When it comes to e-commerce, early movers have the advantage

Dubai - Little things reflect vast potential that can be harnessed by sector players in the Middle East

Mohamed Alabbar, the chairman of Emaar Properties, had an anecdote to share on digital natives on Sunday.
"One day I asked my 10-year-old nephew, Jumaa, about the three things that he cannot live without. He answered water, air and Wi-Fi. 'What about food,' I asked. 'No problem, I can go online and order my own food,' he said. When I asked about his parents, Jumaa answered that he can use WhatsApp to contact them any time," shared Alabbar.
The businessman cited this example to highlight the vast potential that can be harnessed by e-commerce players in the Middle East.
In the Arab world, e-commerce accounts for just two per cent of total retail sales in the region, worth around $3 billion a year. With more young digital natives coming into the Middle East market, the e-commerce business in the region is set to reach $70 billion by 2025.
"We saw a big opportunity here," said Alabbar at the launch announcement of Noon.com, the region's largest online shopping platform.
 
E-commerce investments
Alabbar has recently made several investments in e-commerce. Earlier this year, Alabbar led two investor groups to buy a combined 16.45 per cent stake in Dubai-based logistics and transport firm Aramex. In April, his company, Alabbar Enterprises, took a four per cent stake in online fashion retailer Yoox Net-A-Porter.
"Total retail sales in the Middle East are increasing annually. Successful retailers will have to sustain both the physical business and complement it with online sales," said Alabbar.
E-commerce giant Amazon is reported to be in talks for a 30 per cent stake in Souq.com, valued at about $300 million.
According to Rahul Rathi, head of retail at grmc Advisory Services: "The e-commerce market in the GCC is in its nascent stages. Ventures that are operational or will be operational over the next 12 to 18 months will enjoy early mover advantages. Purely, from a market perspective, a new venture in the GCC marketplace will be able to sustain itself."
 
Under-penetrated market
Being one of the most under-penetrated e-commerce markets in the world, the GCC has the potential to become the world's fastest growing e-commerce playground, according to A.T. Kearney.
With high levels of disposal income and Internet and smartphone penetration, there is vast potential in the region.
There are several obstacles preventing e-commerce in the GCC from reaching its potential, including consumer trust and awareness, gaps in payment systems, distribution and logistical infrastructure, data security and fraud.
Furthermore, e-commerce offerings from the retailer side are also lacking. A.T. Kearney estimates that 34 per cent of major GCC retailers have an e-commerce channel, compared to 58 per cent in the United States.
Laurent Viviez, partner, A.T. Kearney, said: "Traditional retailers 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'."
Online payments and wary shoppers are among the biggest factors holding back e-commerce growth in the GCC. Sixty per cent of online orders are still paid in cash at the point of delivery. Cash on delivery is not only expensive for retailers as they bear transaction and cash transportation risks, but also affects negatively impacts cash flow.
The UAE is poised to witness turbo growth in the e-commerce domain. "E-commerce sales offer the potential to quadruple over a period of four to five years, registering growth rates of 50 per cent per annum. As a proportion of overall retail sales, from a meagre six per cent currently, online retail sales will potentially capture 14 to 15 per cent five years from now," concluded grmc's Rathi.
- deepthi@khaleejtimes.com