Ecommerce in the Middle East: Little but Promising Market

The Middle East, long a laggard when it comes to online shopping, captured the interest of the business earlier this season when Amazon bought Souq, a neighborhood online marketplace. New local ecommerce websites will also be coming online.

Middle East countries have some of the greatest levels of per capita income but the area is an underpenetrated ecommerce marketplace. Digital trade accounted for less than 1 percent of the area’s gross domestic product in 2016, according to research company Gartner Inc..

“Today only 15 percent of those companies in the area have an internet presence, and 90 percent of the online purchases are purchased from outside the area,” according to a press release from Gene Alvarez, managing vice president at Gartner. “With leading ecommerce players investing in product offerings, logistics and payment, together with supporting government initiatives, the Middle East will see strong growth for electronic commerce in the coming years.”

There are various definitions of what constitutes the Middle East, which makes it difficult to evaluate market size. One includes North African countries like Algeria, Egypt, Morocco, and Tunisia, while other definitions restrict it to the Gulf Cooperation Council, the”GCC,” an alliance of six Middle Eastern countries: Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman.

Presently, more than 90 percent of the GCC ecommerce marketplace is in just four product categories: consumer electronics, fashion, lifestyle, and health and beauty.

Management consulting company A.T. Kearney estimated that the Middle East ecommerce marketplace at $5.3 billion in 2015 when customers from the U.A.E. contributed 44 percent of total ecommerce sales in the area. By 2020 Saudi Arabia is expected to overtake the U.A.E.

Marketplaces and Websites in the Middle East

In July of the year Amazon completed its purchase of Dubai-based Souq.com, Called the Amazon of the Middle East. Its economy was primarily the GCC however, the reach is currently expected to expand. Amazon will be supplying its Prime program and will probably be adding warehouses to rate delivery times. It will offer faster delivery than local online vendors, presenting a challenge to the nascent regional ecommerce market.

Local marketplaces include Wadi.com, which functions from the U.A.E. and Saudi Arabia, offering electronics, beauty products, jewelry, apparel, and home and kitchen things. Launched in 2015, Wadi is a portion of the Middle East Internet Group, a joint venture between investment company Rocket Internet and South African telecom provider MTN. It provides over 150,000 products from 2,000 international brands. In 2015 Wadi increased $67 million in a Series A round of financing.

Namshi.com, also based in the U.A.E., serves Saudi Arabia, Qatar, Oman, Bahrain, and Kuwait. The website sells Western-brand apparel for women and men in addition to shoes and accessories.

Both these sites are in both English and Arabic and provide women’s clothing that the majority of the regional female population wouldn’t wear in public.

Announced with great fanfare and promoted as a rival to Amazon, market Noon.com will adapt third-party vendors when launched. Funded by Saudi Arabia’s state investment fund and a prominent Dubai businessman, Noon created a beta site in January 2017 and was expected to have a full operational site at this summer. In May, however, the C.E.O. and various other workers left Noon and no firm date has been set for the website to go live.

Themodist.com caters to women who would like to dress modestly for spiritual and cultural reasons. Based in London and the U.A.E., it features luxury designer brands in clothing and accessories and expects half of its sales to come in the Middle East.

Positive Factors for Ecommerce Development

Smartphone penetration in the area is greater than 65 percent. Furthermore, over two-thirds of the people use the web, with penetration at the U.A.E. and Qatar exceeding 90 percent.

The region has a significant population of wealthy people with an appetite for luxury goods. More sophisticated consumers prefer non-local platforms that provide more product choices.

Payment options that try to address customers’ concerns about fraud are being implemented.

Just 15 percent of GCC brick-and-mortar retailers sell online, so a significant opportunity exists for online-only vendors.

Barriers to Ecommerce

Just 35 percent of Internet users in Saudi Arabia and 55 percent from the U.A.E. know of the availability of online shopping, based on A.T. Kearney.

A lack of consumer confidence about purchasing online exists. Consumers have concerns about information security and fraud.

There are openings in payment systems, particularly low credit card penetration.

Logistical infrastructure is deficient.

Based on A.T. Kearney, customers make a disproportionate number of payments in money, with roughly 60-70 percent of ecommerce payments in the Saudi Arabia and the U.A.E. — two of the more advanced nations — being made money on delivery.

Women in Middle East countries won’t answer their door for a guy. If no person is at the home, the thing — which may have taken months to arrive — won’t be sent if the payment method is COD.

The last-mile of this delivery system is due to the fact that much of this area lacks postal codes. The restricted number of couriers has caused high costs for last-mile shipping.

Middle East countries impose high trade tariffs and moving goods through customs is difficult. Orders placed with overseas merchants can take weeks to arrive.

Ecommerce merchants who would like to take advantage of the chance in the Middle East should use Amazon, or Noon once it launches.

Leave a Reply

Your email address will not be published.