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It’s Clicking

April 2015

More and more buyers in the UAE and the region are shopping online. But does the rise of e-tailers pose a challenge to brick-and-mortar shopping centres and mega malls in the UAE and the region, or do they supplement each other? Sunil Kumar Singh explores in this cover story

Let’s do a little bit of number-crunching first. One company with just 2 years in operation and a whopping 500% jump in sales year-on-year. And it is for real! The UAE-based online shopping platform, awok.com, has done just that.

What Buyers in MENA Shop Most Online

Awok.com is just a case in point. There are a host of online retailers in the UAE and the region that are raking in the moolah through selling products online.

Online retail in the region has taken a giant leap and is still growing. Log on to any of the sites, such as souq.com, namshi.com, jadopado.com, and you’ll invariably be lost in a world of almost infinite choice or get mystified by the multiplicity of branded products that are available at a bargain price.

Online shopping is fast catching the fancy of shoppers in the UAE. According to Online Shopping Behaviour Study 2014 conducted by MasterCard, over 50% of those surveyed indicated they access the Internet for online shopping of which more than 80% said they were highly satisfied with their online shopping experience.

Jockeying For Position?

Sizing Up the MarketSo as more and more shoppers log on to shop, is it a warning bell for the malls in the UAE? Will they struggle to maintain customer loyalty? Is online retail out to trump traditional shopping malls? Far from it.

No doubt, the UAE, and especially Dubai, has established itself as a shopping paradise, thanks to behemothic malls showcasing high-street brands and attracting shoppers from around the world. But when it comes to comparing online and offline retail in the region, many tend to pit conventional retail against online retail.

There is no competition between the two, shrug off experts!

“The growth of online retail and commerce quadrupled in the last couple of years due to the accelerating growth and continuing influence of the Internet internationally, the high rate adoption regionally and the proliferation of online businesses and services. However, the online retail sector is still behind compared to the global benchmarks,” argues Adey Salamin, Founder & CEO, iMENA Group, Dubai.

Despite rapid strides, sales through online channels in the UAE and the wider Middle East & Africa (MEA) region still comprise a minuscule of the entire retail sales pie.

According to eMarketer, in 2015 while the total ecommerce retail sales (excluding travel and event tickets) is expected to touch $25.24 billion in the MEA region, it’ll be a paltry 2.9% of the total retail sales. Next year, the figure is expected to touch $31.48 billion and 3.3% respectively, while in 2017 this is not expected to improve much with $38.51 billion and 3.7% share respectively ( See Catching the…)

More Than Shopping Venues

The GCC and particularly Dubai has been a global shopping paradise and will remain so despite coming up of multiple online retailers, believe experts.

One of the greatest reasons behind it is the popularity of malls as the hub of entertainment, leisure, dining, recreation, and, of course, shopping, all under one roof. The colossal malls in Dubai and the region are more of a destination for family and entertainment than just plain shopping, giving them an edge over online retailers.

“In the Gulf, mall shopping is very much a social and recreational event. Younger consumers when it comes to fashion like to shop with a small group of their peers perhaps having searched online and shared the results via social media prior to making an actual purchase in a conventional shopping centre,” says Simon Thomson, Founder & Principal, Retail International UK, a retail consultancy firm.

Ambience, attractive offer, good choice of merchandise and sufficient stock of the most required sizes in store, will continue to attract shoppers to malls and departmental stores in the region, he adds.

Coming Together

Catching the Retail Pulse

For many offline retailers in the region, the online channel is increasingly becoming a supplementary tool to support their business, as opposed to a being a competitor. There’s no more watertight door keeping online and offline retailers apart, thanks to the adoption of omnichannel strategy.

Omnichannel approach gives buyers the freedom to buy any merchandise, for example a shirt, either by walking into a store and purchasing the product or surfing the Internet through a mobile phone and ordering online. The customer can either buy the shirt online or try it out in any of that particular brand’s stores, and buy it there. Either through purchasing online or offline the customer can return the shirt online if it’s not fitting well or return the shirt to the traditional shop.

Additionally, brick-and-mortar retailers are scaling up their online presence too. Jumbo Group in the UAE, for instance, sells its products through its online store too. Similar is the case with other retailers such as Sharaf DG, Giordano, among others.

“Offline retail isn’t going anywhere, and online is here to stay. Contrary to what either sector would have you believe, we’re rapidly approaching a time of omni-channel commerce, where retail serves customers across multiple channels, regardless of whether they’re in-store, online, on mobile or otherwise,” says Omar Kassim, Founder, JadoPado, an online marketplace to buy and sell products.

Fairer Deal?

The cost of goods sold online in the region could be lower due to the lower operational and distribution cost involved, compared to physical malls or stores. However, the difference in prices in many cases isn’t significant.

This is because in the UAE and the region there is no tax for buying products online or in traditional retail shops. In developed markets such as the USA, online shoppers do not pay tax at the same level as traditional retail shops.

“Generally in this region I don’t see any substantial differences in the price of merchandise bought either online or offline. The advantage of online shopping is wider than just the price differential, i.e. a customer is able to source and shop a variety of products from anywhere in the world even though it might not be freely available in the conventional store located in that country or region,” argues David Macadam, CEO, Middle East Council of Shopping Centres, Dubai.

This means buying online isn’t the cheapest deal always, at least in this region. If you’re a bargain hunter, you can get great deals on street markets in Dubai as opposed to online. You can buy, for example, an Apple iPhone 6 Plus – 16GB, 4G LTE, Gold at just AED 2700, from an electronics shop in Bur Dubai, if you aren’t terrified of haggling, even though it’s selling a tad higher at AED 2749 on a few online shopping sites in the UAE (price as on March 12).

Price apart, however, what distinctly separates the online buying behaviour of this region vis-à-vis rest of the world is the majority of younger generation shoppers who’re not so price conscious (unlike many markets such as India where value chase is what that’s bringing more and more shoppers online, causing many conventional retailers to lose a chunk of their customers).

Value chase therefore is not the biggest determinant or the pull factor driving buyers to log on and shop, as is the wider choice and convenience that it offers. This is what’s giving ample space to both online and conventional retailers to expand here, without encroaching upon each other’s turf.

“For online businesses, wider choice and convenience are major factors that encourage consumers to shop online. Choice is definitely a motivator; while we do not believe that value is equally as important. That is not to say that as a retailer, one should not focus on offering value, but the younger generation is largely driven by choice and convenience, much more so than they are by value,” says Hosam Arab, MD and Co-Founder, Namshi, an online fashion retailer, where younger consumers make up a large portion of its customer base with 70% of all its customers between the ages of 18 and 34.

What Lies Ahead

One thing is sure that online shopping in the region isn’t a fad among youngsters any more. However, despite rapid strides made by online retail in the region riding on the growth of Internet users, there’s a little probability of it taking on the conventional shopping behemoths head on.

Both segments are comfortable playing in their own turf and are not poles apart, as is the case in many markets around the world. Above all, the adoption of omnichannel strategy is making the difference between online and offline retail indistinct.

Secondly, the online retail biggies such as amazon, ebay are yet to see the region as an opportunity. Another factor limiting the growth of online retail is the preference for cash-on-delivery payment mode than paying through credit cards.

Shoppers mostly buy cash-on-delivery through online portals, which is less efficient for the retailers and a limitation for the growth of online retail in the region. When more and more online shoppers pay through their credit cards, these online portals will enjoy a greater reach, maintain experts.

“The challenge however in the UAE and the region is that many buyers prefer to pay through cash-on-delivery mode as generally they don’t trust paying through their credit cards online. That’s a key difference between developed online markets like the west (where most shoppers buy online through their credit cards) and this region where cash-on-delivery is the major payment mode,” says Macadam.

There are some issues with logistics, warehousing and funding too.

“The only challenge for us in terms of expansion and logistics is that we are required to stock our products and maintain warehouses. But these problems are comparably nothing than what traditional businesses face. In terms of IT and bandwidth we don’t face any problem,” says Ulugbek Yuldashev, Founder and CEO, awok.com.

Adds Adey Salamin of iMENA Group, “We believe that the high cost and large startup capital required to set up and run an e-retail business — given the need for offline transportation and warehousing — is an obstacle to the success of this business model in the region. This is due to the scarcity of financial resources (in terms of funding) and the fragmented nature of the region’s markets, not to mention challenges with online payments due to the conventionality and traditionalism of banking institutions in MENA.”Time is a major factor in this fast growing market. Businesses that enter too late in the game will be pushed out of the market in the long term, he cautions.

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