The online retail market in the Middle East is almost a direct reflection of the offline market, the most popular categories being apparel, electronics, books, home furniture and toys.
Two key indicators to gauge an e-commerce market’s potential are internet penetration and retail market size. That’s why there’s good reason to be excited about e-commerce in the Middle East. Both indicators show the region is ahead of several other emerging markets in terms of size, dynamism and growth rate.
Google estimates the current e-commerce market in the Middle East is worth $1 billion. In most mature markets, the share of e-commerce as a percentage of total retail sales ranges from 7-to-12%. If we assume the average e-commerce share is 10% in a retail market worth $100 billion, the e-commerce potential in the Middle East amounts to $10 billion. So there’s major headroom for e-commerce growth and a $10 billion opportunity in hand.
“The good news is it won’t take long to fill this gap,” says Wassim Kabbara, head of retail, Google, pointing to a recent study conducted by Visa International that reveals the MENA region is clocking 45% year-on-year growth, the fastest e-commerce growth
“But there’s a problem,” he’s quick to add. “There’s a huge disconnect between the ambitions of online retailers in the Middle East and their digital media spend. The region lags significantly behind Europe and the US in online marketing spend. While online retailers in the UK, France, Germany and US spend 39%, 30%, 25% and 23% of their total budget on online marketing, the GCC spend is only 5%.”
Traditional retailers can earn the right to play
Kabbara feels traditional brick-and-mortar retailers in the region can take the battle to pure-play businesses in the region by focusing on their strengths, such as in-depth understanding of the market and customer requirements, knowledge of brands, strong supply chain and customer trust. But the biggest impediment to their adopting e-commerce is their wait-and-watch approach.
It’s not just traditional retailers, even multi-channel retailers have not yet been able to compete with pure-play businesses, which are now entering and competing across all product categories, scaling their operations and rapidly growing into e-commerce giants. This is in stark contrast to mature markets where the top online retailers are
traditional brick-and-mortar retailers who have successfully created multi-channel
“Pure play businesses have achieved such growth in the region because they have been able to secure major funding, which allows them to scale up their operations and expand regionally and globally at a pace that traditional retailers cannot match. Our assessment of cost per click (CPC) and online ad coverage indicates that e-commerce
in the Middle East is fast catching up with mature markets such as the UK, Germany and France. But it is being driven mainly by competition among pure play businesses and not by traditional retailers,” says Kabbara.
How do traditional retailers dominate mature markets?
How did traditional retailers in mature markets manage to compete aggressively with pure play retailers? The first step is to invest in an online store and create a rich web experience across all platforms and devices. Setting up an online store requires the same level of investment and dedication as for a physical store.
“Shopping online should be easy, fun and safe. It’s important to be visible across all online platforms where people spend the most amount of their time. Don’t expect people to find you easily, but it’s important to be present when they search for your product or service,” says Kabbara.
In addition to having an online presence, Kabbara says it’s important to track customer interactions both online and offline, determine the worthiness of such interactions for your organisation and build the proper economic model to reward such interactions.
“This leads to a better understanding of different types of conversions that are not sales, such as the value of a mobile app download, a call from a customer who saw your ad online and an online search for your product, service or store location. Retailers should not just focus on sales and neglect all the above customer interactions that lead to a purchase. If retailers are able to see value in these online customer interactions, they will be able to build economic models that reflect the return on investment from their online activities with greater accuracy,” says Kabbara.
“The biggest advantage for traditional retailers is that they can develop hybrid propositions that pure play businesses cannot offer, such as enabling customers to buy online and pick up in stores,” he says, giving several examples of traditional retailers offering hybrid propositions in mature markets:
• Best Buy offers price matching to combat showrooming and trains sales associates on how to use it to close deals.
• Kmart offers free shipping if customers can’t find what they’re looking for in their stores.
• Nordstrom combines online and in-store inventory to meet requests for particular items.
• Walmart allows customers to order online and pick up products at its stores.
• CVS offers special discounts to in-store shoppers.
• Office Depot uses mobile POS systems to simplify in-store checkout.
• Target provides free in-store wifi to allow its customers to compare prices
so they can be matched.
• Macy’s offers targeted in-store promotions through its mobile app.
• American Apparel and Woodbridge target their marketing campaigns to people in the vicinity of their stores.
The first two days of the 25th edition of Beautyworld Middle EastOctober 6, 2021 | By RetailME Bureau
Words by Farimah Moeini, Snapchat Head of Industry – Retail and Travel TheJuly 5, 2021 | By RetailME Bureau
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