The rise in the usage of smartphones and handheld devices have increased the e-commerce trend in the Middle
East significantly. More people are shopping online and the e-commerce trend is slowly changing the ways we interact with brands. Dubai-based online retailer, Souq.com, was considered to be one of the flagbearers of the e-commerce growth spurt when it was started in 2005 by Ronaldo Mouchawar alongside Jabbar Internet Groups Samih Toukan and Hussam Khoury.
When it was initially launched, it was categorised as an auction site that was linked to the Arab internet portal, Maktoob. In August 2009, Maktoob was acquired by Yahoo, which eventually led to Souq.com being spun off as a part of Jabbar Internet Group. Early 2011 saw Souq.com revolutionise its business model and emerge as an e-commerce marketplace with a fixed price model. It finally launched its retail division in late 2011 and since then there has been no looking back, according to Mouchawar.
In an exclusive interview with Logistics News ME, he continued: The inspiration for the brands name literally translates to the marketplace in Arabic and simply put, it is what our brand is in its true essence. Over the last 12 years, we have remained committed to our vision of connecting people with innovative products, amazing deals, and ground-breaking technology.
On March 28 this year, global e-commerce giant, Amazon, finally decided to acquire Souq.com for an undisclosed amount in order to gain an entry into the thriving Middle East market. The retailer had its eyes on the market for quite some time and finally announced the big move towards sealing its footprint in the high-growth territory. In an exclusive with Logistics News ME, Teal Pennebaker, Amazon spokesperson, mentioned that the retailer had customers in this region for a long time that the company has served from its other global websites.
By acquiring Souq.com, we will be even closer to our customers in the Middle East and will be able to serve them even better. This is a region weve been interested in expanding into for some time, and were really happy we found such a great company to partner with in Souq.com.
The US-based retailer, along with Indias Flipkart, entered talks with Souq.com in 2016 in a deal that would have been worth about $1bn, according to Bloomberg. But in January 2017, Amazon and Flipkart walked away from
the acquisition talks after disagreeing over price. Discussions between the two re-ignited in March this year, with reports emerging that Amazon was mulling making an offer for entire Souq.com, which originally was looking to
sell around 30% of the company.
Adel Belcaid, principal at AT. Kearney, explained: Amazon is known to have done several acquisitions before, but it is also known to be very selective about them and for being fully capable to launch greenfield operations from the grounds up when potential acquisitions targets are not convincing enough. The fact that Amazon acquired Souq.com is a testament to the quality of the market strategy and execution capability of home-grown start-ups and is likely to instigate additional venture and corporate capital interest in local start-ups in e-commerce and other sectors of the economy, which is good to take the regional entrepreneurship scene to the next level.
In order to thwart the entry of Amazon in the region, Emaar Malls, the shopping centre unit of Dubais largest property developer, Emaar Properties also bid for Souq.com. The retail division of Emaar Properties, run by
Mohamed Alabbar, offered about $800mn for Souq.com, which included a convertible deposit of $500mn, according to various media reports. Alabbar is currently heading a $1bn technology investment company formed with other regional investors, and raised $1bn from investors, including Saudi Arabias sovereign wealth fund, to create e-commerce firm Noon.
But Mouchawar chose to go with Amazon even if the bid was significantly lower than Emaar Malls, and explained: We chose to go with Amazon because they are a great fit for Souq.com. I cant think of a better company to help us continue to grow and provide the best possible service for our customers and sellers. We are guided by many of the same principles as Amazon, and this acquisition is a critical next step in growing our e-commerce presence on behalf of customers across the region. By becoming a part of the Amazon family, well be able to vastly expand our delivery capabilities and customer selection much faster, as well as continue Amazons great track record of empowering sellers.
Belcaid believes that the acquisition in itself will not create the opportunity, but will validate it and shed long-due light over it. The main opportunity lies in the e-commerce, which we have sized and highlighted in our study in 2016. In addition, as Amazon and its local competitors work to launch and develop their e-commerce services, we can be sure to see spill-over developments in the key areas of digital payments, smart distribution, and lastmile
logistics, which are all critical ingredients of a successful e-commerce offering.
Secondly, an attractive and diverse product portfolio to draw more customers online is a must. To date, more than 90% of the GCC ecommerce market is in only four product categories, including consumer electronics, fashion,
lifestyle, and health and beauty. In contrast, these categories make up half of the US e-commerce market, with categories such as pet care, toys and games, food and drink, home improvement and gardening, and home
furnishings making up the other half. Clearly, there is room for regional online retail expansion. To entice more customers to shop online, retailers must offer a more diverse product selection, capitalising on the long-tail advantage of e-commerce.
Finally, e-commerce players will need to review their distribution strategy (make versus buy), including assessing the need to build new fulfilment and logistics facilities, capitalising on technology, and forging strategic partnerships
with logistic providers. They can adopt one or more of these approaches based on their business strategy.
Future ahead
Mergers and acquisitions are a way for some companies to improve profits and productivity, while reducing overall expenses. While good for business, in some cases, they are not good for employees. With a merger and acquisition
come the requisite lay-offs, leaving many employees worried about their positions or the changing culture of the company. But Pennebaker assured that Amazon absolutely loves the work that Souq.com team has done so far.
Souq.com is still a standalone site. Souq.com and Amazon are both brands that customers value and we will always work to do whats best for customers. We are very excited to work with the local team. We think this deal will be great for the region and well be hiring even more employees locally. We already have a small office in Dubai and Souq.com has its headquarters here.
As of now, Souq.com will continue to operate its current website as it is. Mouchawar further continued: Its still an initial phase for Souq.com and Amazon. We will continue to operate our current website as it is with the same partners. This is a milestone for the online shopping space in the Middle East. As we take this next step in the journey with Amazon, our customers will remain our key focus and we will continue to deliver a seamless online
shopping experience.
We have created a great shopping experience for our customers and we are looking forward to working with Amazon to bring more products and offerings to customers even faster.
Despite strong fundamentals, the GCC is one of the worlds most challenging e-commerce playgrounds. With some of the worlds highest levels of GDP per capita, the region is home to many people with large disposable incomes.
Yet, Belcaid mentioned that several obstacles are preventing the regional e-commerce market from reaching its full potential. Consumer awareness issues, shortcomings in the payments infrastructure, and logistics hurdles
are the main ones. Most retailers have inadequate warehouse coverage across the region for the rapid delivery of products (less than 24 hours) that more customers are demanding. With all these barriers, it is no surprise that e-commerce in the GCC region today accounts for around 2% of the total retail market, which is considered very low.
Except for Souq.com and a couple of specialised e-retailers such as namshi.com, there wasnt much e-commerce activity to talk about in the region recently. However, the market is a now embarking on a new, more significant trajectory. With the arrival of Amazon in the region, but also the launch of noon.com and the increased e-commerce activity from traditional retailers, we are confident the e-commerce activity will increase considerably in the region.
It is currently too early to wrap the heads around the further strategies of Amazon and Souq.com for the region since the acquisition is expected to close by the end of the year. With the deal appearing to receive the endorsement of the Dubai government, which is increasing focusing on technology, the acquisition represents a big space with room for a lot of winners. Pennebaker concluded: We are focused on working with Souq.com to create a great e-commerce experience for customers in the Middle East. We are looking forward to both learning from and supporting them with Amazon technology and global resources.