Consumers in the UAE were moving at a relatively sedate pace in their online transitions. But recent months have accelerated that process. But other Gulf economies have lots of catching up ahead. Image Credit: Gulf News Archive

Driven by rapid digitisation, the retail industry has experienced a shift of unparalleled proportions. And the true impact of e-commerce has only just begun to be felt.

While it accounted for 10 per cent of global retail sales in 2017, that has rapidly risen to 14 per cent as of 2019 and is estimated to leap further by 22 per cent by 2023. With online sales currently valued at $3.5 trillion, it has become apparent that e-commerce now represents a linchpin of the global retail engine.

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Although online retail is currently dominated by the US, Europe and Chinese markets, their potential is limited by just how prevalent e-commerce already is. To understand the future, we must instead look closer at two key markets – India and the Middle East. With tech-savvy populations, rising levels of internet penetration, and a desire to be a part of the global consumer ecosystem, these regions are to reshape e-commerce.

However, an e-commerce player attempting to break into these markets with a one-size-fits-all approach is unlikely to succeed. Despite their many similarities, the market dynamics and consumer behaviours in these nations are sufficiently different to demand customised approaches.

Two speed adoption

The late 2000s saw an array of Indian companies such as Flipkart and Myntra rise to prominence in the face of fierce competition. The subsequent entry of Amazon in 2013 led to a consolidation alongside Flipkart, which was later acquired by Walmart. Concerted marketing campaigns promoting online shopping has seen India’s consumer base rapidly evolve into mature, discerning shoppers.

The same doesn’t hold true of customers in the Middle East. Despite having among the highest internet penetration rates - with the region’s 60 per cent being well above the global average of 51.7 per cent - e-commerce has yet to truly find its footing. This can primarily be attributed to the late adoption of digital services by businesses.

The consumer base hasn’t had the time or the opportunity to develop and mature the way it has in other regions. This also leaves consumers prone to making a higher volume of mistakes while placing their orders. This has a cascade effect on the cost of serving this segment, due to above-average calls per order and the increased probability of RTO (return-to-origin) outcomes.

Shaving off margins

E-commerce is a business of fine margins, in which success hinges upon an optimised logistics system. But setting up such a pipeline is no easy task. Managing the ebbs and flows of logistics capacity has always been a monumental task. E-commerce players in India have adopted a number of measures to stay on top of this, from utilising integrated logistics to maintaining large workforces dedicated to logistics management.

This issue is further compounded by an array of other challenges, including high inter-regional trade and shipping barriers, elevated tariffs, frequently changing regulations, and volatile currency exchange rates. But perhaps the largest challenge facing the region is the lack of postal codes, which severely impedes the last-mile delivery.

Some catching up to do

Although the citizens of the Middle East are among the most connected in the world, businesses have consistently lagged behind the curve when it comes to expanding their operations digitally. According to a 2018 report by Deloitte, only 15 per cent of businesses had an online presence. However, the advent of the pandemic drastically changed this state.

Businesses and consumers were forced to shift their operations online. This resulted in 92 per cent of consumers in the UAE and Saudi Arabia changing their shopping habits. Although the lockdown has since eased, 58- and 33 per cent of consumers stated they were still uncomfortable visiting malls and grocery stores. These figures are indicative of a transformational change in the retail scene, and will likely result in the region’s online space rapidly catching up to more mature digital economies.

- Pranshu Kacholia is Vice-President for Business growth at ClickPost.