Dubai's retailers move beyond shopping malls as e-commerce outlets gain traction

In recent years, the e-commerce industry in the MENA region has begun to take off. Dubai has been a leader in this field, with online trading a major potential contributor to the emirate’s IT industry, as well as to the overall economy. As e-commerce companies begin to flourish in the region, they hope to capture a bigger slice of the MENA retail market, worth $9bn in 2012 according to the online payment company PayPal, with the market expected to grow to some $15bn by year-end 2015.

Nuts & Bolts

Several factors have helped Dubai to establish itself as a regional centre for e-commerce. First, the emirate benefits from a variety of communications and logistics links – connections that have already made it a global centre for trade and transshipment. Furthermore, recent years of political turmoil in the region have served to underscore both the stability and safety of Dubai.

The global nature of the emirate’s population also gives it a competitive edge in international commerce. Proximity to markets like those of the Indian subcontinent, which have an abundance of IT talent and strong links to the most advanced IT hubs in the West, also help the population maintain international business relationships.

Major programmes to support and encourage IT, such as the Dubai ICT Cluster and the Dubai Smart City, have made the emirate a regional focal point for the industry. High penetration rates for smart-phones in Dubai and across the UAE are also a major plus, driving demand for mobile online services amongst a population of tech-savvy consumers.

The most recent full data on the e-commerce market in the UAE – the results of a Telecommunications Regulatory Authority (TRA) report from 2013 – show plenty of upside still in the sector. At the time of writing, 15% of the businesses surveyed across the emirates had online sales, while 18% had made online purchases. Websites were the major platform for sales too, accounting for some 10% of total sales, on- and offline, and 13% of purchases. Specialised online e-commerce platforms, such as Dubizzle and eBay, accounted for 5% of purchases and 2% of sales.

Stumbling Blocks

Several factors may be acting as inhibitors to growth in the segment. For one, many online products are not manufactured locally, and thus must be imported prior to final shipping, which adds to costs. Another issue is payment systems. In many countries in the region there is still a preference for cash payments, with a recent McKinsey report showing that around 90% of all transactions in the UAE are carried out in cash.

Another obstacle is the relative lack of expertise in the local e-commerce community. According to MENA Commerce, a consulting and training outfit based in the UAE, some 1000 e-commerce websites are already online in the UAE, yet only around 3% of these are operational. The reason for this, according to MENA Commerce, is the lack of awareness, knowledge and experience amongst those launching e-commerce start-ups.

While overcoming these obstacles will certainly be a challenge, it is far from an insurmountable one. New forms of payment systems are increasingly prevalent in the market, such as Hyper Pay, which allows for online, offline and mobile phone payments. According to the firm, Hyper Pay is now the fastest-growing payment system in the MENA region.

The requirement to import and then re-export goods is also increasingly being circumvented by direct ordering from the manufacturer, while the creation of an e-commerce community, aimed at exchanging experiences and expertise, is also ongoing. Indeed, MENA Commerce launched such a group in the UAE at the end of 2013.

Meanwhile, some new major websites have launched, offering platforms for both buying and selling third-party goods and services, as well as offering their own content. In the former group is jadopado.com, an online electronics retailer based in Dubai. Founded in 2010, the company originally offered same-day delivery and the option for payment on delivery. It won customers over by offering the kind of instant gratification of a conventional retail experience without the inconvenience of travelling to the store, while also taking account of the local preference for cash payments. However, in 2014 JadoPado ceased offering these options as part of a planned complete shift to e-commerce.

In the meantime, the market has become more competitive, with e-retailers such as Alshop, Najer and LetsTango hoping to gain an edge in competition over delivery speeds. Another online retailer that is becoming increasingly popular is namshi.com, which offers the option of paying cash on delivery for its retail clothing business. The company’s growth in the region has been supported by Rocket Internet, a Berlin-based start-up incubator programme.

Streaming In

On the content side, another new development is icflix.com. Taking its cue from the US online TV and movie streaming site, Netflix, icflix hopes to establish Dubai as a centre for Arabic language content, though it also provides Hollywood, Bollywood and other South Asian programming. The company operates an integrated, cash-on-delivery system, as well as operator billing.

Like Netflix, icflix has also begun producing its own content, with its first venture being a film about a young HIV patient. While the funding for the film was secured in Dubai, the actual production was carried out in Egypt, where costs are considerably lower. The firm also has operations and facilities in the Czech Republic and Morocco.

A recent Ipsos survey showed a penetration rate for online streaming of around 60% amongst UAE internet users in 2013, compared to 63% in Saudi Arabia and 68% in Kuwait. There is clearly regional demand for high-quality content delivered over a stable platform with a built-in flexible payment system. For many e-commerce outfits – and indeed many companies in the IT sector in general – a shift is taking place as Dubai increasingly becomes a headquarters for financing and front offices, while much of the rest of these companies are based in other countries. Yet the UAE and other highly networked GCC markets remain the main final point of delivery.

Regional Interest

Major regional telecoms companies have also realised the potential here. The Emirates Telecommunications Corporation (Etisalat), the Saudi Telecom Company and Qatar’s Oordeoo are all looking into online ventures. For its part, icflix recently signed a partnership with local provider Emirates Integrated Telecommunications Company (du) to stream films using du’s network.

These kinds of link-ups will likely become more frequent in the years ahead, as innovative e-commerce platforms seek to prove their worth to the big telcos. Given current saturation levels on mobile subscriptions in Dubai, both du and Etisalat are finding that content is a key way to keep their customers – with obvious benefits for e-commerce players.

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The Report: Dubai 2015

Telecoms & IT chapter from The Report: Dubai 2015

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