E-COMMERCE VS. BRICK-AND-MORTAR: CHOOSING THE RIGHT RETAIL MODEL IN THE UAE

This article has been researched and written by the Business Development team at Creation Business Consultants. AI has not been used in generating this article.

In the dynamic retail environment of the UAE, businesses face the critical decision of selecting between e-commerce and brick-and-mortar retail models. Both options offer unique advantages and face distinct challenges and by understanding these factors, entrepreneurs can make informed decisions that align with their business goals and market demands.

On the one hand, the UAE is a leading country among the Gulf Cooperation Council (GCC) in e-commerce, with the Dubai Chamber of Commerce and Industry projecting sales to reach $8-9 billion by 2025. This growth is fuelled by the fact that nearly 100% of the UAE population has access to the internet and mobile phones. From the legal perspective, the eCommerce law is fairly new to the UAE and regulated by Federal Decree – Law No. 14 of 2023 Concerning the Modern Technology-based Trade.

On the other hand, the standard retail model still provides stable results as the volume of retail sales in 2026 in the UAE is forecasted to reach approximately 114 billion U.S. dollars.

OVERVIEW OF E-COMMERCE AND BRICK-AND-MORTAR RETAIL MODELS

E-Commerce refers to buying and selling goods and services through various kinds of digital platforms available 24/7, allowing customers to shop from anywhere with an internet connection. This model offers unparalleled convenience and the ability to reach potential customers globally. The most popular e-commerce platforms of 2023 were Amazon.ae, Noon.com and Opensooq.com. For those interested in venturing into this dynamic market, How to Start an E-Commerce Business in Dubai & The UAE provides a comprehensive guide.

Brick-and-Mortar Retail, in comparison, involves physical stores where customers can interact directly with products and receive in-person service. These stores provide a tangible shopping experience, immediate product availability, and the opportunity to build personal connections with customers. The city’s distinctive market dynamics, including high demand for luxury goods and a substantial influx of tourists, help sustain the importance of physical stores.

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ADVANTAGES AND CHALLENGES OF E-COMMERCE IN THE UAE

ADVANTAGES:

Convenience and Accessibility: E-commerce offers significant convenience, enabling consumers to shop from anywhere at any time.
Lower Overheads: Operating an e-commerce store typically incurs lower costs compared to maintaining a physical store. Savings on rent, utilities, and in-store staff can be redirected into marketing and technology investments.
Data-Driven Insights: E-commerce platforms provide access to valuable consumer data which can be easily analysed to help businesses understand customer behaviour, optimize inventory, and tailor marketing strategies to specific audience segments.
Scalability and Flexibility: E-commerce models allow businesses to easily expand their product range and reach new markets. This flexibility is a big advantage in the rapidly changing UAE market.

CHALLENGES:

Digital Competition: The e-commerce space in the UAE is becoming increasingly crowded, making it challenging for new businesses to stand out. Effective digital marketing and SEO strategies are crucial for visibility but can be costly.
Logistics and Delivery: Efficient delivery systems are essential for e-commerce success. In the UAE, where logistics can be complex due to varying geographical locations, ensuring timely and reliable delivery is a significant challenge.
Customer Trust: Building trust online can be more difficult, especially when it comes to payment options, providing clear return policies, and offering excellent customer service.

ADVANTAGES AND CHALLENGES OF BRICK-AND-MORTAR RETAIL IN THE UAE

ADVANTAGES:

Physical Presence and Brand Image: Physical stores allow customers to experience the brand firsthand. The ability to touch, try, and feel products, along with personalized service, enhances brand perception and customer loyalty.
Immediate Gratification: Consumers can take products home immediately, avoiding delays associated with shipping. This instant availability is particularly valued in a market where high-end products are popular.
Experiential Retail: Brick-and-mortar stores can create unique shopping experiences through interactive displays and in-store events. This can attract new customers and foster a strong connection with the brand.
Local Presence and Trust: A physical store can enhance trust and credibility, especially in a community-focused market like the UAE, where local presence can build stronger relationships with customers.

CHALLENGES:

Higher Overheads: Operating a physical store involves significant expenses, including rent, utilities, and staff salaries. These costs can be a barrier for new businesses or those with limited budgets.
Limited Reach: Physical stores are constrained by their location. Expanding reach beyond the immediate area requires additional investment in new locations or distribution channels.
Changing Consumer Preferences: The rise of digital shopping has shifted consumer preferences towards convenience and online options, challenging traditional brick-and-mortar retailers to adapt.

REGULATORY FRAMEWORK: BUSINESS COMPLIANCE, APPROVALS, AND LICENSES

Both e-commerce and brick-and-mortar businesses must comply with various laws and regulations, whether during the incorporation process or with annual annual compliance requirements, including:

Business Licensing: First of all, all retail businesses must obtain a valid trade license from the relevant licensing authority – either from the Department of Economic Development (DED) in the respective emirate or chosen free zone. The type of license required depends on the nature of the business and its location. Many Freezones across the country offers a special E-commerce licence described as “the activity of electronically buying or selling of products on online services or over the Internet.” In addition, Dubai CommerCity is a free zone dedicated to support the growth of the eCommerce market in the Middle East and North Africa (MENA) region. It provides a unique eCommerce ecosystem to global and regional brands to help them set up and operate their eCommerce business in the MENA region. It is strongly recommended to seek professional advice and consultation to ensure that your business is qualified for an e-commerce license without any special external approvals.
Tax Compliance with VAT Regulations: All retail businesses in the UAE must comply with Corporate Tax (CT) and Value Added Tax (VAT) regulations. Even E-commerce businesses incorporated in UAE Freezones need to ensure their online transactions adhere to CT and VAT requirements. For more detailed guidance on this, refer to our comprehensive guide on Managing VAT Compliance For E-Commerce Businesses In The UAE. A special attention shall be made to customs and shipping regulations if the products/goods will be shipped to the UAE. Dubai Customs has launched an unique Cross Border e-Commerce platform to eliminate declaration submission time and reduce cost of e-commerce transactions once the E-commerce company is properly identified and certified.
Consumer Protection & Data Protection Laws: Both e-commerce and physical stores must adhere to consumer protection laws, which cover aspects such as product quality, return policies, and fair-trade practices. In addition, E-commerce businesses must comply with data protection regulations to safeguard customer information.
Health and Safety Standards: For brick-and-mortar stores, compliance with health and safety standards is essential, particularly in sectors such as food retail. Outlined by the Ministry of Human Resources and Emiratisation (MoHRE) and the Dubai Municipality, these regulations cover a wide range of areas, including ventilation, lighting, space requirements and sanitation.

CONCLUSION

Choosing between e-commerce and brick-and-mortar retail models in the UAE involves evaluating various factors, including convenience, costs, customer preferences, and regulatory requirements. Both models have their unique advantages and challenges, and the best choice depends on your specific business goals and market conditions.

Are you ready to embark on your retail journey in the UAE? Contact our team of experts to get personalized advice, navigate regulatory requirements, and set up your UAE retail business on the path to success.