The UAE remains India's second largest apparel market, even as exports to the country have recorded a significant drop in 2017-18. According to a report by India's credit rating agency ICRA, a slowdown in exports to UAE is one of the reasons for overall apparel exports showing a negative trend.
Exports to India's number one market USA have increased only marginally in the last fiscal. Exports to UK have also been impacted due to the Brexit situation. And exports to UAE have recorded a fall of around 25% compared to the previous year.
UAE's overall textile and apparel imports have been declining since 2014. In 2014, textile and apparel imports into UAE amounted to AED 24.10 billion. In 2015, imports were down 1.91% to AED 33.17 billion. In 2016, imports fell 11.59% to AED 29.32 billion, and further by 7% to AED 27.28 billion in 2017.
It is however, noteworthy that UAE's reexports share in total imports of textiles and apparel has been rising since 2014. And reexports now acccount for 42% of total textile and apparel imports of UAE.
And while India's apparel exports to the US and Europe may not improve much this year, exports to UAE could pick up, if Indian exporters follow the changing apparel consumption landscape of the country.
Indian exporters must realise that the country is just coming out of recession, and shoppers are unwilling to splurge on apparel as much as earlier. Most consumers in the region are opting for value-added, quality apparel, brand loyalty is on the wane, at least for now. Indian apparel exporters must explore the e-commerce route to UAE, which is slated to grow 20% between now and 2021.
Economic slowdown hurt consumer spending
The slowdown in UAE's textile and apparel imports and consumption can be attributed to the economic recession the region has been witnessing for the last two years, following a crash in oil prices. With the result that the UAE, and Abu Dhabi, in particular aggressively cut down public spending and expatriate employment numbers.
This hurt the UAE's consumer spending.
The introduction of a 5% Value Added Tax rate in the UAE and Saudi Arabia this year as well as increases to fuel and electricity prices saw consumer price inflation surge in January, further inhibiting shoppers.
Last year, GDP growth for the Emirates as a whole was just 1.3%, according to the International Monetary Fund. Other observers are more pessimistic; London-based consultancy Capital Economics believes it was actually more likely to have been just 0.5%, a virtual no-growth level.
Economy will begin to pick up in 2018
With some stability regained owing to OPEC's "Vienna Alliance" on supply and healthier prices, austerity should be eased this year. In Dubai, the Expo 2020 factor should finally arrive this year. There is a big expansion planned in government spending – as much as 20% higher than last year – of which a large part is earmarked for employment-generating infrastructure relating to the Expo. The non-oil sector across the UAE should benefit.
The consensus among economists is for UAE GDP growth to hit 3% this year, rising to 3.5% by 2020.
The retail industry in the UAE will be one of the leading industries to benefit from the increase in GDP forecast by the IMF. When the population in the UAE believes that their financial future will be brighter and more secure today and tomorrow, then shoppers will feel inclined to purchase more retail goods. Given the IMF's forecast growth, the retail industry is set to flourish again in 2018.
Other factors aside from the anticipated growth in GDP are also at play, giving rise to greater optimism for retail sales in 2018, says McKinsey & Company in their report on the global fashion industry released at the end of November 2017.
UAE's retail sector to grow 3% in 2018
While VAT is not expected to make much of a dent in consumption rates in the long run, analysts expect e-commerce to gain further momentum in 2018 garnering a larger share of retail consumer spend. Online retail activity in the UAE is forecast to see an average growth rate of over 20% between 2018 and 2021.
UAE's retail landscape is expected to grow at a rate of 3% in 2018, reaching a value of Dh 196 billion, according to analysts. "E-commerce in the UAE has witnessed the entry of some major players in 2017 and is consequently expected to gain further momentum in 2018, garnering a larger share of retail consumer spend. Also, it is expected that significant new retail supply may be added in 2018, leading to increased competition," said Anurag Bajpai, Partner and Head of Retail, KPMG in the Lower Gulf.
On the other hand, macroeconomic conditions, which have been challenging the industry since 2016, could see some uplift if oil prices continue to remain stable and consumer sentiment improves in 2018. "Further, with new attractions being introduced in the UAE, the outlook for tourist arrivals remains positive. This may contribute to higher retail spending, thus reaffirming the UAE as a shopping and entertainment destination," said Bajpai.
"While the implementation of VAT may have an immediate impact on consumer spending, it is not likely to affect retailers in the long term, for consumers will eventually adjust to the new normal."
UAE consumer spending to exceed US$ 261 billion in 2021
Consumer spending in the UAE, which amounted to nearly US$ 183 billion in 2016, is forecast to rise at a compound annual growth rate (CAGR) of 7.5% over the next five years to exceed US$ 261 billion in 2021, according to the Dubai Chamber of Commerce and Industry.
Housing was identified as the top spending category for UAE consumers, with US$ 75.7 billion recorded for 2016, accounting for 41% of total consumer expenditure during the year. Food and non-alcoholic beverages was the second largest category, with US$ 24.8 billion worth of spending during the same year, followed by transport (US$ 16.7 billion).
In the consumer price index, clothing and footwear is weighted at 2.05, with housing, transportation, food, education, etc being more important in the consumer basket.
However, UAE's predominantly young and diverse population is attracting the interest of international brands and a growing number of e-commerce companies, which are targeting tech-savvy consumers. Also, the country's booming tourism market continues to drive consumer spending, especially within the retail, tourism, hospitality and transport sectors.
Consumer spending accounted on average for approximately 45% of the UAE's GDP, compared to a 39% average for the GCC region, 45% for developing Asia, 56% for the EU, and 68% for the US.
UAE retail sector rapidly changing
A report by consultancy McKinsey, suggests that consumers in the Middle East are becoming more cost conscious, with purchasing behaviours changing rapidly. UAE shoppers felt that they were forced, over the last two years, to make adjustments to their spending habits, and now feel more confident about spending disposable income.
In UAE, 34% of consumers are looking to buy their preferred brands at any price point, as compared to 41% in 2017, reflecting the cost-consciousness that is growing among shoppers. McKinsey's 2018 Middle East Sentiment Survey classifies shoppers into five categories based on their behaviour: Savvy cost-cutters, thrifty brand loyalists, selective splurgers, trade-down converts and multichannel shoppers.
The McKinsey report states that 78% of consumers in the region changed their buying habits to save more. In the UAE, 14% consumers traded down to cheaper options and 12% traded up to more expensive, luxury brands of higher value. And majority of the consumers that traded down are happy with their decision.