E-commerce grows in Dubai and across GCC

The combination of alluring destination malls and a rapidly expanding airline has created a “fly-and-buy” shopping economy in Dubai in recent years, but retailers in the emirate have found it more difficult to tap into the broader global potential of e-commerce. “E-commerce is the largest threat and the biggest opportunity,” Nisreen Shocair, president of Virgin Megastore, MENA, told OBG. “When we look at absolute numbers across the Middle East, online sales are still not significant compared to physical retail, but the double-digit growth is there. As retailers continue to chase growth, the online channel will be one to take a lot more seriously.”

Regional Comparisons

Financial services and research consultancy Alpen Capital believes e-commerce represents a significant untapped market in GCC countries. In its January 2015 review of the GCC retail sector, it reported that across the Middle East, online retailing accounted for only 1% of retail sales, and that the contribution was just 2% in the GCC. The UAE leads the region, according to Alpen Capital, with 3.6m e-commerce customers, and the country’s e-commerce industry grew by more than 20% in 2013. The report predicted the UAE’s e-commerce industry would be worth $5.1bn by the end of 2015. There is also significant potential for mobile or m-commerce, according to the report, which calculated GCC m-sales growth from $900m in 2013 to $3bn in 2015, when it anticipated transactions via smart-phone would account for 20% of all business-to-customer electronic transactions in the GCC. Meanwhile, according to research firm Frost & Sullivan, the country’s e-commerce market was worth $2.5bn in 2014 and is expected to grow to $10bn by 2018.

Strategic Advantages

On paper, Dubai would appear to enjoy several advantages that should enable growth of e-commerce. It has the second-highest presence of global brands in the world, according to a 2015 report by commercial real estate firm CBRE, allowing regional franchisees to draw on their partners’ expertise in development of online and mobile commerce in other geographies. The World Bank’s Logistics Performance Index ranks the UAE 27th overall, making it the best-served country in the GCC. According to banking group Emirates NBD, “Dubai’s geostrategic location along with its high level of infrastructure and logistics facilities make it an ideal location for companies to base their wholesale and retail trade operations to serve regional markets.” In addition, at close to 80%, smartphone penetration is among the highest in the world.

Growth Potential

These figures are good news for Emirati entrepreneurs. Khalid Basaeed, owner and founder of Feathers Fashion, which has five stores in the UAE, including three in Dubai, told OBG he had great hopes in the wider region for his locally manufactured range. “Designing and partly producing in the UAE helps attract Emirati and more broadly Arab consumers,” Basaeed told OBG. “As a result, we have clients in Saudi Arabia, Kuwait and Qatar willing to buy our products through the internet. This is why we want to develop our e-commerce offer.”

Challenges

At the same time, challenges remain for retail e-commerce in Dubai, where many financial transactions are completed using cheques rather than credit cards. Cash on delivery remains the preferred method of payment for many customers, an option that is offered by Souq.com, the most high-profile regional online retailer. In spite of the obstacles Souq.com faces, when compared to rivals in other markets, investors have not been discouraged. In 2014 the company raised $75m in funding from Naspers, bringing the total raised by the company to $150m. Gulf Business ranked Ronaldo Mouchawar, CEO and co-founder of the online platform, among the top-10 entrepreneurs in the Middle East in 2015. “We are changing the fundamentals of regional retail, transforming how customers shop,” said Mouchawar.