Sectors with high E-commerce potential

Sectors with high E-commerce potential

People in Dubai and Saudi Arabia love to shop in malls. Dubai has two shopping festivals in a year and the number of malls in GCC is growing, as more companies prefer brick and mortar stores.

In the GCC, e-commerce is still at its nascent stage. According to BQ Doha, while 90% of global e-commerce sales come from Asia-Pacific, North America and Western Europe; while GCC accounts for a mere 2% of total retail sales.

UAE has a strong B2C infrastructure and enjoys the highest smartphone, Internet and card payment penetration. According to Emirates NBD, 60% of GCC e-commerce volume comes from UAE. Saudi Arabia comes second, and AT Kearny has listed that country as being among the top 30 markets for e-commerce. The following table shows the size of online retail market in GCC countries.

Table 1 : Size of Online Retail Market in GCC (USD Billion) Countries

Source: PayPal Insights: e-commerce in the Middle East, 2013

All GCC countries were among the top 35 richest countries in the world in 2012 based on GDP per capita (PPP) with Qatar ranked first and Kuwait 15th. GCC countries consume as much power as the US and Euro Zone countries. ICT infrastructure development has improved Internet speed, bandwidth per Internet user and improved security.

The population in the GCC is growing, so is Internet penetration and mobile Internet access. The population of tech-hungry young people, with a taste for branded products is also on the rise. Consumers are increasingly aware about product offers and prices through user reviews, product comparisons and ratings. Online shopping has become secure. Retailers are becoming aware of benefits such as lower operational costs, wider customer reach and ease of switching suppliers and vendors. All these have opened up a huge potential for e-commerce in the region.

There are several sectors that can tap online selling:

Healthcare
There is a huge demand and supply gap in healthcare. The private sector is developing health infrastructure and due to this there is huge scope for e-retail like online bookings and appointments, maintaining medical records and availing discounts.

Pharmaceuticals
This sector has not been attracting online sellers. The best way to start could be In-store kiosks, web orders with e-retail model. Pharmacies can adopt e-retail where orders can be placed on line when stock needs to be replenished. It will be a good model to be adopted to prevent loss of customers.

Education       
Education is seeing a growth phase with Gulf countries increasing expenditure on education and encouraging private investment. Again, there is a demand and supply gap between workforce skill sets and industry requirements. To fill the gap, several steps like tie-ups with global universities, online study materials, web-classes and online correspondence courses could be initiated. Literacy rates in the GCC are increasing leading to higher female readership and greater acceptance of e-books. These could boost online education and fill the industry gaps.

Clothing and Cosmetics
Gulf countries are generally conservative about women venturing into public places on their own. Cosmetics companies can fill the gap by introducing online web-catalogues accepting online orders, and provide shipping, to boost their sales.

Gaming
Online gamers have increased. Players in Qatar like to play in gaming lounges while those in UAE like to buy and play at home. T-break Media, the host of the first International Gaming Convention in Qatar has estimated that the gaming industry in GCC is worth USD 2.6 billion and is expected to triple in ten years! Game developers can tap this potential through online platforms.

Online stores by hypermarkets
The GCC has about 150 supermarkets and hypermarkets. The retail demand is very high. Retailers in Saudi Arabia prefer physical model, as online channel did not work for them due to low consumer awareness, low demand, poor Internet penetration and low credit card usage. However, there are areas that can be tapped for online penetration. The restrictive driving regulations for women are a good potential for retailers to make delivery of groceries through online purchases.

The potential for online hypermarkets, supermarkets and convenient stores is huge as they can offer a comprehensive product range in a single platform. Web promotions, and group buying or the bricks and clicks model, third party logistics operator, will help consolidate costs.

The sector scope is huge. However, there is a gap between e-retail and how consumers perceive e-retail, due to which it is not so popular.

Takers for e-retail in the GCC are mostly the youth, women and single men.

When it comes to sellers, international players like Amazon and e-bay and local players like Souq in UAE, Jadopado, LuLu, 3M Gulf, Cobone, Alatoolmuscat etc. are doing well. Group buying sites such as Cobone, GoNabit, Groupon are very popular, especially for hotel bookings, dining, holiday deals, spa and beauty.

Broadband and smartphone penetration is increasing. People now have access to fiber-to-the-home (FTTH) technology that provides higher bandwidth and faster Internet experience. Security for online payments has improved. Websites offer cash-on-delivery, Debit/Credit cards, online banking, invoice, PayPal, cheque, gift cards, vouchers, bit-coins and crypto-currencies, for online shopping. As per Marmore Report, GCC Online Retail, “Secure online payment firm PayPal, in association with Aramex, launched its ‘Shop & Ship’ service in the GCC countries that enables consumers to link their PayPal accounts to their local Visa, MasterCard, or Amex debit / credit cards that are issued locally. This enables consumers to make faster and more convenient online purchases from overseas vendors”.

However, a major drawback is the lack of support from advanced logistics network, especially in Saudi Arabia. This is due to labor issues and poor logistics infrastructure. A second drawback is the gap in demand and supply of technical experts in e-commerce and customer support roles, which can be filled by nationals who are being encouraged to take up higher education in these areas.

In the UAE, a legislative and regulatory framework has been introduced to facilitate e-commerce growth. Once the other GCC governments follow suit, several areas like trademarks, copyrights, cyber-frauds, payments security and data theft need to be addressed to support its growth.

The fact that e-commerce helps reduce operational costs and infrastructure is yet to be fully perceived by retailers in this region. Adoption of better promotion strategies are required to boost sales of products like clothing, books, consumer durables and entertainment which are less popular than consumer electronics and travel bookings that sell better online.

All that is needed is wider consumer awareness and a shift in preference to online convenience shopping for daily consumer durables and eatables as well as other areas to make e-commerce a success.