Decoding E-commerce: The Impact on Retail Transformation

Over the years, e-commerce has profoundly transformed the retail landscape. Shopping is no longer limited to the conventional process of visiting brick-and-mortar stores, selecting products, making payments, then bringing them home. Today, what was once a time-consuming in-store shopping experience lasting hours can now be completed in a matter of seconds, from any location with internet connectivity. The thrill of the purchase is now stretched out, starting with the click to buy and culminating with the ‘unboxing’ (which has become an industry in itself).

Adding to this, the rise of e-commerce comes as no surprise to most, as the online world continues to grow in importance, reach and influence.

So, what exactly is e-commerce?

E-commerce (or electronic commerce) entails the exchange of goods or services over the Internet. It encompasses a wide variety of data, systems and tools for online buyers and sellers, including mobile shopping and online payment encryption.

E-commerce allows a customer to place an order via online stores, websites, or social channels. After the customer places an order, the order details are relayed to a central backend system – an e-commerce platform, which facilitates or performs several tasks. Today, nearly every imaginable product and service is available through e-commerce transactions, including books, music, plane tickets, and financial services such as stock investing and online banking. As such, it is considered a very disruptive technology.

The UAE has been leading the proliferation of e-commerce in the MENA region. The country's strategic location, diverse economy, and innovative infrastructure have enabled it to become a hub for digital commerce. The UAE has been at the forefront of embracing new technologies and digital solutions, which has played a significant role in the growth of e-commerce. The country’s e-commerce market is also benefiting from the increasing demand for online shopping, as consumers prefer the convenience of shopping from home and the ability to compare prices and products easily.

According to Tradeling, the leading B2B e-marketplace in the Middle East, the e-commerce sector in the UAE is expected to achieve a revenue of $17.2 billion by 2027, with a projected annual growth rate of 8.4 per cent over the next four years. In the period from 2018 to 2022, e-commerce sales in the UAE saw an average annual growth of 23 per cent.

This remarkable growth was largely attributed to the impact of the Covid-19 pandemic, which expedited the country's digital transformation and positioned it as a prominent e-commerce hub among the Gulf Cooperation Council (GCC) nations. In 2019, online shopping in the UAE generated $2.6 billion in sales. Subsequently, the market experienced a significant expansion, surging by 53 per cent in the following year to reach $3.9 billion in sales. By 2021, it had further increased to $4.8 billion, marking an impressive 84.6 per cent growth over the two preceding years.

Online Connectivity

With nearly 100 per cent of the population having access to the internet and mobile phones, these factors are driving approximately 70 per cent of e-commerce transactions. Consequently, the Dubai Chamber of Commerce and Industry predicts that e-commerce in the UAE will generate $8 billion in sales by 2025.

The positive outcomes of this robust growth extend beyond the borders of the Emirates, contributing to the region's overall strength. Despite signs of a global post-pandemic slowdown in online sales, the e-commerce sector in the MENA region experienced a remarkable 21% increase, resulting in a staggering $25 billion in revenue last year.

With the UAE ranking as the fastest-growing e-commerce market in the world in 2022, and its online population estimated at approximately 1.5 trillion people, all signs point towards this momentum being sustained.

Customs Incentives

Additionally, a recent announcement by Dubai Customs is expected to further stimulate the growth of e-commerce, as it will lead to reduced costs for residents and citizens when making online purchases.

Marius Ciavola, CEO of Tradeling, noted that while traditional brick-and-mortar stores are still going strong, they are gradually being phased out to become a thing of the past. Ciavola highlighted that the convenience of online shopping has been prominently evident in recent years, with e-commerce spearheading an ‘out with the old and in with the new’ mindset.

“Since the UAE began digitalising its economy in 2013, immense progress has been made in leaps and bounds across all sectors. E-commerce is demonstrating this, as there is a proliferation of digital wallets, an increasing number of individuals are embracing the idea of a cashless society, and the vast purchasing power of the UAE’s approximate population of 10 million is being realised. With that said, the industry is poised to continue growing via investment and partnerships to highlight one simple fact: the future is now,” she said.

Changing Consumer Behaviour

According to Soham Chokshi, CEO and Co-Founder at Shipsy, the rise of e-commerce has triggered a significant shift in consumer behaviour. He notes that a remarkable 75 per cent of consumers in the Middle East, particularly the UAE, now favour shopping on single-brand website (as opposed to a multi-branded one) because they believe it will provide the best possible customer service.

Chokshi also added that consumers in the UAE have raised their expectations beyond seamless order placement, delivery, and returns processes. Notably, 65 per cent of customers now anticipate brands to establish a personal connection with them, treating them as individuals. That’s nine per cent higher than the global average expectation for personalised service. Additionally, a significant 65 per cent of UAE consumers have expressed a readiness to incorporate more sustainable practices into their daily lives. To expedite this transition, there is a growing demand for green infrastructure, financial incentives, and an expanded array of affordable eco-friendly products and services. This indicates an increasing awareness of environmental concerns and a willingness to support sustainable initiatives.

Yasser Sharaf, Vice-President of Retail, Hospitality, Industry, and Financial Services at Sharaf Group, asserts that the landscape of consumer behaviour in the UAE has undergone a profound transformation in the aftermath of the Covid-19 pandemic. This shift is attributed to the widespread adoption of e-commerce, which has reshaped the way consumers engage with the market. “Consumers now prefer to browse and purchase goods from the convenience of their homes. Increased price comparison, thorough product research, and higher expectations for delivery time and quality are all results of this trend. Additionally, e-commerce allows consumers to compare reviews, which highly influences their purchasing behaviour,” he adds.

Arun Pal, Vice-President – Sales, (UAE and Oman), at Nikai Group of Companies, says that e-commerce platforms in the UAE have become synonymous with savings. Regular discounts, promotions, and loyalty programmes are par for the course, cultivating a price-conscious consumer base that actively seeks the best deals and offers. This cost-effective approach to shopping benefits consumers by providing more value for their money.

“In addition to saving money, shoppers can save time and effort by eliminating the need for long commutes and waiting in queues. This newfound efficiency allows consumers to redirect their precious time and energy toward other activities. E-commerce websites further contribute to informed decision-making by furnishing detailed product descriptions, specifications, and customer reviews. Armed with this information, consumers can make well-informed choices when making purchases. Moreover, e-commerce platforms typically offer clear return and exchange policies, instilling confidence in consumers and mitigating concerns about unsatisfactory product purchases,” he said.

Pal also highlighted that the rise of social commerce is a significant development in the e-commerce landscape of the UAE.

“Social media platforms have evolved beyond just being platforms for communication and engagement; they have now become thriving shopping hubs. Consumers can now discover and directly purchase products through social media ads and influencer recommendations, seamlessly blending their online social lives with their shopping experiences. Small and local businesses in the UAE have found a powerful platform to reach a broader audience through e-commerce. This not only supports homegrown enterprises but also contributes to the economic growth of the region, fostering entrepreneurship and innovation.”

Looking Forward

The rapid growth of the e-commerce has given rise to several noteworthy trends. Firstly, there is a significant emphasis on enhancing payment flexibility. As UAE customers increasingly favour digital payment methods, retailers and e-commerce brands are developing technology-driven strategies to facilitate online payments for Cash-on-Delivery (COD) orders.

Another prominent trend is the emergence of new delivery models. Customers now expect quick and convenient delivery options, including same and next-day delivery, which are becoming essential for e-commerce providers looking to meet customer expectations.

Talking about the same, Chokhi says, “Partnering with multiple third-party logistics providers (3PLs) is on the rise. E-commerce retailers are teaming up with various express and hyperlocal delivery providers to fulfill promises of same and next-day delivery. This necessitates the use of advanced multi-courier management platforms to ensure that 3PLs meet their service level agreements and gain real-time visibility of goods movement across logistics service providers.”

Sustainable logistics is another key focus. UAE customers are increasingly conscious of CO2 emissions, prompting businesses to adopt AI-powered tools for route optimisation, territory management, and workforce scheduling. They are also using automated task allocation to prioritise eco-friendly modes of transportation and logistics service providers, thereby making deliveries more environmentally friendly.

“Proactive logistics is a critical strategy for mitigating transportation risks, reducing cost leakage, and safeguarding customer experiences. UAE businesses are rapidly adopting AI and predictive intelligence-powered delivery management platforms to address delivery failures and operational breaches proactively,” Chokhi adds.

Adding to this, Pal reiterated that the UAE is currently undergoing a transformative shift, with several noteworthy trends that are reshaping the way consumers approach online shopping.

“One of the most significant trends is the rise of cross-border e-commerce, which has seen UAE consumers increasingly exploring international platforms like AliExpress, eBay, and ASOS. This trend reflects a growing demand for a diverse selection of products and brands from around the world, indicating an evolving global outlook among consumers in the region.”

Pal also emphasised the transformative future of e-commerce in the UAE.

"Looking ahead, there are several exciting developments set to shape the landscape. Augmented Reality (AR) shopping is set to gain prominence, offering customers the ability to visualise products in their real-world environments before making a purchase, as exemplified by Ikea's AR app. AI-driven customer service is also expected to play a pivotal role in improving customer interactions. E-commerce giants such as Amazon are investing in AI-driven chatbots and virtual assistants to answer customer queries and facilitate the shopping process efficiently.”

— kushmita@khaleejtimes.com

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