While high levels of disposable income and a discernibly popular shopping culture keep the UAE’s retail sector on par with — and in many cases, ahead of — other developed markets, online shopping has yet to properly take off across the country. The potential undoubtedly exists, and is apparent from the demographics, wealth and internet penetration in the UAE.
Led by young internet-savvy consumers equipped with smartphones and on-the-move internet, visiting shops with the click of a mouse is now much easier than ever before.
In a recent study of the UAE online retail community, MasterCard found that the percentage of respondents who access the internet for retail grew from 29 per cent in 2009 to 42 per cent this year. Up to 48 per cent of those buying online in the UAE believe most goods are cheaper online than they are offline; yet 45 per cent still don’t feel secure shopping online.
While the age group driving the surge in online retail sits comfortably between 25-44 years, it is the 35-44 age group that is buying more items more frequently online.
Categories leading the growth in the UAE (as of 2010) include airline tickets (74 per cent), hotel bookings (66 per cent), home appliances and electronics (32 per cent), fashion (34 per cent), restaurants (32 per cent), and supermarkets/super stores (32 per cent).
A recent Credit Suisse Global Wealth Report found that wealth per adult in the UAE stood at about $150,000 (Dh550,994) at the end of 2010 — higher than that of even such developed nations as the Netherlands. Google statistics show that the UAE represents five per cent of internet users in the Middle East — with less than one per cent of the region’s population.
The nation has an online penetration of 69 per cent of the population, as compared to the regional average of 33 per cent. The average person in this country spends three hours on the internet per day as compared to two hours watching television. And roughly a million people are joining the internet community in the region each month.
No wonder some up-and-coming online businesses, particularly in niche markets, are very optimistic about the future.
Ahmed Alkhatib is the founder and CEO of MarkaVIP, an online shopping club that provides discounts on lifestyle brands. The company recently secured $5 million (Dh18.3 million) in funding — the largest investment of this kind for an internet company in the region. Alkhatib spoke of the significance of the investment. “It validates our business and gives us credibility at the level of one in Silicon Valley or anywhere else. It proves that there is a market for e-commerce that investors are aware of, looking to benefit from, and tapping into. Many companies that have come a long way in a short space of time and activity and penetration in this market is growing rapidly and catching up quickly.”
Similarly bullish is Dan Stuart, Managing Director of LivingSocial Middle East, a website providing daily entertainment and leisure deals. Quarterly research conducted in September found that 75 per cent of UAE respondents felt confident buying from local websites, as compared to 57 per cent in June.
“People no longer have to look outside the region and admire leading edge online businesses — it’s here,” he says. “The next couple of years will be an extremely exciting time.”
The trend extends to other segments as well. The success of a highly specialised and targeted internet business is a strong indicator as to the general prevalence of an online shopping community. Mona Ataya is the CEO of Mumzworld, an online retailer of goods for toddlers. She comments, “Over the last few years alone we have seen a number of smaller niche e-commerce sites come to the market as well as broader sites that have been hugely popular. At Mumzworld, we received a very positive response from the online community with more than 5,000 online active user registrations within the first month alone, which I would say is indicative of the convenience and ease with which you can shop online.” Part of Mumzworld’s strategy is to provide an online platform for recognised brands that are only sold in stores in the region. Today they are the single largest database of products for the child segment.
Room for growth
There is the question of why world-leading online vendors haven’t yet made a full excursion into a region with so much potential. Alkhatib of MarkaVIP believes that it is simply a matter of time. “I’m sure that over the course of next year we will see huge development in the breadth of products and services being offered in e-commerce in this region. The Middle East has a population of about 400 million with 73 million estimated to be online users. By 2015 there will be about 180 million internet users in the region, so there is phenomenal room for growth and I think retailers will be exploring that growth more expansively over the course of the next couple of years.”
LivingSocial’s Stuart thinks that as the industry expands to encompass greater offerings and demonstrates its successes, migration into the region will be a natural progression. He offers an example of how LivingSocial has supported physical retailers and is helping guide the mindset of businesses in the region to look toward online platforms as crucial marketing spaces.
“There are still companies in the region reluctant to invest in online marketing preferring to remain with more traditional media, but we are changing that. We worked with ABC Mall in Lebanon very recently and sold 1,303 vouchers generating more than $26,000 (Dh95,505) to set a record online sales event in the region. According to ABCs internal statistics, 37 per cent of buyers that came into the mall as a result of our deal had never been there before. We are already witnessing a dramatic shift toward online retail and evidently believe in it, but there is nothing to say that mall culture can’t work to utilise online to help drive footfall.”
A key consideration is security. Cases of online fraud and credit card theft have been reported widely in the UAE. Such incidents hamper the rise of a young e-culture and may be a significant part of the reason that online shopping has not progressed faster. Alkhatib reveals that his company is one of the many that offer cash payment alternatives to alleviate the fears of local consumers. MarkaVIP also attempts to educate its customers on advancements in online security.
Another bottleneck is language. Arabic is the fifth most spoken language in the world and is the dominant tongue in the region, but only 1.5 per cent of online content in the Middle East is in Arabic. The onus is on local business owners and entrepreneurs to rein in the world’s new commercial landscape — only then will the domestic online marketplace reach the formidable heights it has in the west.
Overall, the industry is growing. As more and more start-ups fill in the gaps, consumer wallets will follow intelligent services and comprehensive product offerings.
The success of MarkaVIP is a testament to the prevailing trend as Alkhatib reveals, “We have cultivated a private membership that is approaching 800,000 — which increased by 650,000 in the past five months. We recorded a member-to-buyer conversion rate of over three per cent and a repeat purchase rate of 45 per cent, both higher than the global e-commerce averages. Three months ago we were generating seven-figure monthly revenues — this has now doubled and our growth trajectory shows further increases still. We continue to attract between 2,000 and 4,000 new members daily.”
— With inputs from Megha Abraham/ Feature Writer