Sitting in the comfort of a couch and ordering products from an online marketplace is a rising trend in the Middle
East, as more and more shoppers are adopting it as a lifestyle. With a quick expanding internet audience and the continued creation of logistics infrastructure, the region is poised to become a larger player in the global e-commerce
market as time progresses. According to the market research company, eMarketer, as of now, the Middle East e-commerce market is valued at $4.9bn and is expected to expand to $10bn by 2018.
In the UAE alone, the share of business to commerce (B2C) e-commerce on total retail sales of goods is forecasted to triple between 2014 and 2019. Generally referred to as a slow-growing market and the current economic challenges
that the region faces due to the persistently falling oil prices, any big global players have been a bit sceptical about launching e-commerce ventures in the market. However, with a growing internet-savvy base and high disposable income, retailers are slowly and steadily recognising the purchasing potential of the market.
Haritha Ramachandran, associate director for digital transformation practice at Frost & Sullivan, said: The global retail market is expected to be at $23tn in 2025 and growing at a compound annual growth rate (CAGR) of 4%. Going on, the e-commerce market will account for 18% to 19% of the market in 2025. The e-commerce market in the region is very nascent; there are 10 times more opportunities to be captured in the next year or so as compared to the global markets.
Currently, the Middle East market is dominated by few local players like souq.com and wadi.com, and certain global players like eBay and Amazon. But due to increased internet penetration and improved logistics, the market is entering a new phase for regional e-commerce. Frédéric Zielinski, general manager, Swisslog Middle East, explained: More people are shopping online now, and we witness how e-commerce is transforming our way of interacting with brands. Only in the UAE, we have 8.81 million active internet users with around 89% of the population using it daily, and most of the e-commerce purchases are actually done via smartphones.
Growing base
A research done by Standard Chartered points to a 30% topline growth year-on-year in e-commerce across the Middle East, where Saudi Arabia, Egypt, and the UAE are expected to be one of the fastest growing e-commerce markets globally in the next few years. Zielinski continued: More and more people appreciate the convenience of shopping from the comfort of their home; we already buy shoes, clothes, accessories, or electronics on the web, with smartphones and tablets being major drivers. Consumers can make purchases anytime of the day – no matter where
they are and what they are currently doing.
Industry experts believe e-commerce has fundamentally changed the nature of the retail supply chain; fast and accurate delivery of e-commerce orders is critical to ensuring customer satisfaction and thus realising a profit. Each e-commerce vendor and multichannel retailer has its own business model, corporate history, and goals; however, a customised intralogistics design has the potential to level the playing field to give any company the opportunity to grow in the e-commerce market.
One of the leading material handling systems supplier, SSI Schaefer ME, has been directly present in the region since 2001, with offices in Dubai and Jeddah. According to Matthias Hoewer, general manager for Middle East and Africa, at SSI Schaefer ME, 2016 was a year of stable business performance with selected growth in specific markets and industries like the e-commerce. Hoewer said: It is clear that independent e-commerce operators and retailers are pushing into the Middle East markets. Some of them are globally operating, others are new start-ups from the region. In the past, many of the e-commerce operations for retail brands have been provided as part of the commonly used third-party logistics (3PL) operations that distribute products into the normal retail supply chain. This trend of specialisation will continue as we have seen in other global markets.
Hoewer mentioned that the company will continue to grow the presence in the region specifically outside its home market of the UAE. We always focused on long-term development together with our global clients and this will continue in the years to come.
In November 2016, Emaar chairman, Mohamed Alabbar, and Saudi Arabias Public Investment Fund (PIF) together
launched a Middle Eastern e-commerce platform, Noon.com. Investors will initially contribute $1bn to the project, which will be 50% owned by the Saudi sovereign wealth fund. The other 50% will be owned by Alabbar and other regional investors. Noon.com will launch operations in Saudi Arabia and the UAE, with launches planned for other Arab countries later.
The rapid growth in the sector and the traction that local companies receive attracted huge investments in recent years. However, Madhav Kurup, CEO for MENA and South Asia region at Hellmann Worldwide Logistics, stressed on the fact that e-commerce is in a very nascent stage in the Middle East. We have done a market research in the region and was surprised to see that the e-commerce channel is not penetrated in a big way in the industry. So,
in terms of growth, it has been small although substantial. I think there is a huge potential for that going forward.
The company is currently working on creating an online marketplace for fashion brands, which are not so well-known in the region. Kurup said: We will provide them with a platform to give them market entry. We still see that there are a lot of gaps in the market here, as there are not so many varieties available here. We will also open, for the
brands, a showroom for the demonstration of their products in the Dubai Design District. It is outside the scope of logistics but we are using it as the market-entry model for some of these brands.
We have quite a few players coming in the market. Our solution is not necessarily providing an online platform; we will provide the entire back-end, including the banking, payment, audit processing, customer service, etc.
Future trends
Despite the growing interest, industry experts are still of the opinion that logistics remain a challenge for the e-commerce sector. Haritha said: Countries like Saudi Arabia and the UAE are working assiduously to transform the postal service and logistics sector by looking at setting up hubs and the like to ensure timely delivery. Also, the
countries are putting additional emphasis on data security in mobile transactions, which can be handled with the right levels of regulation and ensuring that people have the right awareness to ensure that the adoption levels improve.
In todays competitive world, errors and delays in order fulfilment can have a lasting negative impact on a brand. Zielinski pointed out that the trend towards customisation requires additional resources, and competition pressure these are just few factors that present new challenges for businesses these days. In addition to scheduled store deliveries of pallets and cases, retailers must factor split-case picking, item-level touches, and multi-line item sortation into their fulfilment processes to accommodate for demand fluctuations.
Finding ways to improve time-consuming tasks like picking and storing in a cost-efficient manner is a top priority for any growing business that relies on logistics. Warehouse automation is certainly widely deployed by large
businesses that have recognised a need for more cost-effective and less labour-intensive solutions to managing large amounts of stock.
Outside the warehouse environment, the key challenge for e-commerce retailers is the last mile delivery into several relatively small markets in the GCC region. Hoewer concluded: Within mature markets like Europe or North America, the last mile distribution moves from days to hours. In many GCC countries, we are still happy if we can reduce the delivery times from weeks to days. For e-commerce, both inside and outside the warehouse, delivery times to the end customer are crucial. Availability, price, and delivery times are the main decision criteria that determine if the order ends up with supplier A or B.