Ecommerce in the MENA Region

by Zaara 15, Feb 2022

Ecommerce in the MENA Region

The Emirate of Dubai and the UAE have been ranked first in the Middle East and North Africa region's list of fastest-growing e-commerce markets in the latest news. Thanks to the government's advanced initiatives, such as the Dubai Smart City, the key factors that have put the UAE and Dubai at the forefront of e-commerce growth in the MENA region are tech-eager customers and a favourable environment fostering start-up development.

The Middle East and North Africa (MENA) retail industry are on the verge of a pivotal transition. E-commerce is becoming a reality, reinventing customers’ direction to shop, developing new customer experiences, transforming business models, and generating growth opportunities for large and small retailers and pure e-commerce players of a new generation.

The emerging e-commerce sector in the MENA region is rapidly shifting its future outlook while pursuing various growth models of e-commerce in other areas.

In 2017, when it reached 10 percent of all global retail revenues, the e-commerce market came to the fore. Today, e-commerce is a $2.2 trillion industry, expanding four times faster than the global retail sector as a whole at an annual growth rate of 24%. E-commerce is becoming the main driver for retail growth: its contribution has risen from 7% in 2012 to 39% in 2017, and we expect it to surpass 50% by 2020.

Digital adoption in MENA has not taken the path traditionally seen in other markets. As clients move online, companies typically follow suit, enabling the digital economy to expand steadily in fields such as media and e-commerce. MENA's experience was distinct.

The MENA customer, and in particular the GCC customer, is among the world's most connected and digitally savvy. In the customer direction of buying, exploration, analysis and actual purchasing, the Internet plays a vital role. Consumers in the area are strongly affected by their online habits, regardless of whether they shop online or in shops.

MENA customers had few reasons for moving more of their transactions online. The take-off of e-commerce in the area has been hampered by restricted product variety and varying delivery times and service levels. However, recent developments signify a shift in the direction and the beginning of a new e-commerce chapter in MENA.

MENA’s online retailers have had to deal with myriad challenges, including weak transport and payment infrastructure, insufficient customer knowledge, and limited choice of confidence, which have contributed to stunting online growth. However, financing from major investors has recently led to a surge of infrastructure development and substantial investment in creating a strong customer value proposition, both of which will fuel rapid online growth across the country.

One of the key challenges hindering MENA e-commerce has been restricted access to a broad and deep range of goods. The MENA retail industry has historically been dominated by large groups, especially in core categories such as fashion and electronics. Both of these groups were late in making available online the extensive product range offered in their brick-and-mortar stores. It is estimated that less than 20% of the top global fashion brands physically present in MENA have e-commerce platforms focused locally that provide distribution to the regional customer.

With non-MENA-based e-commerce players capturing a large share of the growing customer interest in online shopping, this demand-supply gap in the region has created an opportunity for cross-border e-commerce.

E-commerce has been one of the top strategic priorities for the influential MENA retail groups over the past couple of years. These groups have invested in switching from a physical to an omnichannel model significant capital in introducing more than 35 new platforms for e-commerce. Pure e-commerce players, both organically and through alliances, have also been growing their product offerings.

In areas such as clicking to gather and turn stock rooms into mini fulfilment centres, brick and mortar players can exploit their physical distribution networks in the service of their omnichannel strategies, reimagining the store’s function from a mere point of sale to a 'phygital' experience.

Stores will have to develop to become hubs of knowledge that complement new consumer journeys and deliver digitised services through multiple touchpoints and payment services.

5 Insights Driving Regional E-commerce

1. The e-commerce market in MENA is worth $8.3 billion, with substantial room for expansion

E-commerce in the Middle East and North Africa (MENA) hit $8.3 billion in 2017, with a 25 per cent annual growth rate. It is expected to cross $28.5 billion by 2022, with the Gulf Cooperation Council (GCC) and Egypt accounting for 80 per cent of the country’s e-commerce market, with a penetration rate of total retail sales of 7 per cent. It is mainly due to customers’ digital transformation and the growing availability in these markets of online product selection. As digital consumer adoption grows and the e-commerce ecosystem matures, it has the potential to be necessary.

2. Eighty per cent of MENA e-commerce comprises electronics, apparel, cosmetics and groceries

Four main categories can be categorised into MENA e-commerce: electronics, grocery, beauty and fashion. Due to an active handset update culture and an abundance of product variety at competitive prices, electronics is the largest and most heavily penetrated e-commerce segment, led by cell phones.

Fashion e-commerce has crossed the billion-dollar mark and is expected to witness an unprecedented growth rate propelled by a more excellent choice of goods and customer experience improvements.

Beauty e-commerce in MENA, meanwhile, is one of the most heavily penetrated segments of e-commerce globally. Growing consumer trust in the authenticity of underlying goods and the increasing prominence of regional influencers drive its rise.

Compared to electronics, fashion and cosmetics, grocery e-commerce is still a small segment. Still, it has been rising faster as hypermarkets are getting online, and multi-category markets are gaining momentum.

3. MENA shoppers are Mobile-first, driven by search and video

Consumers in MENA are among the world's most connected and digitally savvy. If the product or service is purchased online or in a physical store, online research is a significant part of MENA’s consumer experience. For online research and shopping, MENA customers tend to use their smartphones.

4. With early signs of growth, cash on delivery is still prevalent

MENA is still primarily a cash-based economy, and the preferred payment option for online shoppers continues to be Cash On Delivery (COD). When shopping online, about 62 per cent of MENA online shoppers choose COD as a means of payment.

COD’s focus is expected to decrease as mobile wallet technology is implemented and customer acceptance increases, combined with favourable legislation. For e-commerce players, this will offer more comprehensive distribution options and improve profitability.

5. GCC shoppers spend USD 150 on average per shopping cart

A natural extension of the preferences of the technologically savvy MENA customer is online shopping. With an average basket size of $150, online shoppers in the UAE spend on average each time they shop online. More than 60% of UAE shoppers have traded online at least once. However, considering the maturity of the e-commerce environment today, MENA customers prefer to shop less frequently online than in-store.

Problems with E-Commerce Industry

1. Delivery Method

As several countries do not have postal codes or a conventional mail courier system, the Middle East as a whole poses unusual challenges to distribution options. As a legacy of colonialism, several other streets are unidentified, have informal names, or have characters in several languages. Therefore, it has been hard for e-commerce businesses to find out how to solve these concrete obstacles. However, as young, entrepreneurial spirits are stepping up to this challenge; it has also led to a lot of creativity. Instead of using addresses as is the norm in the United States, startups such as Fetchr have introduced technologies such as an exact position pinpointing on a map as a distribution goal.

2. Methods Of Payment

Each country has its physical/virtual currency relationship, and it is essential to remember that one does not inherently function for all. E-commerce businesses have thus been forced to build numerous other payment mechanisms to ensure efficient transactions. Innovation has been crucial in addressing these challenges, similar to issues with distribution networks.

3. Fraud

It is one of the main problems in several countries around the Middle East. Businesses are involved, especially in high-cost transactions, in credit card fraud. It is a big problem, but elsewhere, it occurs. Often, people notice their cards being refused by companies in the United States because of the risk of fraud.

4. Warehouse Storage

Storage and shipping challenges across borders are among the main problems that e-commerce sites have in the Middle East. With these regional operating sites, however, products are imported from suppliers and sellers in various countries themselves, making it difficult and potentially dangerous for the logistics of sourcing and shipping goods if there is an issue at the end of the retailer.

5. Cash Economy

E-commerce businesses have had to solve the most significant challenge with the vast percentage of the population who only use cash. When attempting to get clients to pay some money before their products are delivered, businesses face a backlash, but many felt like a scam.

At the time of distribution, they then switched to buyers paying cash, but this was then an issue for the sellers as they lost large sums of money because of shipping costs and the delay of the money hitting the account. They find that with cash-on-delivery, 80 percent of e-commerce in the Middle East. Although this is evolving, it is still a significant issue for companies.

5 Reasons Ecommerce Market is Rapidly Growing in the UAE

The e-commerce market is rapidly growing in the UAE because of the following reasons :

1. High Internet Penetration

Digitisation is the future, and the end of the UAE has now been e-commerce. Mobile phone penetration is now at a world-record high of 210.9 per cent, according to estimates. When it comes to spending time on the internet and social media, UAE residents are among the top 10 internationally, being about seven hours and 54 minutes daily.

2. A Increase in Mobile Wallet Usage

The baseline for mobile wallets’ adoption is deep cell phone penetration, a reality in the UAE for years. With global giants including Samsung Pay, Google Pay, and Apple Pay joining the fray, along with local players such as Beam Wallet and Etisalat Wallet and regional banks, the use of mobile wallets in the UAE has increased. You can pay bills anywhere with only a mobile, whether it's a gas station, cinemas, or department stores.

3. Improved Logistic

In the e-commerce industry, the UAE has strong logistics support. Also, for any e-commerce company, logistics can be a game-changer. Fortunately, the Emirates is a central delivery centre, and its low cost of logistics and state-of-the-art infrastructure makes it a perfect place to flourish for e-commerce. The Visa survey enjoys an advantage as a significant global trans-shipment centre, with Dubai International Airport's port and Jebel Ali offering a high logistics level.

4. Government Benefits

In developing a digital culture in the UAE and eradicating many of the obstacles to becoming a cashless society, pro-business government policies have been crucial. In the UAE Vision 2021, cashless payments and digital commerce were listed as top government priorities. Several measures to promote it, such as the wage security scheme, have also been introduced by the authorities.

5. Virtual Natives

The Emirates population comprises about 30 percent of digital-native millennials (born between 1981 and 1996) and an increasing Gen Z (born between 1997 and 2012). On-demand, near-instant clarity is often correlated with and desired by these digital groups. It is expected that their demand for easy and fast shopping experiences would quicken the acceptance of online shopping.

Future of Ecommerce Market in MENA Region

The MENA e-commerce market has gained traction over the past couple of years, despite being late to take off. It is likely to experience substantial growth if elements of the ecosystem continue to fall into place. The area is still at the beginning of the e-commerce adoption period, and several forms in the future.

Depending on the industry, the growth trend of e-commerce has differed. The entry of major e-commerce players could help accelerate the transition to e-commerce and customer readiness and the growth of the ecosystem’s various components.

Further Growth of the Ecosystem

MENA has seen considerable progress in solving some of the problems connected to the e-commerce ecosystem over the past few years. However, in some places, quantum leaps are required to facilitate the sustainable long-term growth of the e-commerce industry, payments and logistics.

Payments

One of the main obstacles for e-commerce in MENA has been cash on delivery (COD). COD led to higher return rates and failed deliveries, adding pressure to working capital requirements while restricting distribution choices to logistics companies that support this form of payment.

To a large extent, even in markets with healthy credit card penetration rates, such as the UAE, where an estimated 75 per cent of the economy is still focused on cash, MENA remains a cash-based economy. COD seems to be a natural extension of in-store payment patterns. Still, it is embedded in customer confidence that is characteristic of emerging markets concerning online payments.

Consumers' preference to pay until they have the product in hand is the prime reason for COD use. For example, having the correct product delivered and the degree of trust in the return process can be attributed to a general inconsistency in the user experience while shopping online.

While a MENA online shopper usually uses his or her credit card to pay for online purchases with well-established cross-border e-commerce players, when faced with the option to shop with regional players, the same shopper prefers to pay in cash.

There is the potential for mobile wallets to help solve the COD problem in MENA. Mobile wallets offer a more safe and convenient way to pay than credit cards, as smartphones capture most e-commerce transactions in the country, despite the inconvenience of inputting. Mobile credit card information will allow customers to opt for COD.

Its ease of use promises to mitigate the buyers at the time of purchase and distribution for cash purchases, which will help tackle COD’s cash aspect. The payment difficulties faced by MENA are representative of many emerging markets. Cash accounts for more than 80 per cent of online transactions in India, where 50 per cent of the population has a bank account, and 4 per cent of adults have credit cards. Both the private and government sectors are trying to settle payments problems.

Logistics

The evolution of e-commerce has been hampered by difficulties related to the speed and cost of product distribution in MENA. Postal services, which in most developed markets are the backbone of e-commerce distribution operations, are typically underdeveloped in MENA. Many global couriers, such as FedEx and DHL, do not sell COD, restricting regional and local players’ distribution options. It has impacted last-mile delivery pace and cost-effectiveness, placing pressure on major multi-category regional e-commerce players to develop their last-mile delivery infrastructure.

Many MENA nations suffer from weak systems of management that directly affect delivery speeds and failure rates. Through using customer smartphones as their delivery addresses, a range of players, such as Fetchr, have innovated in the environment, delivering to users wherever they are. More than $50 million raised by the company to buy new businesses and scale-up activities.

Conclusion

There was never a better time to be in the MENA e-commerce market. The market today stands at 8.3 billion dollars and is expected to hit 28.5 billion dollars by 2022. Digitally savvy customers in the area are hungry for a more comprehensive online range of items and new shopping experiences. E-commerce is at the forefront of retailers’ strategies, and pure e-commerce companies move into new markets and products categories. Despite the many existing obstacles, the various components of the e-commerce ecosystem, namely, payments and logistics, have come a long way.

Building on the strong momentum of the past few years, e-commerce is entering a critical region. For customers, companies, investors and players in the ecosystem, the opportunity is essential. The growth rate, exponential or linear, will depend on how quickly the three Ps come together: product selection, payments and product delivery. Exponential development has been a common trend in the area of user internet adoption and digital media investments.

E-commerce growth in the UAE has primarily been attributed to the retail sector and the vibrant mall community over the years. In short, new e-commerce businesses are projected to make a significant splash in the e-commerce industry of the UAE. E-commerce companies from developed countries such as the USA and the UK are attracted by Dubai’s business-friendly climate and other UAE places.

Should you decide to start an ecommerce business in the UAE, we at Commitbiz can help you. Our consultants have years of experience in this sector and can make the process trouble-free. Contact us today for more information.

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