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Published on: Dec 2018
The Middle East e-commerce market is heating up with the increasing competition, driven primarily by the UAE and Saudi Arabia. According to estimates, from 2015-17, the MENA online retail market went from $4 to $6 billion. By 2020, the MENA e-commerce market is estimated to surpass $15 billion at a 35% CAGR. The UAE and Saudi Arabia will remain the largest and fastest-growing e-commerce markets in the region, with consumer electronics and fashion being the strongest categories.
In the background of these developments, the UAE arm of RedSeer, the consumer internet focused research and advisory firm in emerging markets has come out with an e-commerce study of the MENA region. RetailME brings a report
MENA’s online retailers have had to contend with myriad challenges – be it poor transport and payment infrastructure, low customer awareness and trust limited selection – which contributed to stunting the online growth. However, funding from significant investors recently is leading to a wave of infrastructure development and substantial investment in building a strong value proposition for the customer-all of which will drive rapid growth in online across the region.
Growing competition
SOUQ continues to be the market leader with 15%+ market share. It is continuously increasing it’s presence in GCC and North Africa. Jumia with it;s large customer base coming from African countries is the second player with 8%+ market share. noon has picked up fast in alst one year to gain 3%+ market share. It has launched festive offers like ‘Yellow Friday’ in 2018 to compete with ‘White Friday’ offers from SOUQ. In addition to promotions, it has also leveraged the group’s- Emaar’s – physical assets by hosting the brand on prominent landmarks, specially in Dubai.
Namshi is the leading fashion player in the region. The company has been recently accquired by Emaar Malls, which has a strong hold in Offline retail. The two together, are expected to drive Omnichannel retail in the coming years. From being a marketplace, Wadi’s focus has now shifetd to Online Grocery in KSA. UAE based Majid Al Futtaim – with it’s Carrefour of presence having a strong hold in grovery sourcing, warehousing, and Offline retailing – recently bought a strategic stake by investing $30Mn in Wadi. This partnership is an example of symbiotic relationship where, Majid Al Futtaim brings it’s grocery experience and Wadi it’s Online experinece to differentiate in the market.
International Cross Border Trade(CBT) continues to contribute significantly to the MENA e-tailing market. However, it’s share has dropped to 30% from 35% in 2016.
Category Split
The UAE and KSA with 70%+ representation of MENA e-tail market observe online retail market penetration of ~3% with the highest level seen in the electronics segment. Grocery category has gone fastest in the last one year with 150% y-o-y growth, albeit on a small base. The early success of Wadi, Nana, ElGrocer, GetBaqala in an indication that vertical players will dominate, With the startegic advantage of handling fresh category and isnspiration coming from China market(Hema), Omnichannel players have also started taking the play seriously, which is expected to fuel the growth in the coming years.
The Online home category is nascent growing at CAGR of 35% to 40%. Landmark group and IKEA lead the Omnichannel. Pureplay focussed players like Wayfair in the US or Pepperfry and UrbanLadder in India are yet to emerge and drive the market to grow in triple digits, as seen in the case of grocery. Electronics continue to dominate the market with a 60% share, followed by Fashion at 25%. This share is continuosly shifting in favour of fashion as the category offers better margins and increasing acceptance from locals.
Revenue Sources
MENA e-tail palyers are losing – $5.5 to fulfil an order; changing category mix and delivery model give scope for improving the margin. MENA e-taiul category mix will slowly observe higher contribution coming from non-electronics categories, which attract higher commissions. Increasing dependence on own delivery network and hyperlocal deliveries will further push up the contribution margin. Notably, the average order value of MENA players is roughly twice that of Indian players. The MENA players are losing higher per cent in contribution margin right now. However, profitability is expected to improve once they scale, reduce promotions and improve their in-house delivery operations.
Customer Feedback : Fashion
More than 20% of the fashion spend by digitally active customers is observed to be coming from the online channel. SOUQ has a high rating as the most popular portal for shopping fashion online with ~50% reach;Jollychic, Namshi, Jumia were the other popular fashion portals. In Egypt, Jumia performs at par with SOUQ. Over 50% customers in the UAE and KSA and more than 30% in Egypt caompare products across both the channels(online and offline) before making a fashion purchase decision, which shows omnichannel is the way forward.
Customer Feedback : Electronics
Over 25% of the electronic spend by digitally active customers is observed to be coming from the online channel. SOUQ is rated as the most popular portal for shopping electronics online with ~65%+ reach. Jumia, noon, Wadi, Jollychic, eXtra and Awork were the other popular electronic purchase portals. In Egypt, Jumia performs at par with SOUQ. Over 50% customers in the UAE and KSA and more than 30% in Egypt caompare products across both the channels(online and offline) before making a purchase decision.
Customer Feedback : Electronics
Active online grocery shoppers purchase 20%+ of grocery online. Wadi and Nana direct are popular in KSA. SOUQ, ElGrocer in the UAE and GetBaqala in Bahrain. Lulu and Danube emerge as popular omnichannel players offering services in the region.
~40% customers look at both online and offline channel before making a home product purchase decision. More than 15% of the online shopping involved click-and-ollect(purchase onlineand collect from offline store). Customers look out for services – online, offline view, slot booking for delivery before making a purchase decision.
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