Inside the Gulf’s digital retail revolution

Middle East Market
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Why the incredible growth of e-commerce in the Middle East during the pandemic does not necessarily spell disaster for bricks and mortar stores.

If there is one business sector that has thrived during the global coronavirus pandemic while others have struggled to survive, it is surely e-commerce.

The health crisis has resulted in a blistering acceleration in take-up among consumers who have been frightened to venture out to the shops and analysts say it’s a trend that is here to stay.

But rather than kill off the traditional brick and mortar retail world, industry analysts believe it should drive more innovation with malls having to think harder about what they offer.

Coronavirus has also altered the e-commerce landscape for SMEs who have to up their digital presence, or create one from scratch in order to compete with the likes of Amazon or Noon.

As part of their recommendations for SMEs in this predicament, industry analysts recommend they form an association to set up a common digital channel through it.

“There has been an unprecedented adoption of online shopping in this pandemic,” said Akshay Chopra, vice president of innovation and design, Central and Eastern Europe, Middle East and Africa at Visa.

“In the Arab region, two in three consumers now do at least part of their shopping online.”

In fact, online retail in the region is now forecast to become close to a $50 billion market by 2025, according to consultancy firm Kearney.

Even before coronavirus became part of our vocabulary, the Middle East and North African e-commerce market was set to grow to $48.6 billion in 2022, up from $26.9 billion in 2018, according to a Visa white paper.

About 80 percent of consumers in the UAE have changed their habits and shifted towards online purchasing, added Christine Harb, Global Brand Council at Visa.

Christine Harb, Global Brand Council at Visa

Analysts who spoke to Arabian Business say e-commerce is here to stay with Harb saying 50 percent of consumers surveyed will be sticking to their newly acquired habit of digital spending.

“The trend [of e-commerce] cannot be fully reversed. It may drop down a little now that people can go to physical shops but we don’t believe it will go back to the levels it was in February or March before the pandemic really hit the region,” said Debashish Mukherjee, Dubai partner at Kearney.

“Part of the reason for this is habit development. A variety of studies out there indicate that after 70 to 75 days, practices become habits and this has gone for five to six months,” added Mukhergee.

Debashish Mukherjee, Dubai partner at Kearney

This growth in e-commerce, however, does not necessarily spell the end of bricks and mortar. “Despite the growth in e-commerce in the MENA region, physical retail still accounts for the majority of retail volume,” said Chopra.

“You hear so much about the death of bricks and mortar stores; that simply is not true. The share of e-commerce is growing for sure but physical retail is still dominant in our part of the world,” he added.

Instead of one negating the other, the future of retail will be omnichannel with the digital and physical retail realms complementing each other, analysts agree. “There is no battle between physical and online retail but conversions where each builds on the strength of the other,” said Chopra.

Scott Cairns, managing director of Creation Business Consultants, related a story about a client which sums up the opportunities that e-commerce has presented traditional brick and mortar retailers.

“We’ve got a retail client who obviously was shut down over the April period when everything was locked up, so she went online and built an online store and was doing really well while things were locked down.

“Suddenly all the retail opened up again, but remarkably her online store sales have continued at the same rate and basically added to her rejuvenated store sales, so she just bolted on an extra about 25 percent revenue for nothing,” he explained.

Mukhergee gives the example of how the rise of home movies back in the 1990s did not destroy cinemas nor did food delivery options put an end to dining out. “Memorable experiences will always survive,” he said.

About 80 percent of consumers in the UAE have changed their habits and shifted towards online purchasing

Mukherjee advises mall operators who are worried digital retail will put them out of business to focus on providing consumers with unique experiences rather than just access to the brands they can find online anyway.

“Malls have to think of themselves as experience centres rather than real estate and malls. It is important for them to think beyond putting brands together,” he said.

Having unique entertainment facilities, being in proximity to an iconic destination or being in a location with no competition are all differentiating experiences, according to Mukherjee.

Some retail segments are more inclined towards e-commerce.

Food and groceries were the fastest growing digital retail segment during the pandemic. “We believe this trend will stay, especially for convenience and price discovery reasons. You understand pricing better when it is on an app where you can compare versus supermarket shelves,” said Mukherjee.

“The other two digital retail segments which were already large and are still growing fast are electronics and apparel,” says Mukherjee. “We believe they will continue to grow fast since consumers have grown more comfortable buying such items online especially with standard brands and sizes in apparel,” he adds.

However, large ticket or big sized items such as furniture will continue to be purchased more in physical stores. “It is not that you won’t browse or explore such items digitally but, with furniture, you really need to see how they look and what their size is,” he says.

Although the automotive industry is incorporating digital elements on its retail platforms, Ramzi Atat, regional head of marketing & communications at Aston Martin, says “consumers prefer visiting our showroom and having the lavish experience we provide when buying an Aston Martin”.

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