Digital commerce in the Middle East

ACN takes a closer look at the Middle East’s e-commerce market and its progress

Tags: Digital transformationE-commerceEmaar Properties - UAEGartner Inc. (www.gartner.com/technology/home.jsp)Public Investment FundUnited Arab Emirates
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Digital commerce in the Middle East Sandy Shen, research director, Gartner.
By  Alexander Sophoclis Pieri Published  December 11, 2016

In November 2016, a group of investors, which included Emaar Properties chairman Mohamed Alabbar and Saudi Arabia Public Investment Fund (PIF), announced the formation of a $1b jointly funded e-commerce platform.

Noon, which is set to launch in January, will reportedly become one of the region’s largest e-commerce platforms. Boasting a comprehensive portfolio of over 20 million items, Noon will offer a variety of products, which includes fashion, electronics, toys and household goods.

During the announcement, Alabbar revealed that PIF will take 50% equity in Noon, while Alabbar and other GCC investors will lead the other 50%.

Noon’s head office will be based in Riyadh in Saudi Arabia and will also include over 10 million square feet of warehousing. Beginning with operations in the UAE and Saudi Arabia, the upcoming e-commerce platform will later expand in other Arab countries.

Commenting during the announcement, Alabbar said: “We come with the endurance to build a customer-centric business for the long-term. For us, it’s a marathon, not a sprint. With Noon, we are offering the most customer-centric e-commerce experience available anywhere.

“In one move, we are launching a future-focused company which is the biggest online shopping platform ever seen in the region. Noon is a company born in the Middle East and serves customers in the Middle East.”

While the announcement of Noon is one of the more recent within the region’s digital commerce space, the market itself holds great potential for growth. According to global research and advisory firm Gartner, the Middle East’s digital commerce could be poised for growth thanks to a number of factors, which include a high GDP per capita and a young population.

The region has also seen an increase in various government initiatives aimed at encouraging the development of the e-commerce market. This includes online services for traffic charges, utilities payments and public services.

In the UAE, the government has established a duty-free e-commerce hub called mahajircom, which offers companies technology platforms, logistics services and payment gateways.

While more than half of the population in the Middle East have access to the Internet, less than 20% are reported to be online shoppers. Gartner also reports that while 15% of business in the region have an online presence, only 10% of online purchases are bought from within region.

“It is still early stage of e-commerce in the region in terms of volume and number of users, but it is experiencing fast growth. The convenience, selection and competitive pricing are factors contributing to its competitiveness,” comments Sandy Shen, research director, at Gartner.

The research director went on to add that while there are a number of high-profile players within local market, such as Souq.com, the market still holds plenty of space for entrants.

“The leader is far from established and there is a long way for the landscape to fully develop,” explains Shen.

Commenting on the challenges ahead, Shen shares that logistics remains a top priority as development across the region is mixed, with some areas lacking a mailing or address system.

There are also religious restrictions to consider in countries such as Saudi Arabia, in which females are not allowed to drive, and where male deliverymen cannot interact with female customers.

Payment also remain a challenge as well-established banking instruments, such as credit cards, have not seen widespread use across the region. Payment on delivery, which accounts for roughly 80% of all online shopping in the Middle East, as well as the use of prepaid cards.

Investing into developing their respective logistics and delivery force, or partner with reliable logistics providers, is an area that digital commerce providers should consider.

Other options to consider may also include in-store pickup, as well the possiblity of free shipping.

“The industry will surely grow as there is demand for online shopping. Mobile commerce is one obvious trend, as more people use mobile devices for online shopping, so service providers need to follow,” comments Shen.

“Also, the development of digital wallets will surely help the growth of e-commerce, as it offers a convenient way to pay as well as a trust mechanism between buyers and sellers.

“Enterprises will also set up their own sites to serve customers, on top of the development of online marketplaces,” she concludes.

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