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E-commerce paving the way for the future of retail and more

E-commerce paving the way for the future of retail and more

A special report on the state of the e-commerce industry in the region outlining its most recent innovations, challenges that lie ahead and the way forward

E-commerce is arguably the ‘new’ buzzword.

Or not?

One may argue the latter for there is hardly anything new to it.

To imagine a day without connectivity is a fair struggle as high digital penetration has effectively revolutionised our interaction with machines.

The internet has been a catalyst in shaping our lives and digital profiles – be it using online channels for research, education and entertainment. As consumers’ digital comforts grew, online shopping – via mobile phones, computers, tablets and other devices – followed as a natural progression, and is now an inextricable part of nearly every consumer’s life.

Today, e-commerce is set to position itself as the key driver of growth regionally for retail, contributing 39 per cent in 2017, and expected to cross 50 per cent by 2020, Bain & Company’s report E-commerce in MENA: Opportunity Beyond the Hype revealed.

In the MENA region, the internet ‘craze’ flew in the mid-2000s fomented by mass social media and smartphone adoption. Businesses jumped in after, but digital became a cynosure of their strategies during the past decade. This coupled with impressive network connectivity and a growing millennial base helped shift the paradigm. In 2018, on average, more than 40 per cent of the Middle East’s total population constituted of young adults, aged 20 to 39, BMI Research report reveals, corroborating the region’s driving e-commerce force.

Ambareen Musa, founder and CEO of Souqalmal.com, explains: “With a digitally connected population, online shopping comes as the next logical extension. E-commerce players in the region can overtake local and global competition by designing an intuitive customer experience, engaging customers across channels, and building a trustworthy platform that cuts the time and cost of purchasing online.”

Is a young millennial – and socially impressionable – base, high internet penetration, convenience, a bit of everything or something else – driving the region’s e-commerce upward trajectory?

“The region is broadly ‘cash rich-time poor’ so digital business models that address this dynamic have a promising outlook,” explains Khalid Khan, managing director, Astound Commerce Middle East.

“Cities are dominated by motorcycle food delivery drivers, zipping in and out of lanes in order to deliver food on time, and this success is visible to all. Retail continues to steadily move forward; operators are beginning to think more creatively about how they can leverage their physical store infrastructure for the digital consumer. The service industry is beginning to see traction as creative entrepreneurs bring traditional services such as car fuel provision, and dry cleaning into the digital age.”

Regional growth stands tall
Incredibly, Middle East nations are ahead of more mature e-commerce markets (US, China) in terms of internet penetration that stood at 64.5 per cent in 2018, above the global average of 54.5 per cent, according to a joint Visa and Dubai economy study.

“The region’s e-commerce industry is set for a boom,” Nour Suliman, CEO, DHL Express Middle East and North Africa, says. “Globally, online shopping is growing exponentially in terms of volumes, scale, markets and countries, and the same trend is being seen in the Middle East prompted by a rising consumer base, high disposable incomes and changing buying habits, among other factors.

“The region’s e-commerce value is forecasted to double by 2022 with countries like the UAE making it on the list of fastest growing e-sales in percentage growth, alongside China, India and the Philippines. And with much of the groundwork being put in place, the region is becoming the world’s fastest growing e-commerce playground.”

The UAE is also the most advanced e-commerce market in the MENA region with a penetration rate of 4.2 per cent, with Saudi Arabia following closely behind at 3.8 per cent, according to Bain & Company.

“Within the GCC, countries like the UAE and Saudi Arabia have some of the highest levels of smartphone ownership, internet adoption and social media penetration globally.

Coupled with a high per capita income and favourable regulatory landscape, it’s safe to say that the region is ripe for e-commerce growth,” explains Musa.

Up to 55 per cent of shoppers in the UAE, Saudi Arabia and Egypt prefer to use smartphones to shop online. More than 60 per cent of shoppers in the UAE and Saudi, and 43 per cent in Egypt have completed an online transaction at least once, Bain & Company’s report revealed.

Furthermore, the GCC region is the fastest-growing market with an anticipated 2020 e-commerce spend totalling $10.8bn, marking a compound annual growth rate (CAGR) of 26.6 per cent from $5.4bn in 2017, according to Dinarstandard’s MENASA eCommerce Landscape: B2C Products Edition report.

The Dinarstandard report also features a list of the top 100 B2C e-commerce companies of the MENASA (Middle East, North Africa and South Asia) region, which includes 11 UAE-based e-commerce portals such as Souq, Noon, Namshi and Jumbo, among others.

The list also includes three e-commerce companies from Saudi Arabia and four from Kuwait; meanwhile, multi-product marketplace websites lead among the categories with 26 companies.

 

 

Success stories pave the way
The region’s startup ecosystem has garnered the attention of regional and global investors, raking in billions in investments to support a promising market.

The total number of venture capital (VC) investments in the MENA region totalled $670m in 2018, of which 70 per cent were deployed in the UAE and 8 per cent in Saudi Arabia, a report published by STV, a Riyadh-based technology VC fund, revealed.

In 2018, 87 per cent of VC investments in the UAE were already in later-stage ventures. In Egypt and Saudi Arabia, they were recorded at 79 per cent and 75 per cent respectively, the STV study noted. As the regional VC industry develops, it will tilt further towards later-stage investments, in line with mature markets.

Companies like The Luxury Closet, UAE’s e-commerce platform selling new and pre-owned luxury goods, secured $2.3m in growth capital in 2019, having secured an earlier $8.7m round in 2018. It also secured a $7.8m growth fund in 2016 to drive expansion.

Furthermore, successful buyouts of companies have validated VC investments holistically. In 2017, the world awoke to the news of technology giant, Amazon, acquiring UAE’s flagship e-commerce platform – Souq.com – for a whopping $580m.

The acquisition was hailed as “a critical next step in growing our e-commerce presence on behalf of customers across the region” – by CEO, Ronaldo Mouchawar, at the time.

“The Souq.com acquisition by Amazon has energised the entire e-commerce sector in the Middle East. For customers, it has brought in access to new markets and products, healthy and transparent competition, and more value for online shoppers,” says Shamsh Hadi, CEO of ZorroSign.

“Sellers now also have a larger reach into the UAE market, which was not as easily available before. There is also a significant surge in online shopping which is now giving investors more confidence in funding start-ups in the e-commerce space primarily thanks to the big-ticket acquisition of Souq.”

Local investors have had their share too – Emaar Malls, the retail arm of UAE developer Emaar Properties, acquired a 51 per cent stake in UAE’s e-commerce portal Namshi for $151m in 2017, fully acquiring it two years later by paying an additional $129.5m for the remaining stake.

The chairman of Emaar Properties, Mohamed Alabbar, along with Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and other Gulf investors, also launched the $1bn e-commerce platform, Noon.com, in 2017.

Meanwhile, buyouts continued in the non-retail e-commerce space too. In 2019, ride-hailing firm Uber acquired Dubai-based rival Careem’s mobility, delivery, and payments businesses across the greater Middle East region for a whopping $3.1bn with the deal expected to close out in the first quarter of 2020.

Online food delivery platform Talabat was acquired by German e-commerce group Rocket Internet for a staggering $170m in 2015.

The last mile as a potential game changer
Like marathons, the last mile in an e-commerce journey – the final leg entailing the movement of goods from the last transportation hub to the final delivery destination, typically a customer’s residence – is a potential game-changer.

An effective, consumer-centric last mile experience could engage and retain consumers. More often than not, small and medium enterprises (SMEs) get the product development and customer interface right but stop short of fulfilment and shipping.

“In times of instant gratification, last-mile delivery is certainly crucial. From our experience, speedy fulfilment can be a revenue-, acquisition- and satisfaction-driver and in the luxury space, customers are willing to pay extra for same-day services,” says Andreas Skorski, founder and CEO of The List, a global e-commerce marketplace selling designer fashion and accessories as well as lifestyle products.

Nour Suliman, CEO, DHL Express MENA adds: “The e-commerce vertical has forced logistics players to re-align mindsets and processes to better accommodate for a more demanding customer and retailer segment. There has been a complete shift in how we as logistics players tackle e-commerce, with almost the entire process being steered by the needs of the end consumer. Today we are competing on ‘e-fulfilment’ and customer satisfaction; online consumer behaviour and buying habits have changed dramatically as a result of technology and we are now dealing with a more demanding, price-conscious segment who want real-time interaction, they want things faster, with more visibility, more choice and a great deal more convenience.

“On the other hand, you have the e-commerce players. They are aware of how critical e-fulfilment is to sustaining customer loyalty and they seek logistics partners who can help them stand out by offering simple, direct, cost effective and innovative solutions to reach their B2C market.”

The Capgemini Research Institute, in its consumer survey, polled over 2,870 consumers across five countries in Europe and North America during Q4 2018, and 500 supply chain executives, as well as entrepreneurs and industry leaders. The study revealed that 82 per cent of satisfied customers share their positive delivery experiences with kith and kin, while 74 per cent of the satisfied respondents intend to increase spending by 12 per cent with their preferred retailers.

So which factors come into play for e-commerce companies, while choosing between outsourcing deliveries vis-à-vis maintaining an in-house fleet?

“The most important reason is cost,” notes Suliman. “To stay competitive, e-commerce players need a cost-effective shipping strategy, and therefore have to assess which option will keep the costs low enough to attract shoppers. The best option for e-commerce companies really depends on the size, scope, and future of their business.”

Over the last five years, a significant portion of DHLs’ revenues have come from businesses selling direct to consumers via digital platforms. B2C has grown from around 10 per cent in 2013 to more than 20 per cent today, say Suliman, while e-commerce activity has been growing by around 40 per cent annually, making it a star player for DHL’s business.

The last mile may be mired with hassles such as route planning, aligning deliveries to consumer schedules, and parking hurdles, and while these factors and additional ones such as cost-effectiveness and size of the business come into play, choosing to outsource delivery is also dependent on the amount of control an e-commerce company wishes to maintain over the process.

Ulugbek Yuldashev, founder and CEO, Awok.com, explains further: “Awok manages more than 90 per cent of its logistics and last mile in the UAE. Outsourcing also has its advantages, of course, where it is easy and fast to start and scale the operations. On the other hand, the advantages of an in-house fleet ensure not only more control, but if executed correctly in the long term, can be more cost efficient. It also provides better customer experience and quality of service.”

Fulfilment centres
To develop a thriving e-commerce ecosystem, encourage more online startups to enter the market, and improve the last mile experience, synergised fulfilment centres – third-party spaces that process and fulfil customer orders from e-commerce retailers – are vital. A fulfilment strategy – the methodology by which a customer order is fulfilled – defines the success of a B2C e-commerce business.

An e-commerce business can sell a valued product via a richly designed website with exemplary customer service but if the purchases take too long to process or if shipments are delayed, that value does not reach the customer and subsequently does not translate into profits.

In 2017, logistics service provider, Arvato SCM Solutions, in its research of 2,000 US-based shoppers, revealed that 83 per cent of the participants considered free delivery as the most significant factor when it came to fulfilment of online orders, followed by speed of delivery (53 per cent) and free returns (52 per cent).

“Since the region, with its e-commerce ecosystem, is just at its starting point, similar factors apply to the fulfilment centres to sustain scale and the way of operating with e-commerce. There is still a lot of potential to grow,” opines Skorski.

Locally, companies are realising the importance – and need – of fulfilment centres to develop the e-commerce ecosystem. In 2019, logistics firm Aramex launched a 60,000 square metre fulfilment centre in Dubai to strengthen its e-commerce business with B2B retailers. The new facility uses an automated conveyer belt system, and ‘Pick to Light’ feature – a system for picking items off shelves using lights to help workers.

Also, in 2019, the MENA region’s first robotic fulfilment centre – IQ Fulfillment – was launched in Dubai to deliver back-end solutions to support the needs of SMEs, incubators, accelerators and e-commerce players, utilising robotics and technology.

Meanwhile, e-commerce players are also throwing their weight behind the concept, controlling their fulfilment and last mile elements. Amazon-owned Souq.com opened a new 23,000-sqm-fulfillment centre in 2018, its third in the UAE, to benefit sellers – including SMEs who sell on the Souq platform – ensuring that they serve their customers faster and more e ectively.

Souq.com also acquired Wing.ae, a marketplace for merchants and couriers in the UAE that offers mobile and web-based delivery solutions for businesses and consumers.

The challenges and the future: what comes next
One of the prominent challenges faced by the MENA e-commerce sector – as the report by Bain & Company reveals – is the preference for cash on delivery (COD) due to low trust levels, which remains an impediment for e-commerce players.

Around 62 per cent of MENA online buyers prefer to pay cash on delivery for online purchases, vis-à-vis less than 5 per cent in the UK and France. COD is also common in the UAE, despite credit card penetration being at 57 per cent, higher than in the UK and France, the report adds.

“Lack of digital payment adoption – while it is increasing with initiatives such as Mada in Saudi Arabia, cash on delivery remains popular across the region. This may seem convenient to the customer, but it places a great deal of strain on the merchant, raising failed delivery rates and returns, increasing the cost of business, which will eventually impact the consumer,” says Khalid Khan, managing director, Astound Commerce Middle East.

Souqamal CEO Ambareen Musa adds: “A patchy product selection, inconsistent delivery times and last mile delivery challenges due to lack of area codes, along with a preference for cash on delivery over online payments, are three of the biggest factors restricting e-commerce growth in the region.”

Additionally, fragmented regulations between countries may lead many to reconsider regional expansion prospects. “If you operate in the UAE and want to target the MENA region, you have to separately enter and build up Saudi Arabia, Egypt and other countries, making it difficult and expensive to scale – but also an advantage, as it becomes a barrier to entry for large international players who would rather acquire than build up,” Yuldashev noted.

Lastly, value-based pricing is significant and if incorrectly done, could tank one’s e-commerce business, but to secure customers long term, a combination of multiple fac- tors such as product quality, delivery, customer service and a greater B2C relationship is warranted.

“E-commerce players will eventually run out of money if they compete solely on price. Players should differentiate themselves on the shopping experience, delivery and cus- tomer service. By allowing third-party sellers to sell on their platforms, quality control and the authenticity of products should be ensured and guaranteed by the platforms. And, e-commerce platforms should be more transparent about product return and refund,” sums up Shamsh Hadi from ZorroSign.

Strong prospects
The drivers here are: people and technology. Certain brands have cottoned onto the differentiators early and strode ahead of the competition. UK-based e-commerce platform Farfetch unveiled the ‘Store of the Future’ concept with a few of its applications including a universal login recognising customers entering an outlet, a (radio-frequency identification) RFID-enabled clothing rack to detect products being browsed and auto-populating a customer’s wishlist, and a digital mirror allowing the customer to view her/his wishlist as well as calling for products in varied sizes and colours.

A host of companies (Burberry, Harrods, Chalhoub Group) have partnered with Farfetch to use its infrastructure to help drive expansion.

Regionally, in the years to come, products and technology infrastructure will go hand-in-hand with the e-commerce ‘experience’ expected to be more personalised, and every individual garnering a different experience based on key differentiators. Value-added content will hold more relevance to the customer and drive him towards the right purchase while customers’ digital encounters may transcend traditional screens, moving towards an all-inclusive future with additional touch-points (voice, wearables, etc.).

Wearable tech may trigger next-level personalisation and could be very effective in fuelling e-commerce growth such as smart glasses, which use augmented reality (Google has a patent on pay-per-gaze which will be able to track which adverts customers paid heed to, and which they don’t).

Lastly, more e-commerce brands may adopt pre-emptive shopping – such as the partnership between British retailer Tesco and the IFTTT (If This Then That) platform – backed by automation software, enabling consumers to set rules on which items can be added or removed from their carts.

“Data and AI will be more and more important, making the difference in all e-commerce components. Personalisation will be key to better serve customers. Knowing what the customer would like to purchase and being able to deliver that option to them before they even make the decision is key,” opines Yuldashev.

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