Tier-two e-commerce players to face squeeze

DUBAI

The consumer electronics industry in the UAE is expected to grow by just 1.69 per cent to Dh12.07 billion this year, from Dh11.87 billion last year, an industry expert told Gulf News.

However, Nikola Kosutic, Research Manager at Euromonitor, expects e-commerce to explode and said the market is ripe for it. The market is expected to grow by 21.21 per cent to Dh1.59 billion compared to Dh1.32 billion a year ago.

“It will take a lot of players by surprise. Offline retailers should be more cautious as internet retailing is a direct threat to them,” he said.

The online competition is expected to increase with the entry of Noon.com and the purchase of Souq.com by Amazon. “We will see how the top two players will play. There will not be too much competition in the beginning and the focus will be on overall growth. The focus will be on customer satisfaction, logistics and brand building but not on prices. In the next 5 to 10 years, this competition will become more important and the price competition will be intense,” he said.

Convenience is an important factor for consumers, especially in the Middle East, for online purchases. Kosutic said that there are so many challenges for store operators now. They have a lot to work on the margins. “Margins in the Middle East are very high when compared globally because of the very high markups. We expect to see pressure coming from the consumers which will directly reduce demand. We expect to see more push to the mall operators to reduce the floor prices, offering more rental terms, so retailers can offer a better price,” he said.

But this will be a challenge, he said because mall operators are not flexible. They are not able to respond to the changes in customer demand in a very flexible manner.

At the same time, he said that retailers want to have a presence in prime malls, no matter whatever the cost is, to entice consumers. They will lose money but they are using this as an advertisement cost or promotional cost. This is a trend which will explode in a couple of years, it is known as showrooming.

Showrooming is basically going to the store, touch and see the product and then go online and purchase. “It is happening now in the UAE but not to the extent we are seeing in more developed markets. That is attached to the consumer behaviour,” he said.

He said the retail industry is still quite consolidated in the UAE but in the e-commerce space, the two players will lead the market. “We expect tier-two players to be squeezed out and challenged,” he said.

Nadeem Khanzadah, Head of omnichannel retail at Jumbo Group, said that consolidation is happening in the retail space and e-commerce. Many retailers have closed some non-performing stores in the brick-and-mortar space and a similar trend will happen in the online space in the next couple of years. Smaller players will be swallowed by larger ones. “E-commerce is growing very well and the growth rate is around 75-80 per cent year on year. E-commerce is bound to grow and it is an organic growth. As the base in very small in the region, we see growth in e-commerce heading northwards,” he said.

He said that omnichannel [seamless integration of online and offline stores] retailers will survive despite the growth of e-commerce. Convenience, urgency, and immediacy — the top three reasons that shoppers buy in-store even after they find the same product cheaper online. “The trust and window to complain or replace the device is an important factor for consumers,” he said.