THE FLIGHT OF E-COMMERCE
Gulf Business|February 2021
SPECIAL REPORT
ZAINAB MANSOOR

A world to deliver

Technologically-savvy consumers; high internet penetration; a 360-degree product suite; and the Covid-19 pandemic.

E-commerce arrived.

The year 2020 was more than just the closing of a decade; it was an inflection point for individuals, businesses, and economies around the globe. The arrival and spread of the Covid-19 virus slowed several industries, upended the supply-demand balance, and caused many to rethink their strategies for survival and mitigation.

On the other hand, the pandemic also piloted innovation, rejuvenated several sectors, and marshalled the growth and adoption of digital solutions and channels that fell in step with virus containment measures across the globe, helping curate the ‘new’ ecosystem.

In the days and weeks following the outbreak of the pandemic, consumers and businesses pivoted towards technology, albeit for different reasons: The latter resorted to digitalisation to retain customers, capture market share, and emerge gainfully on the other side of the crisis. The former, meanwhile, ventured online to shop, learn and work.

E-commerce, having deep interests on both sides, rose as a natural winner.

“The Covid-19 was a good booster for e-commerce players because it taught them that in case of a huge surge in business, how were [areas such as] operations and customer service going to handle it. It’s almost like a steroid shot to the e-commerce industry because all of a sudden, everybody had to use it,” opines Rashid Mohamed Alabbar, board member at UAE-based Barakat.

“Anybody who was able to capitalise during Covid to give a good experience to customers in terms of delivery, in terms of the quality of the product, obviously will have an amazing advantage because you are going to be increasing your loyal customer base.”

Taarek Hinedi, vice president of FedEx Express Middle East and Africa operations, expands on it: “While e-commerce has long been a popular method of shopping across the Middle East, during the Covid-19 pandemic it has grown to become the retail option of choice. Both consumers and retailers have shifted their focus to safer and more effective ways to keep commerce moving in a challenging environment.

“Looking at recent consumer behaviour and spending habits, many companies are now strengthening their online presence and using e-commerce to make their products and services more accessible. In the first five months of 2020, the UAE saw a 300 per cent increase in demand for e-commerce services among consumers. In May 2020 alone, e-commerce represented the highest number of licences issued to any business sector.”

If history is a precedent, the sector’s growth trajectory is, in many ways, expected. From a mere $5.3bn in 2015, rising to $17.7bn in 2019, the GCC’s e-commerce market is expected to become an almost $50bn market by 2025, a report by Kearney Middle East notes.

Two salient factors will drive this growth: more, newer and digital-savvy shoppers – millennials account for more than 45 per cent of the user base, which is growing at 6 per cent CAGR; and more growth in key segments – online food delivery and grocery are expected to grow by 30 per cent each year until 2025, while fashion and beauty is forecast to experience annual growth of 18 per cent over the same period, the report suggests.

Test of resilience

E-commerce, similar to the technology underpinning it, has gone through several layers of disruption. But the pandemic arguably made the most compelling case for its evolution and usage, promising convenience, safety and efficiency all bundled in one offering.

A Mastercard study revealed that nearly three out of four UAE consumers (73 per cent) are shopping more online than they did prior to the pandemic, with FMCG (fast-moving consumer goods), healthcare, apparel and banking seizing the highest spike in online activity. Social media too played a fair role in engaging consumers online as 72 per cent and 56 per cent of respondents discovered new sellers through Facebook and Instagram respectively, the survey confirmed.

This tide, in the face of growing digital comforts, is set to gather further momentum and extend gains across the region.

“Our model shows that there will be a larger acceleration in e-commerce between 2020 and 2022, at 20 per cent CAGR, and a gradual growth at 14 per cent until 2025. Without Covid- 19, the same growth was projected at 14 and 10 per cent, respectively. For businesses with a physical footprint, this could mean bumps in the road as current trends show a significant drop in store sales versus 2019, while online sales have tripled or even quadrupled,” the Kearney report expounds.

However, despite the impetus it provided, the Covid-19 pandemic proved to be a litmus test for various operators – for retailers, it tested their resilience to survive the shift from offline to online, ramp up or launch their digital presence or collaborate with existing marketplaces to push products through digital channels. For e-commerce players, it tested their resilience to handle the surge in online traffic, customer orders, and last-mile challenges to ultimately engage and retain the enduser for healthy bottom lines in a challenging economic climate.

“This past year has been a challenge for all businesses, ours included. In early 2020, we accelerated the development of noon Daily, our dedicated grocery platform, and nownow, our on-demand app. Both products were in the pipeline for much later launch dates but, due to the changing needs of consumers, we launched both during the lockdown in April and May. In addition, 2020’s Yellow Friday sale was our largest yet,” says Maya El Ayach, SVP, Growth and Digital Strategy at noon.

“Over the past nine months adoption of e-commerce in the region accelerated, trust increased, and overall reliance on a more digital lifestyle grew. We watched as noon became a utility that people relied upon for the safe delivery of essentials, groceries, and so much more. Noon was created to give people in the Middle East a local digital champion, a platform through which businesses can expand their offering online. We believe the love for e-commerce will only get stronger and that we’ll see more local SMEs and businesses joining noon to reach digital audiences.”

As the world queues up to receive the Covid-19 vaccine in a wider attempt to contain the infection and return to life as we knew it prior to the pandemic, a far sterner test for retailers awaits amid what is expected to be a competitive landscape. As e-commerce gains further ground and a sizeable contingent of consumers transition from offline to online, traditional retail brands will face the heat as physical stores struggle to stay relevant and feel burdened by costs of operating omnichannel approaches.

“We believe there is room for both brick-and-mortar and online shopping moving forward. Focus must be placed on creating a more seamless and enjoyable shopping experience for the customer – be that online, in-person or omnichannel,” suggests noon’s El Ayach.

Immune to failure?

The sheer rockface of competition with a growing number of operators vying for the same consumer basket and the precarious path to securing investment all come together to form a potentially challenging concoction for new and existing e-commerce companies.

Mohammed Dhedhi, principal at Consumer Industries and Retail Practice at Kearney Middle East explains: “The Middle East is now a key battleground for regional and global e-commerce players, each of whom are fighting to stamp their dominance and capture market share. Global experience shows that e-commerce winners are few and need deep pockets as players are competing on price, marketing spend and delivery, and losing significant money in doing so. In the region, smaller businesses struggled to compete across all of these areas as players with deeper pockets were able to spend their way into share.”

Several online platforms shut shop last year, as the economic downturn battered businesses and eroded bottom lines. In H2 2020, UAE-based online marketplace Sprii went into liquidation, while local e-commerce portal Awok ended its operations a year after closing a $30m funding round. Online fashion platforms Nisnass and The Modist too shut shop last year.

To boost chances of churning out a profit, companies must stay alert to three stumbling blocks: inefficiencies in the supply chain, changing consumer behaviour and an excessive focus on boosting demand through marketing and promotions, the Kearney report suggests.

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