Local B2C survives as Amazon.com dives

Global business-to-consumer (B2C) e-commerce is suffering. A number of factors, including economic downturn in the US and the ongoing fall out from the dot-com crash, have resulted in declining online sales.

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By  Matthew Southwell Published  September 9, 2001

|~||~||~|Global business-to-consumer (B2C) e-commerce is suffering. A number of factors, including economic downturn in the US and the ongoing fall out from the dot-com crash, have resulted in declining online sales. The latest Forrester Online Retail Index shows a decrease from $3.9 billion in May to $3.2 billion in June. At the same time, the number of US households shopping online dropped to 13.1 million in June from 14.8 million in May.

Against this backdrop of depression the leading light of the B2C world, Amazon.com, reported pro-forma net losses of $58 million for the second quarter of this year. While Warren Jenson, Amazon.com's chief financial officer, remained upbeat, claiming, "we continue to make progress toward reaching pro-forma operating profitability in the fourth quarter of 2001," others were less impressed.

A recent report from investment bank, Lehman Brothers, warned that the company was haemorrhaging cash and might not survive. Analyst Ravi Suria highlighted Amazon's "weak balance sheet, poor working capital management, and massive negative operating cash flow."

The Middle East could, however, be bucking the global trend. The local B2C market appears to be stabilising, and certain companies are predicting bright futures for themselves based on facts rather than hopes.

Local auction site Kunoozy.com has seen its site traffic grow between 15 to 20% per month since its launch. At the same time, its user base continues to grow at around 14% per month. The total number of registered users currently stands at 1,240.

Islamic investment site, iHilal.com, is also experiencing growth. Jaafar Aweidah, global sales & marketing director, says that there has been "a moderate increase in traffic," since the site’s launch in April this year. However, Aweidah believes that it would have been greater if it hadn't been for North America's economic slow down.

Even more encouraging is the fact that this growing traffic appears to be converting into sales. Kunoozy has cleared over $26,000 worth of transactions since December and expects sales to increase by about 10-to-15% per month.

||**|||~||~||~|A recent spot poll on ITP.net showed that while the majority of participants were still sceptical about buying online. There were a number of users that did regularly complete online purchases from local B2C companies. 15% of the respondents confessed to buying online 'sometimes' while a further 12% made monthly purchases.

Komal Preet Kaur, auction manager at Kunoozy.com, believes that this is just the start of the region's B2C growth. "B2C e-commerce in the region should grow rapidly within the next 2-3 years," he says. Aweidah is also positive, claiming that there is "growth in the number of users and in the awareness [of e-commerce] as well."

Despite this positive outlook, both Kaur and Aweidah are realistic about what needs to happen if local B2C e-commerce is to continue growing. The latter points to the region's low Internet penetration.

"The latest figures on Internet penetration show it to be between 25-to-30% in Europe and North America. In the Middle East it is only at around 2-to-3%," he says.
While agreeing with Aweidah that "one must wait for e-culture to be adopted and PC penetration to increase," Kaur is more forthright about some of the other issues that are providing potential pitfalls. "Most of the large trading firms are controlled by merchant families that tend to favour nepotism, which is not conducive to taking risks. The real issue here is that Middle East businesses are general risk averse. They do not understand that the real failure in business is not having 'failed before'," he says.

In addition to those unable to change their mindset, Kaur explains that the lack of IT expertise in software solution supplier organisations and commitment "from the top brass," exacerbates the problems.

Aweidah implies something similar when he states that "the future is not for companies, which are big or which are smart, but for companies that can adapt to the changes in the [e-commerce] climate."

For the Middle East to build on its current B2C stability and achieve the height that those within the industry are predicting, it needs commitment and development. Kaur concludes that "a few innovative leaders, who are willing to risk 'losing' during the initial phase providing an extensive B2C business would provide the push for others to emulate."||**||

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