In a country that has one of the highest numbers of shops per capita in the world, with 4.7 million square metres of shopping centres in Dubai and Abu Dhabi alone, consumers in UAE have been slow to use the internet to make online purchases. But over the past few years, surprisingly, there has been a seismic shift towards e-commerce in the UAE. This year, online sales in the Middle East and North Africa (MENA) region are set to top $2 billion, with the UAE among the most booming e-commerce markets.
“The MENA region is expected to witness massive growth over the next five years driven by the Gulf Cooperation Council (GCC), where the UAE is the largest market. The total value of e-commerce in the UAE stood at $2.5 billion in 2014 and is expected to reach $10 billion in 2018,” says Haritha Ramachandran, associate director of digital transformation practice, Frost & Sullivan.
Dubai, famed for its endless luxury mega malls, has the highest number of online shoppers — at 46% — in the UAE, according to a survey by Awok.com. A separate study by Network International found that 34% of UAE residents make online purchases between one and five times a week.
According to Muhammed Mekki, founding partner of Dubai-based Google For Entrepreneurs tech hub network AstroLabs, e-commerce growth was bound to happen since the proportion of online vs total retail sales is incredibly low in this part of the world, while internet accessibility continues to increase throughout the region.
“Since e-commerce is highly capital intensive and local VCs have not been actively investing in the space, near-term growth is likely to come from offline players developing online storefronts. A slowdown in the bricks and mortar retail sector may finally encourage these traditional players to build online capacity in search of new growth channels,” adds Mekki, whose Astrolabs hosts several food-related e-commerce startups, including Deliveroo from London, Bilbayt from Kuwait, and Shop On Click from Oman.
Taking advantage of the expanding internet audience, there’s transition from a purely retail business to building a strong online presence. Luxury brands like Burberry, Dolce & Gabbana, and jewelry retailer Blue Nile have already launched Arabic-language sites aimed at experienced shoppers in the UAE. On November 15, Sephora Middle East will be launching a dedicated e-commerce site.
“Many retailers are moving to customer experience-driven investment with the bricks and clicks focus. Traditional family businesses are looking at developing niche and interesting business models to attract customers and offer them a wide range of international goods,” says Frost & Sullivan’s Ramachandran.
That e-commerce is one of the fastest-growing industries in the UAE is beyond a doubt — the number says it all. In March, Tiger Global had invested $275 million in Souq — described as the Amazon of the Middle East — days after online platform Wadi raised $67 million from Saudi Arabia-based Al Tayyar Travel Group and other investors. That’s a collective $342 million going into the country’s e-commerce in a month. In April, Alabbar Enterprises bought a 4% stake in Yoox Net-a-Porter (YNAP) — the global online giant that owns six multibrand websites including Net-a-Porter.com — for more than $113m.
One of the biggest players in the e-commerce market in the Middle East is Namshi, which is part of the Global Fashion E-commerce Group and created by Rocket Internet. The Dubai-based online fashion retailer, with over 40,000 exclusive in-house collections and brands such as Adidas, Nike, Diesel, Topshop, Lacoste and Vans, has seen significant growth over the past two years.
“We are the first e-commerce company in the region to turn profitable based on its results for the first six months of 2016. This is despite the challenging macro and retail environment that the region is experiencing at the moment,” says Hosam Arab, co-founder and managing director of Namshi.
Aside from shoppers, who get better prices and more convenience, the factors that are accelerating the growth of e-commerce, according to Ramachandran, are better logistical coverage, use of technology generating simulated versions of the products, improved omni-channel experience and better information on the products and services.
But as with other emerging markets, smartphones are far and away the most common way for consumers to go online. In the UAE, millennials are key to e-commerce growth — shoppers aged 25-34 make up 65% of the online shoppers, according to Awok.com.
“With 80% of our customers currently using mobile or tablet devices to access Namshi, the emerging trend is that the mobile share of transaction is growing at an incredible rate with over 175 million page views on a monthly basis and over 18 million page views on our desktop site,” says Arab.
However, finding success in e-commerce when you are living in a country where many prefer to frequent the luxury of the air conditioned shopping centre over clicking online, isn’t easy.
“Total focus on customers and what they want is crucial in a market where customers are apprehensive to shop online. We have invested heavily in our delivery service in the UAE and working closely with our courier partners in other markets to offer free deliveries and easy seamless returns. We are constantly striving to keep our customers happy,” says Arab.
Nevertheless, e-commerce expansion will continue to be a thriving sector in the coming years in the country, and the winners and losers will be determined by the approach they take to creating a consumer-centric all-channel business. Overall, consumers are in the driving seat and the catalyst for change is technology.
