Online retailers ready to rise?

In this month’s ACN, we take a closer look at the state of online retail in the Middle East, and some of the new players that look like they might finally bring life to the e-commerce market.

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Online retailers ready to rise? (ITP Images)
By  Mark Sutton Published  March 10, 2013

Its an interesting subject to me, in part because fourteen years ago, as the original dot-com bubble was starting to unravel, one of the first articles I wrote on the IT sector in the Middle East was on the exact same subject. And up until a couple of years ago, I would have said not much has changed in Middle East online retail since late 1999.

It is also a timely subject against the back drop of the collapse in the past quarter of a number of UK high street retailers — HMV, Blockbuster, Jessops, Comet, JJB Sports — many of which are selling the exact same products as the new Middle East e-tailers, and that have undoubtedly suffered from the rise of online retail in the West.

The companies I spoke to were not selected by any particular criteria and are not meant to be a definitive sample — Souq.com probably should be there, but time constraints are always present — but I was most certainly impressed by the people I spoke to, and their enthusiasm, and practical approach, to making e-commerce work in this market.

But has anything changed to make customers more inclined to embrace e-commerce? All of the reasons for lack of uptake are still present. The Middle East is not one big homogenous market, but rather distinct countries, with their own currencies, logistic challenges and customs regimes, unique local retail landscape and so on. There’s still been precious little headway in developing a system of addresses, and no reliable postal services. Credit card usage is still far behind in many markets. Trader mentalities exist in many retail organisations and agency agreements still tie-up many major brands to just one distributor.

There is sense of gradual progress and maturity to the sector though. The online retailers have slowly eked out tricks to overcome the usual obstacles such as call backs to get location before deliveries are despatched, or location plotting using GPS at time of order. Web technology allows for better display and more information on the products on offer. Cash-on-delivery (COD) is embraced by some of the retailers, and one company reports that the percentage of COD orders here is in line with its operations in other emerging markets that have already seen great uptake of online commerce — credit is king in the US and Europe, but COD is the norm elsewhere.

Companies are addressing logistics differently, but they are still finding cost effective means of delivery. They are also being cautious in what markets they tackle, and clear about developing the value proposition they have over traditional and online retailers.

One thing that has changed, as suggested by one of the companies I spoke to, was consumer confidence has grown. Consumers might not have been buying from local online retailers, but they have certainly been buying from global giants. Social features on websites allow for better feedback and customer recommendations on providers. The group buying/coupon operations that emerged two years or so ago also built confidence in e-commerce, even if that sector has already seen a pretty major shake-out.

So will these new entrants become the region’s Amazons? Its telling to note that at least one of the companies reports strong funding from western investment money — these investors see e-commerce as inevitable, and expect the Middle East to see major adoption soon. One of the website founders said that once customers realise the convenience of online for certain categories, they won’t go back to bricks-and-mortar. Other emerging markets with their own unique factors have already seen e-commerce take off, and while its inevitable that the Middle East will see a rash of ‘me-too’ copycat sites and attendant failures, as was witnessed with group buying, there is still a valid value proposition to make online retail a reality in the region.

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