estate.