Going digital The next frontier for Middle East retail - Deloitte
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
Going digital
The next frontier for
Middle East retail
The proliferation of e-commerce has
drastically changed the global retail market.
But this megatrend, which has transformed
the dynamics of consumer behavior and
business models in retail, remains untapped
in the Middle East and offers huge potential
for industry players.
20
Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
21Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
The regional retail
M
ajor drivers of e-commerce According to Forbes Middle East and
growth in the Middle East, Marmore MENA Intelligence, online sales
market is on the verge especially in the Gulf region, in the Middle East are estimated to
of a digital disruption, would be a high spending potential— account for only 2 percent of the overall
owing to a high per capita income— retail sales, much lower than the 15
with industry players developed transport logistics networks, percent in developed markets: the
undergoing a structural rising internet penetration levels and a untapped potential for e-commerce
shift from traditional in- growing tech-savvy youth population.
The presence of just a few players makes
players is huge.
store concept to online the market an attractive destination for The regional retail market is on the
channel through the e-commerce investment. With market verge of a digital disruption, with industry
barriers easing—improved infrastructure, players undergoing a structural shift from
adoption of digital ease of obtaining licenses and better traditional in-store concept to online
technologies. warehousing facilities—and high channel through the adoption of digital
investment potential, the region’s technologies. The overall brand strategy
e-commerce market looks poised for would be to establish a strong
strong growth. omnichannel presence to offer a
seamless consumer experience.
Shift from traditional brick-and
mortar-model to e-commerce
Figure 1: Internet Penetration by Country,
Currently, only 15 percent of businesses June 2017
in the Middle East have an online
presence and almost 90 percent of Bahrain 98.0%
the online purchases in the region are Qatar 94.3%
shipped from abroad, according to UAE 90.6%
technology research company Gartner.
Jordan 80.0%
This trend is expected to reverse soon
Kuwait 78.4%
with the launch of Noon.com, a large
regional e-commerce player, the entry Lebanon 76.1%
of major international players, such as Saudi Arabia 73.8%
Amazon (through the acquisition of
Souq.com), and by increasing technology Source: Internet World Stats
adoption.
Total Internet Active social Mobile Active mobile
population users media users subscriptions social users
246 147 93 312 83
million million million million million
Urbanization: Penetration: Penetration: vs. Population: Penetration:
68% 60% 38% 127% 34%
22Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
Moreover, the region has seen Even traditional brick-and-mortar E-commerce players in the Middle
tremendous growth in internet retailers are now focusing on providing East and consolidation in the
connectivity in recent years, with their customers with an additional industry
penetration exceeding 90 percent in online retail platform to augment their Amazon acquired Dubai-based Souq.com
Qatar, Bahrain, and the UAE. As per the revenues. For instance, Carrefour and in 2017, which had over 50 million
findings of a Hootsuite and We Are Social Lulu Group, two of the largest retailers customers and operations in all GCC
study and Internet World Stats, the in the Middle East, launched online states, positioning itself as a major
Middle East accounted for 3.8 percent shopping portals in the UAE. e-commerce player in the region. With
of the global internet-using population the Amazon Prime membership in place,
as of June 2017 at 147 million users, an Figure 3: E-commerce market size the company is looking to attract more
increase of 15 percent from 128 million by country (%) customers in the future. In addition, in
users in 2016. The region’s current late 2017, Amazon announced the launch
33.9% 33.2%
internet penetration rate is 60 percent, 33.4% of its AWS Data Center in Bahrain as part
well above the global average of 51.7 of its market expansion plan for the
percent. Such a lucrative consumer base 2016e 2021f region.
presents huge potential for e-commerce $22.4 bn $48.8 bn
players looking to foray into the region’s Noon.com was launched in October
43.6%
e-commerce market. 2017 as a regional rival to Amazon. The
32.7% 23.2%
US$1 billion e-commerce platform based
Rising e-commerce revenue UAE Saudi Arabia Others out of Saudi Arabia was founded by
The region’s online sales revenues have Mohamed Alabbar, Chairman of Emaar.
been increasing consistently. In 2016, the Source: BMI Research Similar to Amazon, a tech fund led by
revenue was US$22.4 billion, up 24.4 Mohamed Alabbar acquired UAE-based
percent from US$18 billion in 2015. The On the products front, the clothing and JadoPado.com in May 2017 prior to the
market forecast is to reach US$48.8 footwear, and consumer electronics and launch of Noon.com.
billion in 2021, at a compound aggregate media segments led the online shopping
growth rate (CAGR) of 16.9 percent category in 2015 with the grocery Other notable e-commerce players
during 2016-2021. The UAE is expected category at the bottom as most people include Namshi.com, ebay, Ali Express,
to lead the market, followed by Saudi prefer buying groceries in stores. This Nahel.com, Ubuy.com, Aido.com,
Arabia and Qatar. These countries are trend is expected to continue in the Awok.com, Mumzworld.com, and the
expected to jointly account for more future as well. In the UAE, the airline and number is only expected to grow.
than 50 percent of the forecast revenue hotel reservations category leads, Moreover, traditional retail chains are
in 2021. followed by clothing and footwear, and on their way to transitioning to the
consumer electronics and media. e-commerce model to serve both
Figure 2: Middle East e-commerce market online and traditional customers.
size ($bn) Shopping goes mobile
As the trend of shopping on mobile Initiatives to support the future
gathers pace, due to the increase in of e-commerce
%
9.3
R: 1 smartphone use and technological E-governance initiatives
CA G
advancement, regional players have As part of the announced e-governance
launched mobile applications in order to initiatives, local governments were in
attract more customers. Ikea introduced the process of integrating paper-based
its mobile app in 2013 and Souq.com information services such as
launched Arabic and English versions of passports/visa issuance, vehicle
its app in 2014. As mobile technology licensing, logistics tracking and utilities
14
15
e
f
f
f
f
f
advances in terms of ease-of-shopping billing/payments and migrating to
17
18
19
20
21
16
20
20
20
20
20
20
20
20
and offering more secure payment the online platform, where they are
Source: BMI Research options, more consumers are likely to integrated with standardized or universal
gravitate towards e-commerce and online payment platforms. These
m-commerce. platforms tend to form the basis for
23Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
online shopping systems, guaranteeing 2016. The recent improvement in The key catalyst for
a risk-free experience for consumers. gateway security, along with reliable and
Government-led digitization initiatives free shipping methods, have largely strong growth of the
are expected to further boost the persuaded many buyers to purchase
e-commerce market in the future. products from outside the region.
regional e-commerce
market would be a shift
E-commerce hub establishment Effect of social media on e-commerce
in the UAE E-shopping behavior is influenced by in the cultural mindset.
The UAE government set up a duty-free products/brands reviews from social Can e-commerce act as
e-commerce hub Matajircom in 2014, as media platforms. Currently, 93 million
an initiative to work closely with local and people, 63.3 percent of the region’s an alternative to the
international companies. It is aimed to
position Dubai as a global e-commerce
internet-using population, were active on
social media. At 99 percent, Qatar and
traditional shopping
marketplace by bringing local and the UAE lead the region’s social media experience?
international markets closer. penetration rate (the UAE with 9.2 million
users and Qatar with 2.4 million users.)
Innovation in e-commerce
Digital adoption and transformation Though social media penetration in Saudi
payments space
The combination of factors such as high Arabia is low, it is growing at a rate of 73
Though the majority of payments for
adoption of mobile devices, the readiness percent year-on-year, far exceeding the
online purchases in the region are
of the population to adopt new global average of 21 percent. Social
currently made through cash on delivery,
technology, and digitization initiatives media platforms such as Facebook,
this could change soon. A growing
from local governments have positioned Twitter and Instagram play an important
m-commerce market and digitization
the region for a digital transformation. As role in influencing buying behavior.
initiatives by governments are expected
per consultants Accenture’s technology Positive brand/product reviews drive
to transform the region’s payment
outlook, the technologies that will sales. E-commerce players can leverage
ecosystem, leading to increased use of
reshape the region into a digital economy this platform to drive sales further.
online payment systems, such as digital
include Internet of Me, Outcome
wallets and netbanking. For example, to
Economy, Platform Revolution, Intelligent Technology advancement
support digital payment services, the
Enterprise, and Workforce Reimagined. Though the Middle East e-commerce
Central Bank of the UAE has issued a
market is still untapped, the technology
regulatory framework for electronic
E-commerce trends trends that influence the global
payment systems.
Shift towards localization e-commerce market are expected to
Retailers have realized that language and be introduced in compliance with local
Challenges
localization are extremely important regulations. The trends include use of
Clogged logistics
factors to be considered when entering chatbots, artificial intelligence (AI), and
The high trade barriers in the region act
overseas markets. Luxury brands such as Big Data for customer interactions,
as a blockage for logistics and online
Burberry, Dolce & Gabbana, and jewelry wearables and mobile devices for
retailers to ship products. These barriers
retailer Blue Nile have launched Arabic payments, same-day delivery, and
affect small e-commerce players due to
language sites aimed at experimental usage of drones for delivery.
high tariffs, changing regulations and
shoppers in the UAE, with content-based
volatile currency exchange rates.
advertising in Arabic as well. These Digitization in food delivery
initiatives will attract more local The region’s online food delivery service
Payment systems and delivery
customers who have avoided e-shopping sector is growing due to digital evolution.
The region has low credit card
owing to language barriers. Even the restaurants that have been
penetration. Moreover, as per an A.T.
operating for years now rely on online
Kearney study, buyers made 60-70
Cross-border e-commerce services for a significant chunk of their
percent of their e-commerce payments
A large chunk of online shoppers in the business. UberEats, Deliveroo and online
through cash on delivery due to a lack of
Middle East have begun accepting cross- platforms such as MakeMyMeal are
trust in online payment systems and
border products. Online shoppers in the generating a majority of their business
internet frauds.
UAE made 58 percent of their online through online channels.
purchases from overseas vendors in
24Deloitte | A Middle East Point of View - Spring 2018 | E-commerce
As the region lacks postal codes, the last-
mile delivery system is severely affected. Interview with Mr. Madhava M S product, then instead of purchasing it
Also, the limited number of orders will Rao, Chief Information Officer, at that store, finds the same product
result in high costs for last-mile delivery. Lulu Group International online and buys it for a better price.
Why e-commerce? The rise of m-commerce has spurred
Impact of Value Added Tax (VAT) Businesses today are seeking ways showrooming growth as well. Retailers
in the GCC to adopt the changes of consumer’s present in all the channels have
The implementation of VAT in the demanding preferences in an significant brand advantage over
UAE and Saudi Arabia, the leading effective and robust manner. With others.
e-commerce markets in the region, is the spread of disruptive technologies,
expected to impact buyers as well as customers today expect retailers to Opportunity to retailers
businesses. On the consumer front, as provide the most personalized With a presence across different
most online purchases are shipped shopping experience. Multi-channel engagement points, retailers gain
from outside the region, tax would be retailing offers plenty of opportunities opportunities to understand
applicable not only on goods but also for retailers by offering unique consumer behavior with better data
on services. On the business front, as insights into customer preferences. collection and insights, which helps
the tax system is new in the region, the drive sales and profits. This not only
companies must introduce effective VAT Where is m-commerce now? helps in gaining consumer loyalty
compliance systems, which would lead The simple answer is mostly but also to drive efficiencies and
to higher costs. As more countries everywhere. With boom in enhanced productivity from the
introduce VAT, e-commerce players need smartphone and tablets, the m- employees who can benefit from the
to be prepared to comply in a manner commerce has grown rapidly and new innovative technology and serve
such that additional costs are not passed retailers present in this channel have the customers better. By committing
on to customers. significantly gained share in their resources and investment on new
online sales. And you cannot look initiatives, retailers can be more
What about the future? at m-commerce today without transparent and consistent across all
The key catalyst for strong growth of addressing “showrooming”, it is when customer queries thereby improving
the regional e-commerce market would a customer goes into the traditional the brand recall value and customer
be a shift in the cultural mindset. Can brick-and-mortar store to check out a perception.
e-commerce act as an alternative to the
traditional shopping experience? Or will
It would be interesting to see what
both the in-store and digital commerce
channels complement each other and
strategies major players deploy to
to grow?
overcome the cultural barriers. But
It would be interesting to see what
strategies major players deploy to
one thing is for sure, e-commerce
overcome the cultural barriers. But one
thing is for sure, e-commerce in the
in the Middle East is here to stay
Middle East is here to stay and grow.
and grow.
by Anish Mehta, Director, and Sachin
Bhandari, Senior Manager, Deloitte, UAE
25You can also read
