The UAE has firmly established itself as the go-to market for both high-end and mid-market global retailers thanks to increased tourism, population growth and government stimulus.

Despite regional turmoil last year, the UAE managed to improve its ranking in AT Kearney’s 2012 Global Retail Development Index (GRDI), a ranking of the top 30 developing countries for global retail expansion.

The UAE is ranked a high #7 in this year’s report, jumping one slot from the previous year. While the world's largest developing markets – particularly the BRIC nations of Brazil (#1), China (#3) and India (#5) – still tempt the largest global retailers, the UAE, which boasts of the world’s largest shopping mall, is a market that few retailers can afford to ignore.

According to the AT Kearney report, overall retail sales in the UAE increased by more than 5 per cent last year as consumer confidence rose despite the Arab Spring taking its toll on regional tourism and an economic slowdown in the euro zone.

“Tourism has always been an important retail growth factor,” the AT Kearney report said. “During the Arab Spring, the UAE benefited from its perception as a safe and welcoming nation for tourists and investors,” it acclaimed.

“Dubai Mall is the world’s most-visited shopping and leisure destination, with more than 54 million visitors in 2011 (up 15 per cent from 2010) and a 35 per cent increase in average retail sales,” the report elaborated. “The 12-million-square-foot mall is expanding by one-million square feet to serve more local and international retailers,” the report added.

According to the report, the trend is not limited to just Dubai Mall, and other large format malls in the country – and there are plenty of them – also witnessing sustained growth in sales and footfalls. “A similar trend is occurring at Majid Al Futtaim Holding, which owns the Mall of the Emirates, the country’s second biggest. Last year, it had its best performance since its founding in 1992.”

One of the prime factors for the UAE’s emergence as a retail hub is its ‘open for business’ culture, which encourages businesses to set up shop and reap the rewards of a growing economy, high consumption rates, a large, urban population, and reduced political and financial risk.

Nevertheless, high rental rates in high-end malls despite a huge amount of space being added to the country’s retail landscape on an annual basis means that some retailers are now actively looking for second- and third-tier malls, reflecting a ripening market.

“Unregulated rental prices for space in top-tier malls are good for developers but squeezing retailers’ profits – motivating many players to move to lower-tier malls,” says AT Kearney in its report on the UAE’s retail environment. “French supermarket chain Géant, for example, is opening a new hypermarket in the Dragon Mart [a second-tier wholesale shopping destination],” it says.

While the bog box format is clearly popular in the UAE, consumers are also trending towards the convenience stores, which is also attracting a number of global players and encouraging a number of local players to go big on the small format.

“Convenience formats are becoming more popular in the UAE,” states the report. “While big-format is still dominant, convenience formats are a way for retailers to expand their local footprint,” it adds. “Abu Dhabi-based LuLu Hypermarket Group is planning 50 neighbourhood stores across the Gulf region over the next three years, and Carrefour is expanding its convenience stores across the country,” the report adds.

In what helps round the UAE up as a very attractive destination for all categories of retailers, the AT Kearney report suggests that luxury retailers had another good year. “The UAE is a top importer of Swiss watches, with Dubai alone importing between 800,000 to one million premium watches per year. The country is the fourth biggest market for Rolls-Royce,” it adds.

Clearly, with the UAE’s relatively young population and high per capita spending in the apparel and luxury sectors, it is fast becoming the retail capital of the world.