From likes to buys: How the Middle East's retail sector has evolved

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As shoppers in the Middle East enjoyed black/white/yellow Friday sales online this weekend, many of the physical retailers responded with their own shopping bonanzas to attract customers into their stores.

Discussions on retail no longer pit e-commerce against instore shopping, instead, the landscape has evolved to combine both into a “customer journey”, especially in the Middle East.

“If you look back five years, there would have been hype about online versus instore shopping habits,” says Norma Taki, head of retail deals at PwC Middle East. “But now, it is more about the customer experience and the customer journey includes both online and offline.”

In a PwC report, which analysed shopper habits in Egypt, Saudi Arabia and the UAE, there was a noticeable dip in instore shopping when e-commerce picked up in the region, but this trend has now reversed.

In 2013 only 37 per cent of consumers in the three markets shopped solely instore, but this had increased to 43 per cent by 2017.

Touch and Feel

Shoppers across the Middle East and North Africa (Mena) still prefer to touch and feel the products before committing to a purchase, a trend fuelled by a frustrating returns process that favours the retailer. 

And so many brands are developing strategies that aim to combine their online presence with the physical retail space. ‘Click and collect’, where shoppers buy an item online and collect instore, has been one offering that has proven popular with customers.

For The Luxury Closet, an e-commerce site that offers pre-owned designer items, about 30 per cent of its UAE sales are click and collect and the company is now looking to open a physical space to showcase its products.

“What we want to do is build an experience and we’re using retail to build that experience,” says Kunal Kapoor, chief executive officer at The Luxury Closet. “We’re going to expand this click and collect facility to offer a proper showroom and focus on particular products that customers want to touch and feel.”

The physical space is where the brand and company “comes alive” he says, and it is a trend that other companies have also noticed.

Share This Space, an online-booking platform for designers and small-to-medium-sized enterprises (SME) to find physical spaces for pop-ups and short rentals has seen a rise in demand from e-commerce sites. Launched three years ago, it recently launched a dedicated space in Dubai Mall, offering e-commerce retailers the physical space for “brand activation”.

“These places have a high footfall and we make it accessible to small startups who have never had access to these spaces,” says Shahzad Bhatti, founder of Share This Space. “We’ve allowed some of the smaller brands to access really amazing spaces and now we are moving forward, we’re trying to merge e-commerce and the physical space.”

Amassing customers, attaining loyalty and ensuring brand recognition can be difficult when done online alone.

“The retail environment has changed, people want to come for an experience, they want to see what they’ve liked online or on social media and then make the purchase physically,” says Bhatti. “The online platform allows them to pre-plan while instore, they can try and buy before making a decision.”

Influencing Shoppers

A report from Bain and Company and Google values Mena’s e-commerce market at $8.3 billion, of which the UAE and Saudi Arabia account for 60 per cent of that together. Close to 80 per cent of products available online in the region are concentrated in electronics, fashion and lifestyle and beauty.

With an internet penetration rate that exceeds 90 per cent in both the UAE and Saudi Arabia, and a smartphone penetration rate above 60 per cent, the majority of shoppers begin their journey online, either through search engines or social media likes.

The UAE has a social media penetration rate of 90 per cent according to the Bain and Google report, while in Saudi Arabia that figure stands at 75 per cent. By comparison, the US has an internet penetration rate of 85 per cent and a social media penetration rate of 71 per cent.

Social media influencers appear to have a big impact on the retail sector in the region. Instagram’s own data reveals there were more than 63 million users on its platform across Mena in 2017, equivalent to 10 per cent of its total global users.

“From a regional perspective, we’re leapfrogging through online and social media from a customer journey,” says Taki.

Globally, only 37 per cent of shoppers use social media to find inspiration according to the PwC report, this figure jumps to 78 per cent for the Middle East, and influencers in the region charge the highest rates in the world for a single post at an average rate of $274 per post compared to $214 in the US, which came second in the rankings. Their significance in advertising was noted earlier this year in the UAE when the National Media Council issued two mandatory licences for social-media influencers.

“The discovery phase is being done online, we’re spending millions of dollars on marketing, on social marketing,” says Rania Masri, chief transformation officer at Chalhoub Group, one of the Arab world’s largest franchise operators of luxury brands. “If the offline is not reflecting the full experience, then you’re wasting your time.”

Combining the Two

Chalhoub recently launched its own incubator, the Greenhouse, to engage with technology startups in the retail sector in a bid to incorporate technology-backed solutions to its offerings. Earlier this year, the company partnered with UK online retailer Farfetch, to boost its online presence.

“Traditional retail has to evolve, if you’re going to try to compete offline with the speed, price and convenience of online then you’re going to fail,” says Masri. “You want to complete the experience with the elements you can’t give a consumer online: I want you to interact, smell, sit and be wowed by visual merchandising instore.”

But this is a strategy that seems to work best for luxury items and products that are not price sensitive.

The region’s largest e-commerce vertical is electronics, which accounts for $2.9 billion of online sales according to Bain and Google. Users tend to go instore to experience a mobile phone for example, and then make the purchase online for the lowest price.

Regardless, this converging of the online and offline continues to take shape. Most recently, Majid Al Futtaim, the developers of the Mall of Emirates acquired wadi.com – an e-grocery website. Dubai Mall owner Emaar acquired a 51 per cent stake in namshi.com for $151 million last year. Emaar’s chairman Mohamed Alabbar is also planning to build a Dh10 billion complex, twice the size of Dubai Mall, as the world’s first digitally-enabled shopping mall, backed by his own $1 billion e-commerce venture, noon.com.

Growth of E-commerce

E-commerce still accounts for just 1.9 per cent of total retail sales across Mena, so there is vast room for growth. One of the biggest inhibitors of e-commerce in the region has been cash on delivery (COD) due to low customer trust and lack of online payment solutions. In Saudi Arabia it is still the most popular method of payment, with some 90 per cent of all retail transactions conducted online paid via COD.

Logistics can also be tough in the region with underdeveloped postal services and poor addressing systems while delivery costs are generally high.

The limited product selection has also held back e-commerce growth according to the Bain and Google report, but that will no doubt change as Chinese retailers begin to eye up the Middle East market. AliExpress with its 100 million price-conscious products has already been making a dent in the market. Launched in August this year, it amassed 150 million subscribers in its first month of operation.

But as the ecosystem develops, online sales will likely flourish, driven by the region’s young population.

“The youth is embracing newer and advanced technology, adding on to their convenience in every aspect of their lives,” says Matt Zhang, head of the Middle East at AliExpress. “With the experience of many countries, the trend of mobile shopping continues to grow, and the shopping behavior is progressively leaning towards the development of the e-commerce industry.”

This is a sentiment shared by Ammar Waganah, chief executive officer at Dokkan Afkar, an e-commerce site that sells unique items operating across the GCC from its base in Jeddah.

“E-commerce is the future, it’s going to boom in the region, in the Middle East and everywhere across the world,” he says.  “All we need for [it] to boom is infrastructure and that is happening right now, payment gateways are happening, logistics are coming into the market and it’s getting better.”

How big an impact the growth of e-commerce will eventually have on the physical retail space remains to be seen, until then, both seem to be keen to work in tandem.

Wamda Capital has invested in The Luxury Closet

 

 

 

 

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