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UAE’s e-commerce is ripe for a change

The over-emphasis on branded and luxury could blur into something for all

Gulf News

It is no secret that e-commerce, while proliferating in the last five years in the region, is still broadly in its embryonic stages in terms of its actual potential.

Most platforms in the region have catered to the upper-middle income level segments of society, and therefore the product range offered for the most part has been the “branded” category. However, this has overlooked an important segment, which has been at the lower end, and for which there has not been much of a penetration at the online level. So far.

While there has been a paucity of data, it has been this segment that is registering the strongest growth rates, as witnessed by a consumer shift in terms of buying products online. This gets amplified when sluggish economic conditions arrive (a useful parallel would be how Dragon Mart soared in popularity once the 2008 recession hit).

However, there is a structural asymmetry that resides in the market, one that has not been fully explored by market participants as yet. Long having been used to focusing on “millennials” and the latest consumer trends, what has been ignored is the mobile penetration (92 per cent smartphone penetration according to IWS) and the consequent exposure to “aspirational lifestyle” living at the lower end of the population base.

The sensibilities of this segment, while primarily being price-sensitive, are contingent on a whole host of factors — from language-based content advertising, to demographic and nationality specific promotions and cultural symbols that do not necessarily translate in the English language.

The traditional retail model has drifted to being exclusive, not being able to cater to the melting pot culture of the city and the region, which partly explains the explosion in such online platforms in the last couple of years.

Geographical factors also play a factor in catering to this segment, as the arc of e-commerce entails access to far-flung areas, which currently pose somewhat of a challenge to adequate service.

Solutions to encompass this segment require an upending of the traditional retail way of doing business. It also requires an integration of price fluidity that allows for an ecosystem of stock clearance and dynamic price settings that can fluctuate at a moment’s notice.

Similar to the experience of Flipkart in India (not factoring into account the multinational demographic component), a smooth end-user experience is facilitated by “product bundling” that encompasses price dynamic, price flexibility and automatic discounting depending on the type and the number of products selected.

The Mohammad Alabbar-funded Noon’s entry into the marketplace will not only spark somewhat of a consolidation in the space (where some of the players will automatically overlap and wipe each other out), but heralds the beginning of a massive transformation of ecommerce “hypermarket” solutions, similar to the Alibaba phenomenon in China.

The devil, however, typically resides in the details, and as consumer preferences continue to shift, what is likely to emerge are a number of ‘ethnic’-based platforms that cater to various niche categories, as well as “price-sensitive bazaars” that compete on one variable.

Similar to the models of traditional retail, many of these platforms will ultimately co-exist with each other. What is interesting to note is that starting point of the online revolution in different parts of the world — in the US as well as China and India — the initial entry was at the middle-income segment of the market followed by luxury entrants.

In the UAE for the most part it has been the other way around. This order of evolution has interesting implications for the ecosystem in the months ahead.

The writer is the general manager of the Online Division at GCP Group.