Perspectives
I don’t know about you, but I dread going to a mall; within ten minutes of entering, I itch to get out as quickly as possible! Don’t get me wrong, I love shopping for fashion as much as the next person. And with the United Arab Emirates (UAE) famed for its endless number of luxurious mega malls, shopping here is nothing short of an experience. But sometimes, don’t you just feel like sitting in the comfort of your own home and shopping online instead?
With life becoming busier and more demanding, the importance of convenience is more crucial now than ever before. Thanks to a rising number of shoppers in the Middle East and North Africa (MENA) region embracing online shopping, retail businesses are feeling the pinch. Yet, a downshift in the bricks and mortar may finally motivate traditional players to digitally transform their business.
Here are some factors brands will need to consider when approaching the Middle East’s e-commerce space.
Using the UAE as a beta test for MENA
With its cosmopolitan population, of which over 80% are actively online, the UAE has one of the highest global internet penetration levels per capita. This is furthered by government initiatives that stimulate the adoption of a more digital lifestyle (i.e. the use of apps for government services in a bid to transform Dubai into a Smart City).
The MENA region is on the brink of becoming a major contributor to the worldwide e-commerce market
Though the Middle East generally lags in the e-commerce sector, online shopping is starting to gain momentum in the Gulf Cooperation Council (GCC). Not only has the UAE marketed itself as a shopping sanctuary; it’s also become a key market for e-commerce given the online activity levels. The country currently holds 53% of total market share across the region, followed by 14% in Saudi Arabia, 12% in Oman, and 10% in Qatar. If that doesn’t impress you, the total value of e-commerce in the UAE stood at $2.5 billion in 2014 and is expected to reach $10 billion by 2018. Such figures show how quickly the UAE has become a testing ground for brands, with plans for regional expansion to follow.
The region isn’t homogenous
Though the UAE serves as a good starting point (largely due to its investment in tech and innovation), it’s not always considered the perfect indicator for the rest of the region. Needless to say, every country has its own nuances in language, culture, preference and so forth, yet the entire region continues to be viewed under a single lens. Take Saudi Arabia for instance; retail in the country rates highest in the region, yet reliance on cash on delivery or COD (along with other factors) has slowed its growth in the online space. Low credit card usage in Saudi Arabia, combined with general distrust of online ecosystems, has allowed for 70% of e-commerce transactions to be COD. Though logistically inefficient, it’s what works for Saudi Arabia – at least for now.
On the other hand, UAE shopping habits are drastically different. Studies conducted by Hall & Partners suggest that female UAE residents shop both online and in-store, with a significant number preferring the former. With high disposable income and mass credit card penetration, women in the UAE are in many cases spending more on fashion than before, with about a third doing so on a weekly basis. Although the UAE is, to some extent, also reliant on COD, the majority of transactions are done through credit card. For instance, the Middle East’s largest e-commerce site Souq, claims that 60% of all their transactions are through credit card. It’s hard to reconcile such contrasting shopping habits in two countries that are geographically located so close to one another, yet both continue to be treated with the same approach. It’s therefore essential for brands to take this into account when thinking about entering the e-commerce industry in the region.
The time is now
Recognising the UAE’s potential in e-commerce from afar is US retail giant Amazon, who in late 2016 began to consider bidding for Souq. After walking out of a deal earlier that year, negotiations restarted, with Amazon finally agreeing to buy the company for as much as USD650 million. Experts at Bloomberg Technology say the deal is, in fact, one of Amazon’s largest acquisitions in recent years. In parallel, noon (a USD1 billion venture), with a planned launch in late 2017, will carry as many as 20 million products (that’s 10 times more than Souq). The company optimistically aims to drive growth of online sales across the region from 2% to 15% in the next decade. Contrary to what some may think, the arrival of noon and the sizeable investment placed into the platform will only boost e-commerce in the region overall. Accordingly, the region is on the brink of becoming a major contributor to the worldwide e-commerce market, and both global and regional players have started to recognise this.
In summary, e-commerce’s great business model of “click and deliver” has dramatically changed the way brands interact with and reach customers, including in the MENA region. The success and growth of e-commerce in the UAE is only the starting point for what we see as major regional shifts in shopping habits. Brands will need to develop online strategies and keep next generation consumers in mind throughout the process if they want to be successful in competing with local and global players in this space. As founder of noon, Mohamed Alabbar, put it: “Today you’re digital, or you die”.
