Time and tide: Middle East retailers must board the e-commerce boat

Massive megastores and hulking hypermarkets with colossal departments dedicated to consumer electronics.

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By  Stuart Wilson Published  February 28, 2007

Massive megastores and hulking hypermarkets with colossal departments dedicated to consumer electronics. Is this the best model for CE retail in the Middle East? Right now, the answer is probably yes.

E-commerce remains an embryonic route-to-market in the region, but time and tide wait for no man, and retailers would be well advised to start thinking now about the best way to develop their online presence.

The arguments against e-commerce in the Middle East may still be valid, but in my opinion they are starting to wear a little thin. Yes, internet penetration is still low in the region and yes, some first time buyers of CE products want to inspect and feel their shiny new purchases before splashing out hard-earned cash.

And let’s not forget that the take-up of credit cards is also low in the Middle East, bringing additional challenges in terms of the payment methods that e-retailers can utilise.

Looking at these factors, you’d probably think that it’s a pretty gloomy outlook for any web-savvy entrepreneurs planning to become the first Middle East e-retail internet gazillionaire. Admittedly, they are all factors that hamper the potential for e-commerce in the Middle East, but they are by no means insurmountable barriers.

It’s time for some bold predictions now. The Middle East market — all 350 million consumers — will embark upon a rapid e-commerce adoption curve. This will not be a region characterised by predictable linear growth in e-commerce sales, which build slowly over time. On the contrary, e-commerce will embark upon an exponential growth curve and CE vendors and retailers have the opportunity now to position themselves at the forefront of this paradigm shift in consumer routes-to-market.

The current population dynamics in the Middle East, coupled with government initiatives to increase internet penetration and growing comfort levels with technology — through ownership of mobile phones and digital devices for example — will play into the hands of the e-commerce pioneers. Buying products over the web via a mobile phone is not ‘pie in the sky’ thinking; it is already a technical possibility. The big question at present is whether or not any of the incumbent bricks and mortar CE retail pow_erhouses in the Middle East have the business temerity to lead the way in e-commerce?

It is easy to see why many would choose to shy away from this brave new world. After all, they are investing heavily in building up their number of physical retail outlets, sales are growing and it’s pretty easy to adopt an ‘if it ain’t broke don’t try to fix it’ mentality.

Well, these companies are wearing business blinkers and they are squandering the opportunity to establish a significant first mover advantage in the Middle East e-commerce space — an advantage that will become increasingly valuable over time. They are also failing to learn the lessons of history. Some upstart e-commerce companies in Western Europe and the US caught established bricks and mortar retailers on the hop. The old school retailers paid the price with some forced to acquire an e-commerce outfit at a hefty price to get back in the online game.

Building an e-commerce site is not as expensive as some companies believe. The back-end logistics and CRM systems that this process requires can also deliver real business benefits to a traditional retail operation. In short, it’s a no-brainer for any forward thinking CE vendor or retailer.

A retailer committing US$100m to the development and expansion of its physical retail outlets, should consider diverting some of this spend to the creation of a decent online presence. Otherwise, a slick e-commerce operation that cost US$10m to set up could transform your US$100m bricks and mortar investment into an obsolete monolith to a bygone retail era if online spending really starts to take off in the region.

Time and tide wait for no man. Make sure you don’t miss the Middle East e-commerce boat.

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