The UAE retail e-commerce market hit a record $3.9 billion in 2020, a 53% year-on-year growth driven by the COVID-19-led digital transformation, whereas e-commerce represented 8% of the retail market in the same year, according to new research from the Dubai Chamber of Commerce and Industry.

According to the study, the market's value would also grow at a compound annual growth rate (CAGR) of 8% to $8 billion by 2025, a trend backed by numerous key factors such as high-income potential, high Internet penetration rate (99%), established transport logistics network, modern digital payment systems, growing tech-savvy youth population, and strong government assistance.

The UAE does have the highest smartphone penetration rate in the Mena region that has contributed to the rise of mobile commerce (or m-commerce) from 29% in 2015 to 42% in 2020. Furthermore, the UAE retail m-commerce retail market value touched $1.6 billion in 2020, up 56% from last year. The UAE retail m-commerce industry is expected to reach $3.9 billion by 2025, with a CAGR of 18.9% between 2020 and 2025.

The UAE, and particularly Dubai, remains to be e-commerce growth centres in the Mena area. During COVID-19, changing consumer behaviors drove the rise of digital shopping. According to the UAE National Economic Register, the UAE e-commerce industry granted the most licences (196) in May 2020.

Despite certain chances for development, the e-commerce sector has several obstacles, including cash on delivery. However, owing to hygienic efforts and the emergence of contactless payments, the prevalence of this method of payment was dramatically reduced during the epidemic.

Due to rising prices, several online retailers were put under financial strain. Aside from the expenses of choosing, packaging, and shipping, one of the most significant costs is the high rate of product returns. Experts have found out that individuals return 15% to 40% of what they buy online, compared to 5% to 10% of what they buy in-store. However, as online product information, customer assistance, and visualization improve, product returns are anticipated to decrease.

According to Euromonitor statistics, the clothing and footwear e-commerce sector have the biggest share of the UAE retail e-commerce industry in 2020, accounting for 33% ($1.3 billion). Considering certain restrictions, the internet proportion of this category rose somewhat in 2020, owing to the rising demand for casual apparel such as T-shirts, sweatshirts, and hoodies.

Consumer electronics was the second largest sector in UAE retail e-commerce, accounting for 31% ($1.2 billion). Because of remote working and online schooling, there had been a significant demand in this segment, particularly for laptops, personal computers, and tablets. In 2020, food and beverages were the third biggest category (11% or $400 million) in the UAE retail e-commerce sector.

Many large retailers created and improved smartphone applications to increase online sales and improve user access to items. According to the Telecommunications Regulatory Authority of the UAE's most recent statistics, there have been 52 buying apps in the UAE that specialize in food, beverage, and medicinal items.

According to Euromonitor, during the COVID-19 pandemic (2019-2020), retail e-commerce of Food and Beverage and Consumer Electronics items grew by triple digits. Other consumer products that saw higher than 50% growth rates include beauty and personal care, pet care, and clothes and footwear.

Personal accessories and eyeglasses are anticipated to expand at the fastest rate in the UAE e-commerce industry, with a CAGR of 20% from 2020 to 2025, followed by media items, pet care, and home care products.

E-commerce trends that are expected to gain traction with consumers include faster, safer, more intuitive, and personalized experiences, voice-activated shopping, contextual and social commerce, virtual immediate reordering, and merchandise subscriptions, which, when combined with amenities like same-day delivery and competitive rates, will lure more buyers to choose e-commerce over traditional face-to-face commerce.