The UAE retail e-commerce market reached a record $3.9 billion in 2020, marking a 53 percent year-over-year increase driven by the COVID-19-led digital shift, Dubai Chamber of Commerce and Industry revealed.
E-commerce accounted for 8 percent share of the retail market in the same period, according to the analysis.
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.
The rising trend will be supported 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.
Surge in M-commerce
The strong Internet penetration is highlighted by the fact that the share of m-commerce in the UAE e-commerce market increased from 29 percent in 2015 to 42 percent in 2020. 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 $3.9 billion by 2025 and grow with a CAGR of 18.9 percent between 2020 and 2025.
Meanwhile, 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.
In terms of sales per category, 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.
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 drinks were the third largest category 11 percent ($400 million) with online demand in this category especially high for staple food, ready to eat food and healthy food products.
Despite some growth opportunities, there are some challenges in the e-commerce market, such as cash on delivery. However, during the pandemic the share of this payment method was significantly reduced, due to hygienic measures and development of contactless payments.
Moreover, some online retailers faced financial pressure to due high costs. Apart from picking, packing and delivery cost, one of the biggest costs is high returns of products. Study found that people return 15 percent to 40 percent of what they buy online, compared to 5 percent to 10 percent for in-store shopping. However, due to the improvements of online product details, customer support and visualisation, the product returns are expected to go down, the report noted.