Monday, 16 July 2012

E-Commerce in the UAE: Part 1

As someone who has spent a number of years in retail, e-commerce and traditional mail order businesses in the Middle East, it is interesting to always listen to conversations that tend to circulate about the future of retailing and online sales in the region.  
It is really, a story of extremes.  There are those who see e-commerce as the future and the only way to do things going forward and there are those who think it is a fad that’ll never occupy more than 3-5% of their sales.  The reality is that both of them have their heads in the sand.  
The problem with those who see the former argument as the way forward often base their opinions on what they see coming out of the United States or Europe, which this region isn’t.  We’re fairly unique here and the challenges faced by businesses here are not something that many European or American e-tailers face.  Those who argue the latter, probably haven’t realized they’ve already embraced it and most likely are buying tickets, booking hotels or benefited from a voucher that they’ve bought online already; all of which are industries that have largely grown because of online commerce.
I have therefore decided to contribute my two cents to the debate and have penned where I think e-commerce and retailing in the region is heading.  For most of this, I’ve not gone through Wikipedia, research libraries or consultant reports but rather have based it on the experience I’ve gained over the last thirteen years when I first started working in e-commerce and mail order before moving onto retailing.  Having said that, you may disagree with some of what I’ve said but I hope you appreciate we all see things through a slightly different lens at times so I’d prefer to agree to disagree instead of getting into never-ending arguments.
There are a lot of topics that I want to cover and have thus decided to break this write up into various installments that’ll be posted over a number of days for everyone to read.
Whatever thoughts I have on this topic are my own.  They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 1: What Sells Online
I said the in my initial introduction to this piece that the Middle East is unique.  That is indeed true.  In most countries of the world, where e-commerce initially thrived were industries that are blocked in the region courtesy of our regional proxies installed by our friendly ISP’s.  The industries were porn and gambling.  There are many I’m sure who have found ingenious ways to get around this but by and large, this meant the boom in e-commerce that most countries saw, didn’t quite happen here.

Is this the screen that slowed down the acceptance of e-commerce in the region?
Another factor the region was slow to start was that initially credit card penetration rates were extremely low in the region.  Back in the year 2000, trying to get a credit card was probably more difficult than getting a driver’s license (hearing stories of people failing their driving test 6-8 times was not uncommon back in those days).  With fewer people using a credit card, the only other option was Cash on Delivery (COD) which is what courier companies like Aramex offered.  COD though is cumbersome.  It still gives the customer a chance to back out of a transaction whereas the moment you’ve entered your credit card details into a website, you’ve more or less committed yourself to the transaction.  A lot of e-commerce sites do work on impulse as do many retailers.  The impulse quite isn’t the same if you’ve got a day or two to decide whether you want to part with your cash when the delivery person comes with your package.
Today, the story is quite different.  Everyone has got a credit card.  Correction: everyone has got multiple credit cards.  The bigger issue that most online retailers focused on then was trust.  Can you trust the vendor or merchant you’re transacting with, with your credit card details?  For many people, this is still an issue but has become less of an issue as the convenience factor has over taken the risk issue in most people’s minds. 
If you don’t use your credit card online today, you can’t benefit from the following:
  • Bonus Skywards miles for using your credit card to book tickets on Emirates Airline website
  • Hotel rates that websites like Expedia,,, etc. offer
  • Download music or Apps on iTunes (unless you use an Apple Gift Card, using another multimedia service or pirate the content)
  • Buy coupons from sites like LivingSocial, Groupon or Cobone
  • Saving time by paying your utility bills online whether it be through the bank or utility company's website or mobile App
What do most of these transactional traits have in common?  Most of them are service related.  The industries that have thrived initially in this region have been those that could sell services online.  The reason was that delivery could be immediate and prices could be competitive as a middle man could be knocked out of the equation.  Furthermore, scalability was possible so a single website could go from serving one customer to one hundred thousand customers fairly quickly since most of the processing of those transactions happens electronically.  

Emirates are one of the pioneers for e-commerce in the region. Hello Tomorrow.
When shipping a physical product though, things are quite different.  A lot of the processing of a transaction has to be done physically and as you grow in scale, the costs associated also increase whether it be logistics, sales co-ordination, warehousing or physical delivery expenses.  The amount of time taken to deliver also becomes more of challenge unless the logistics mechanism used isn’t ramped up immediately.  Horror stories of shipments placed on the websites of North American retailers for Christmas where the stocks either ran out or shipments were delayed well beyond Christmas surface every year.  Some online retailers have managed this better than others but it is any e-tailers worst nightmare.
The physical products that typically sell best online are those that are well known and easy to ship.  Everyone today knows what an iPad or iPhone and that it comes in two colours and different capacities.  That’s easy to buy online.  Would the same be true if you wanted to buy a Sony Bravia or Samsung Smart TV?  There are so many models, variations, picture qualities, etc. to think through and it is much more bulky that all of a sudden, it just seems easier to visit a store when buying a TV.  The same may be true in fashion, books and other products where you know the product somewhat before buying it and if you know it’s easy to ship would be the products that sell best online.
Concluding Thoughts on What Sells Online

What is clear is that the growth in e-commerce in this region has been largely driven by the service sector.  From what I’ve heard, Emirates Airlines probably does more business online in this country than any other e-commerce player.  The scalability, savings and distribution models support this in most cases.  That doesn’t surprise me and I don’t think it does anyone else.
In the next installment, I’ll move onto another topic: The Retail Experience.