Practicology is now Pattern

By Inayah Sadiq | Junior Consultant

With the online retail market in the Middle East continuing to boom, and to coincide with the opening of our new office in Dubai, we highlight some of the ecommerce opportunities in the region.

Online shopping in the Middle East is rapidly evolving and is expected to more than double between 2017 and 2020. The main drivers include high spending potential (due to high incomes levels), a dynamic, young population and the world’s highest internet penetration levels - reaching above 90% in countries such as Bahrain, Qatar and the UAE.

Middle East Ecommerce Stats

UAE represents a significant opportunity for retailers as the fastest growing market in the region. Ecommerce sales have doubled between 2015 and 2017 with a projection of further growth at annual rates of above +20% to 2021.

However, the neighbouring Kingdom of Saudi Arabia (KSA) is expected to see even higher growth rates and overtake UAE as the largest online retail market in the Gulf by the turn of the decade. In 2017 the number of ecommerce users in KSA reached 12.5 million and is expected to increase to 13.5 million by 2020.

Currently only 15% of businesses in the Middle East have an online presence and almost 90% of online purchases are shipped from abroad. The trend is expected to reverse with the entry of major international players such as Amazon (through its acquisition of Souq.com) and by increased technological adoption.

Middle East Ecommerce Market size Graph

Key disruptors in the market

The region’s retail market is on the verge of a digital disruption, with industry players undergoing a structural shift from the traditional in-store concept to online channels.

Amazon has been quick to seize on the opportunity, acquiring Souq.com in March 2016 for an estimated US$580 million. With over 45 million visitors per month and a range of 8.4 million products across 31 categories, Souq.com offers Amazon a vital avenue into the Middle East ecommerce market.

Amazon and Souq.com’s union looms large, as retailers must adapt to the potential reshaping of consumer expectations and shifting of the Middle East retail landscape. Souq.com CEO and co-founder, Ronaldo Mouchawar, hinted at this impact when the acquisition was announced: “It is an exhilarating time for the ecommerce industry in the region. Together with Amazon, our goal is to offer our customers the widest product selection, great prices, improved delivery times and first-rate customer service.”

Barriers to entry

Despite the opportunities, a number of barriers still remain on the Middle East's path to online retail expansion: 

  • Payment methods - approximately 80% of purchases made online are paid with cash on delivery.
  • Concerns over data security and fraud - 40% of mobile shoppers in the MENA region have been victims of cybercrime.
  • Low awareness of ecommerce – in fact, only 35% of internet users in Saudi Arabia and 55% in the UAE are even aware of ecommerce platforms.
  • Retailers often have inadequate warehouse coverage for rapid delivery of products across the region.
  • Lack of unified address system - presenting a challenge for logistics companies and is a barrier to ecommerce adoption.
  • The overall lack of courier services in the region results in high costs for last mile delivery.
  • Generally high trade tariffs - moving goods through customs can be difficult and orders placed with overseas merchants can take weeks to arrive.

After opening our latest office in Dubai, Practicology is uniquely positioned to help retailers and brands make the strategic move into the region. If you’d like to find out more about how we can help your business tap into the largely untouched online space in the Middle East, please contact us today.

 

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