Net spending: The emirate is emerging as a regional leader in e-commerce

As traditional “bricks and mortar” shopping outlets recover from the drop in spending following the global financial crisis, Dubai’s online retail sector is flourishing as consumers increasingly look to the internet to find deals and save money. Indeed, the emirate is emerging as a regional leader in e-commerce.

A report by RNCOS shows that over 40% of customers in Dubai shopped online for a range of products – including electronics, insurance and groceries – in 2010. According to another study by Visa and Interactive Media in Retail Group, online spending in the UAE totalled more than $2bn in the same year. This represents almost 60% of total GCC e-commerce sales. According to the study, the UAE’s online retail market is followed by Saudi Arabia ($520m), Qatar ($375m), Kuwait ($280m), Bahrain ($175m) and Oman ($70m).

BARGAIN HUNTERS: A survey of online shopping by MasterCard found that growth in the sector is being driven by people aged between 25 and 44. Women are also an important segment, with 40% of female respondents reporting that they had shopped online. Airline tickets and hotel bookings are the largest categories of spending, followed by electronics and home appliances, clothing and apparel, and food delivery. The survey also reveals that the popularity of online shopping is growing, with 46% of responders making online purchases in 2010, compared with 39% in 2009. Price and value was cited as the main reason for buying on the internet, with 48% reporting that prices are significantly lower than in malls.

CONTRIBUTORY FACTORS: A number of factors have helped boost the sector in recent years. High-speed broadband and mobile internet services provide the essential backbone for the industry. Furthermore, Dubai’s efficient government systems have helped create an enabling environment for online shopping.

The Telecommunications Regulatory Authority (TRA) provides oversight of the sector and has led the way in bolstering consumer confidence in online retail outlets. The TRA’s TRUST ae initiative, for example, awards businesses that follow strict security protocols with a seal to promote online retail markets as a secure environment. Dubai’s ePay services also help change attitudes towards sharing credit information online by providing a secure gateway for customers to pay a variety of government fees.

A key positive indicator for the sector is that it is attracting significant capital from investors. In 2012, for example, JP Morgan Asset Management and Blakeney Management pumped $20m into Namshi, one of the pioneers of online retailing of shoes and perfumes in the Middle East. This is being followed by another injection of funds by Summit Partners. The capital is being used to expand Namshi’s reach into the broader region, including building its supply chain into Saudi Arabia. In 2011 South African internet company Naspers bought a stake in Dubizzle, an online classifieds portal, for an estimated $2m.

LOCAL INTEREST: While international retailers dominate the sector, local start-ups are also moving into the online space. Shafqa, Souq, Kentessa, Namshi and Dubizzle are only a few of the local companies that are vying with global players. Free trade zones such as Dubai Internet City provide vital resources to help push young entrepreneurs into online businesses. Seed funds established in these trade zones, for example, are a key source of cash for viable start-ups. While foreign companies bring global experience, local firms are often able to better tailor services to the local market. Cash on delivery, for example, is one innovation that is helping drive business for several retailers.

Online shopping is still young in Dubai and the broader region, but all signs point to continued growth in the sector. While payment security will continue to be a pressing issue, the government’s commitment to supporting business and innovation will reassure consumers and attract more players. Perhaps most importantly, Dubai’s young and wealthy population provides a ready base of potential consumers who are open to testing new technologies and innovations.