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Middle East tech retail channel feels VAT impact

by Stuart Wilson, Friday 9 March 2018

David Lewis, head of digital MENA at GfK Middle East and Africa
David Lewis, head of digital MENA at GfK Middle East and Africa

The Middle East consumer tech retail channel has experienced a rollercoaster during the last few months, mainly due to the introduction of 5% VAT in the UAE and Saudi Arabia on the 1st January 2018. Sales in December 2017 were buoyant with many consumers choosing to purchase big-ticket items prior to the implementation. This sales boom then gave way to a sharp sales drop-off in January 2018, according to market reports and analyst insights.

David Lewis, head of digital MENA at GfK Middle East and Africa, explained: “The last three weeks of 2017 saw significant sales uplift as consumers looked to advance purchases ahead of [VAT] implementation. When buying, consumers purchased up – meaning they bought a higher specification product than normal - as they looked to make the most of buying ahead of VAT.”

“Following the introduction of VAT, there was a strong contraction of consumer sales with technology categories declining between 20% and 40% year on year,” he added. “Digging deeper, the variance of trend by price segment is key. Premium consumers appear relatively unaffected. It is the mid-range consumers which have shown a notable change in behaviour and caution to spend."

Lewis added: “The key question from our perspective is how long before consumers begin spending again? At this stage we are forecasting the first quarter to remain challenged with mid-second quarter expected to start showing stability. We will be tracking this on a weekly basis through our sales out audit.”

Channel sentiments

The latest Middle East Retail Academy (MERA) Monthly Monitor Report (MMR) researched by Channel EMEA for DISTREE Events paints a similar picture. The Overall MMR Sales Index plunged to 5.10 (out of 10) for working month January 2018 from 7.11 a month earlier. The MMR collects the opinions of 30-plus vendors, distributors and retailers operating in the Middle East.


One UAE-based retailer commented: “Irrespective of Dubai Shopping Festival (DSF), customers were very careful on their spending. Most of them procured high expensive goods in the month of December considering the VAT implication. Footfall was OK compared to last year, but the conversion was too low.”

A major regional distributor stated: “There was a huge [market] impact due to over sell-in in December to exploit pre-VAT promotions.”

The January 2018 MMR conclusions stated: “The implementation of VAT created huge turbulence in the Middle East consumer tech retail channel. What has been described as ‘over sell-in’ during December and a significant spike in pre-VAT purchasing inevitably led to a sudden drop-off in demand in January – despite DSF offers.”

“The channel is still coming to terms with the changes, but this month’s report indicates a consensus view that the hardest part of the transition is now over. The next report on working month February will provide further insight on whether consumers have psychologically accepted the change,” it continued.

“Sell-in ahead of mini-Gitex will also be important in assessing how quickly the channel has recovered. Many vendors, distributors and retailers were aware of how VAT would impact their business during the last few months, but it remains to be seen if any have sustained real damage due to the extreme revenue fluctuations experienced,” the report concluded.

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May, 2021

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