Over the last five years, e-commerce has grown to become a significant component of the Middle East’s economy; a development that is reflected in a number of major deals.
Most recently there was Noon’s partnership agreement with eBay that will allow customers in the region to buy products from the US and other parts of the globe. This follows the $800m Amazon-Souq deal that made global headlines in 2017, which confirmed the status of the sector in the region, with the UAE leading the charge.
Noon founder Mohamed Alabbar, who launched the $1bn e-commerce platform last year, has been prominent in the sector, with Emaar Malls Group having acquired 51 percent of online fashion retailer Namshi for $151m in 2017.
There have also been a number of deals in neighbouring Saudi Arabia in recent years, including Al Tayyar Travel Group Holding’s acquisition of online travel company Al Mosafer and the launch of another online platform, Tajawal. Alongside Souq, some of the other regional stars, such as Wadi, Fetcher, Talabat, and Careem, are well-known success stories.
The opportunity is clear. In Saudi Arabia alone nearly 30 percent of the 28 million residents are below the age of 15. Online customers in the region are estimated to be 50 million and are comparable to the size of India’s digital shoppers.
In order to capitalise, there are four pillars of a successful e-commerce ecosystem:
1. Price, price, and price
Pricing is critical for any e-commerce growth, and companies without a well thought-out pricing strategy have often failed to survive in this highly competitive industry.
While consumers do not make their buying decisions solely on the basis of price, pricing still reigns supreme. The rising cost of goods in brick-and-mortar retail outlets has led consumers to research and compare between the myriad options generally available online. Most e-commerce companies, then, use their scale to directly negotiate with manufacturers and bridge the gap of distribution, passing on their lower prices to their consumers.
2. Countless selection
Creating a “bottomless” search for its products is key to any e-commerce company. Although consumers may buy a few products, they tend to surf and look at various options before making the “buy” decision. This is the most difficult area for companies as they are bound to continuously build and maintain hundreds of stock-keeping units (SKUs) across several product categories in order to provide people an endless choice. Introduction of the market-place model has helped offset this challenge to some extent, but eventually it has led to the emergence of new issues such as counterfeit products reducing trust and high return costs to companies.
3. Payments revolution
The Middle East’s digital infrastructure is taking shape at a staggering pace, and this has catalysed the adoption of digital and card payments in different markets of the region. While the UAE takes the top spot in credit card adoption with a stunning rate of 97 percent, Saudi Arabia has a substantial adoption rate of about 45 percent and continues to witness a strong growth. Credit cards account for over 30 percent of payment modes for e-commerce companies while it is almost over 80 percent as a method of payment for online travel companies – which cannot easily provide a cash-on-delivery option owing to the instant or real-time nature of ticket and hotel bookings.