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GCC’s e-commerce sector set to reach $50bn by 2025

GCC’s e-commerce sector set to reach $50bn by 2025

Businesses in the retail sector must make the online transition to firmly position themselves in the post-Covid retail revival

The e-commerce sector in the GCC is set to reach $50bn by 2025, on the back of strong growth driven by the Covid-19 pandemic.

According to a report by Kearney Middle East, the same growth that was expected to occur prior to the pandemic has now accelerated at a larger rate and clearly showcases the impact of the virus on the retail sector.

Businesses, which had not begun their digital transition, now find themselves rushing to create an online base for themselves so as to not lose out on future business opportunities.

With the shift of the retail space, consumers have adapted to online marketplaces and will associate this as the new normal during and post-Covid, the report stated.

It forecasts a larger acceleration in e-commerce between 2020 and 2022, at 20 per cent CAGR, and a gradual growth at 14 per cent until 2025.

“In our last e-commerce outlook for the GCC in 2017, we forecasted growth of 35 per cent CAGR, which was essentially more than a four-fold jump in value for the sector between 2015 and 2020,” said Adel Belcaid, partner at Kearney Middle East.

“By the end of 2019, it was worth just short of $18bn, with signs of maturing growth and intense market competition. However, Covid-19 caused an unforeseen push and gave a new, accelerated lease of life to the sector, in line with what we have seen in global markets.

“This is due to a rapid change in consumer behaviour, with unprecedented adoption of e-commerce by all population segments, spurred, to a large extent by the new normal of social distancing, lock-downs and reduced capacity in physical stores,” he added.

The report indicates that the rapid shift for major retail groups has also caused a ripple effect for real estate and small and medium enterprises (SMEs) operating in the same sector.

However, the impact of the pandemic does not appear to have the same effect on commercial real estate and SMEs, who have had a difficult time adapting to the new challenges within the retail ecosystem.

Small businesses, in particular, are struggling to compete with the rise of pure play e-commerce marketplaces, calculated investments by retail giants to dominate the online advertising space, and the ever-declining sales of physical stores, the report found.

An earlier survey conducted by Kearney Middle East indicated that barely 40 per cent of SMEs made the investment to transition online, while less than 5 per cent had planned to make the move in the future.

“The projected growth in GCC e-commerce rests on crucial factors like the logistics infrastructure, flexible manpower models and centrally governed policies,” explained Debashish Mukherjee, partner, Kearney Middle East.

“All stakeholders should take note and revisit their strategies, operating models and policies to adapt and make the best of this e-commerce driven new normal,” he said.

Those who have transitioned have “weathered the storm” while those who fail to make the required changes and investments will be “sidelined and put their very survival in question”, Mukherjee added.

The immense shift in dynamic will leave retail groups questioning the importance of their physical assets, distribution methods, and cost structure for the future, the report stressed.

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