Checking Out E-Commerce

The GCC is home to two of the world’s fastest growing e-commerce markets. But take off has been slower than predicted and many worry the main barriers to growth are out of the hands of the logistics industry

A perfect storm is brewing in the GCC – high levels of disposable income, an insatiable thirst for shopping and some of the highest levels of mobile connectivity and tech ownership in the world.

The culmination of these factors has produced a number of opportunities for many industries, particularly retail, but it is e-commerce which is driving business to logistics players and pushing them to create ever innovative solutions to help retailers keep up with demand.

In the Middle East, the UAE’s e-commerce industry is expected to be valued at $10bn by 2018, according to MasterCard data released in Q1 of this year, noting the likelihood of a three-fold increase. Compared to the rest of the region this is a lion’s share – consider the entire Middle East e-commerce market is set to reach values of $20bn this year.

“With high GDP per capita and the highest smartphone penetration rate in the world, the Middle East represents one of the fastest growing e-commerce markets globally with the UAE and Saudi Arabia predicted to be the fastest growing countries regionally as well as globally,” says Ronaldo Mouchawar, CEO and co-founder, SOUQ.com, the largest online retail and marketplace platform in the Arab world. SOUQ.com today features close to two million products across 31 categories.

Mouchawar is not being modest. With the wider digitisation of our lives – from automated payment terminals to the launch of Beam and online bill payments – technology is becoming ever central to the lives of millions of Middle East residents and now, when they want to shop, book tickets, or arrange transport, they turn to the Internet.

Growth is experiencing such a pace, AT Keaney believes the GCC is “on the cusp of becoming the world’s fastest growing” e-commerce market should basics such as usability and security be satisfied.

In its Getting in on the GCC E-commerce Game report, the consultancy claims that despite strong economic fundamentals, the GCC is one of the most underpenetrated e-commerce markets in the world. However, with high levels of disposable income, world-leading Internet and smartphone penetration, and evolving consumer behaviour, there is robust potential in the region and some companies are beginning to seize the opportunities this brings.

Currently, the e-commerce market in the region is much smaller compared to mature markets with similar economic fundamentals. With an estimated market size of $5.3 billion in 2015, e-commerce contributes only about 0.4% to the region’s GDP – a miniscule amount which is up to eight times lower than other comparable markets.

Commenting on the report, Laurent Viviez, partner, A.T. Kearney said: “We expect the growth of e-commerce in the GCC to transform the future of businesses, economics and lives across the region – but only with the right set of enablers in place. And it doesn’t rule out traditional retailers, who can be on the winning side of e-commerce by adopting an omni-channel approach. We see the future for the sector as not digital-only but ‘physical with digital’ – traditional retailers can really tap into this.”

A game of two sides

Those enablers are varied – from the usability of sites to the latest in mobile technology and security features on payment cards, not to mention consumer trust and awareness. In the GCC, where a unified postal system has never been established – last mile delivery provides particularly costly as couriers have to be employed to fulfil orders.

The usability of sites and apps is also key to perfecting the online shopping experience; factors beyond the reach of the logistics industry. Baymard Institute claims that 68% of online shoppers leave their cart at the checkout, in its report E-commerce Checkout Usability. the nature of online “window shopping” was considered along with the shopper’s scrutiny of security measures and, importantly, delivery costs and times, for the items to be bought.

In a survey conducted by the Institute, sites like Amazon, Sears and Sephora rank highest for features such as search, product list and field descriptions, respectively. But those same sites scored low in other areas, for example Staples was ranked one of the worst based on its search function, but scores the highest for its input functionality.

Mouchawar says: “For SOUQ.com the initial vision still remains: connecting people to products. We place customers at the forefront of what we do and we are dedicated to providing them an unparalleled shopping experience through continuously innovating across the platform. Over the last couple of years, we have phenomenally extended our lifestyle and fashion offerings. We continuously monitor customer trends and use these findings as a basis to adjust our category offerings.

“Through varied categories at the most competitive pricing, we place the power in our customers’ hands along with the convenience to select from a large assortment of products.

“As a brand that is born in the region, we take pride in personalising our customers’ experience and providing them exceptional service that makes the shopping experience as easy and seamless as possible.”

Looking beyond the usability of sites, the AT Kearney report reads: “There are several obstacles preventing e-commerce in the GCC region from reaching its potential, including consumer trust and awareness, gaps in payment systems, distribution and logistical infrastructure, government policies, data security and fraud. Furthermore, e-commerce offerings from the retailer side are also lacking.

“Approximately 34% of major GCC retailers have an e-commerce channel, compared to 58% in the United States. However, there are significant opportunities to overcome these challenges and facilitate growth in the sector, with expectations the market will quadruple in value to $20bn by 2020 if the right set of enablers is put in place.”
The ways around such barriers to adoption have included many novel tricks. For example, 60% of online orders regionally, are still paid in cash at the point of delivery, overcoming consumer trust issue and expensive e-commerce functions on sites, as well as expanding the focus of the logistics partner. However, cash on delivery is not only expensive for retailers as they bear transaction and cash transportation risks, but also negatively affects the cash flow.

“This should be a focus area for retailers as they select best payment options to ensure transaction security as well as an enjoyable customer experience. They need to form payment ecosystems to ensure interoperability, and forge strategic partnerships with the best-of-breed providers that are already active in this space. They then need to enable mobile-based payments collaborating with telecom players and taking advantage of the region’s high mobile penetration,” commented Adel Belcaid, principal, A.T. Kearney.

Gains need to be made in last mile delivery also. The rise in demand is palpable with the likes of Aramex, DHL and Fedex all increasing their on-the-ground network across the Middle East, but efficiencies must be found in the cumbersome nature of repeated delivery attempts and returns.

Earlier this year it was announced that Dubai’s bus shelters would be transformed into Smart Shelters, providing space for couriers such as these – and even e-retailers themselves – to distribute certain goods and facilitate returns, providing a cost effective way to meet customers half way.

Mouchawar adds: “The cost of logistics is still considered high and poses a challenge to provide products at the most competitive pricing, however at SOUQ.com we are making good strides and collaborating with various companies and start-ups to solve some of these concerns.”

On the go

The GCC has some of the highest mobile penetration rates in the world; the average CAGR for mobile penetration between 2015 and 2020 is 3.9%.

In the GCC, the share of mobile transactions is 43%, which is 4% higher than the worldwide average of 39%, according to a report by Criteo.

The GCC’s share of mobile transactions is the fourth highest globally – after Japan, the UK and South Korea, with 86% of transactions in the GCC taking place on smartphones, ranking the region number two worldwide, in contrast to just 14% on tablets.

Dirk Henke, MD Emerging Markets, Criteo, says: “Middle Eastern markets witness some of the highest smartphone penetration in the world, and retailers must ensure more products are made available online, as well as create a seamless experience for consumers. Currently, the GCC is second in the world in terms of smartphone share among mobile transactions.

“Keeping this in mind, brands have the opportunity to master this trend and have a head start on competitors, should they choose to utilise it.”

GSM Association (GSMA) reports the mobile phone industry’s contribution to the Middle East and North Africa’s GDP will grow from 4% in 2015 to 4.2% by 2020 and contribute $194 billion by 2020 compared to $156 billion in 2015.

Mouchawar says: “Mobile commerce, or m-commerce, has also been a huge driver of e-commerce growth in last couple of years, both for SOUQ.com and the overall industry. Over 60% of our total sales account for mobile shopping.

“Smartphone sector growth is driving m-Commerce growth even faster. There has been a significant rise in the smartphone penetration in the Middle East, currently at 96% and valued at $4.9 billion. The UAE is rated the highest in the region with a smartphone penetration rate of 90%. This highlights a huge opportunity for SOUQ.com particularly with our mobile app, which has been rapidly gaining popularity,” he continues.

Living in a digital world

As the number and frequency of online and mobile transactions in our lives continues its steady climb, e-commerce as well as m-commerce, will become ever more central to how the world works, normalising a technology that once seemed beyond its time.

Necessary transactions such as bill and utility payments, not to mention mobile top ups, which all happen online, have helped drive the wide scale adoption of the associated technology, strengthened by the rise in tailored apps and higher security payment gateways.

Mouchawar observes: “There has been a rising trend within the Middle East, where consumers are more accepting to process their e-commerce transactions online, suggesting a substantial level of assurance in payment security and privacy. This can be contributed to the fact that online consumers are becoming more sophisticated and demanding higher levels of service which allows for fast and easy payment options with an even higher level of security.

“The Middle East is witnessing a rise in the online payments with a 24% average growth across the region. The UAE and Saudi Arabia are at the front leading this by 24% and 40% respectively. Visa predicts that by 2018, 65% of non-cash retail payments in the UAE will be by credit card.”

The potential future growth of e-commerce is expected to become a major driver of change in the logistics sector and this fundamental shift will likely create a wave of demand for new types of logistics facilities, not to mention innovations in the handling of returned stock and a growth in the demand for last mile delivery services. But without fulfilling the needs of buyers at the very first point of contact, the local e-commerce industry is in danger of stagnating at its current stage, rather than innovating to the same standards as such global leaders as Amazon. While the logistics industry has strides to make, so too do the online developers and platform architects creating e-commerce sites.