Dubai's Union Coop, a major player in the Emirati supermarket landscape, reported a significant decline in net profits for the 2023 fiscal year. The company announced a 20% year-on-year drop in net profit, reaching 296.9 million dirhams (around $80.8 million) compared to 369.9 million dirhams in 2022.
While the decline is noteworthy, the company's financial report paints a more nuanced picture. Revenue from sales of goods remained relatively stable, dipping slightly from 1.8 billion dirhams in 2022 to 1.78 billion dirhams in 2023. This suggests that consumer spending at Union Coop outlets held relatively steady throughout the year.
The crux of the profit decline appears to lie elsewhere. The company's financial statement revealed a substantial increase in impairment losses on trade and other receivables. These losses, which represent the estimated value of bad debts, surged by 70% year-on-year, reaching 20.5 million dirhams in 2023 compared to 12 billion dirhams in the previous year. This significant rise in bad debts suggests that Union Coop may have faced challenges in collecting payments from customers, impacting their overall profitability.
Several factors could be at play behind the rise in bad debts. Changes in consumer spending habits, increased competition within the Emirati retail sector, or even economic fluctuations could all contribute to a rise in unpaid customer bills.
Union Coop did not elaborate on the specific reasons behind the surge in bad debts within their financial report. However, the company's performance reflects a broader trend within the UAE's retail sector. The International Monetary Fund (IMF) recently projected a slowdown in the UAE's non-oil economic growth for 2023, citing factors such as global inflationary pressures. This slowdown could potentially impact consumer spending patterns and contribute to an increase in bad debts for retailers across the country.
Looking ahead, Union Coop will need to address the issue of bad debts to improve its financial performance. Strategies such as implementing stricter credit control measures or diversifying their customer base could be explored. The company's performance in the coming year will be closely watched by investors and analysts, particularly in light of the broader economic trends within the UAE.