The Middle East’s ‘Coming of Age’ moment. Why 2021 will be a break-out year for ecommerce in the region
Varying payment preferences from region-to-region; customs and cultural differences; logistical issues; cash on delivery:
There are a multitude of complex issues that have held the Middle East back from successfully navigating the digital landscape at the same speed as other regions around the world.
But shhhhhhhh, whisper it quietly. It appears times are changing. There’s a digital revolution gathering pace.
The Covid-19 pandemic pressed the fast-forward button and businesses and consumers in the region are embracing the digital economy like never before.
But what are the differences between then and now? What is driving the rise in growth? Here Redbox explores 10 reasons why 2021 will be a huge year for ecommerce in the Middle East.
1. More consumers are doing their shopping online – and they’re not going to stop.
In 2019, US shoppers were making an average of 19 purchases online each year compared to between two and four across MENA.
But in a recent report by the Mastercard Economic Institute’s Economy 2021, it noted that 73 per cent of consumers in the Middle East and Africa were shopping more online than they did before the pandemic. It predicts up to 30 per cent of this surge will be permanent.
Speaking to Arabian Business, David Mann, chief economist for Asia and MEA at Mastercard, called it a “coming of age” moment for ecommerce in the region.
He added: “We are heading for a multi-speed global recovery that favours low-touch over high-touch, with high-income consumers recovering sooner.
“Small businesses and micro merchants are especially crucial to the region’s economies and by enabling them to accept digital payments, we can connect more people and communities to financial freedom and eventual prosperity.”
2. Middle East outpacing global growth
The Middle East’s ecommerce boom is making up for lost time – and shows no sign of slowing down.
While shopping at the mall was an established part of family life in many regions, digital is making inroads at a quickening pace.
Ecommerce is expected to grow by 20 per cent in the next five years – outpacing global growth of 13 per cent.
It means there are many more opportunities for businesses to invest and expand online than ever before.
3. Businesses thriving in region after quick bounce-back
While many countries and regions across the world are still battling the pandemic and shutting down business, things got back to normal much quicker in the Middle East. What’s more, it seems less companies were adversely impacted in the first place.
The Hays 2021 GCC Salary & Employment Report based on 3,500 employers and employees in the GCC found just 28 per cent of businesses were severely negatively impacted by Covid-19 last year, with 82 per cent of companies already in recovery, business as usual or in growth phases. Better still, 64 per cent expected to recruit extra staff in the next 12 months.
With so much positivity in the region, it is the perfect time for merchants to accelerate digital strategies as local and global recovery continues.
4. The fast decline of cash on delivery?
With cash on delivery (COD) rather than online or card payments having been the preferred payment method throughout the Middle East and Africa in the past, the pandemic has proved to be a major turning point.
Around 62 per cent of online shoppers said they preferred COD in a 2019 report by Bain & Company. But it is often a more expensive option for retailers, with higher risks of returned packages and logistical issues.
However, research conducted at the start of the pandemic last year found 70 per cent of consumers were using contactless payments for safety and hygiene purposes, while in Kuwait, the contactless payment limit was raised to help consumers pay for groceries and other items. Consumers said methods were easy to adopt, with 84 per cent agreeing it was a cleaner way to pay.
The most interesting statistic was the switchover to contactless for many had been so effective that a huge 81 per cent of those surveyed said they would continue to use contactless after the pandemic.
Expect these trends to continue at pace this year and open up many more digital options for consumers and businesses alike
5. SMBs meeting customers online
However, rising customer confidence in using digital payment options isn’t the only story here. SMBs in the region went out of their way to make a difference, too, embracing digital technology to meet these changing behaviours.
The third edition of VISA’s global research study VISA Back to Business – 2021 Outlook, found that by the end of 2020, 97 per cent of SMBs in UAE had embraced new forms of digital technology, compared to a global average of 83 per cent.
These trends are expected to continue this year and beyond, paving the way for more seamless digital shopping experiences as the region continues to embrace new technology options.
6. A digital-ready generation?
Today, MENA is home to the largest proportion of young people in the world, with nearly half of the population under 24 according to Unicef. Add to the mix that 60 per cent of consumers in the region access the internet through smart phones and that millennials and younger generations have grown up surrounded by the technology, and you can see why brands are so keen to engage with these age-groups.
During the pandemic, purchasing habits changed further, with shopping from smart phones increasing by 53 per cent according to a survey by Price Water House (PWC). The July study also found 51 per cent of consumers were purchasing groceries online and 92 per cent of these would continue to after the pandemic.
The mix of smartphone use and a largely young population is a major reason for the success of ecommerce in the region over the past few years. With older generations now having tasted the convenience and ease of online shopping first-hand due to the pandemic, it’s clear consumer confidence has never been higher, with brands that make digital their priority sure to reap the benefits.
7. Dubai CommerCity: The future of ecommerce?
Infrastructure and logistics have long been issues for retailers in the Middle East. But heavy investment is quickly changing this.
After its recent phased opening, Dubai’s CommerCity - a Free Trade Zone dedicated to ecommerce – will provide the blueprint for others to follow.
The $830million project gives tax-free benefits to regional and global ecommerce businesses with a ‘one-stop shop’ of support services including immigration, banking, administration and healthcare on-hand. Retailers will also be able to make use of the logistics cluster which includes AI-powered warehouses.
Redbox is playing an exciting part in the venture and expects it to receive major headlines as its phased opening continues this year - and digital retailers begin to fully appreciate the benefits and infrastructure available to them to launch and grow in the region.
8. Popularity of Alternative Payment Methods (APMs) continue to rise
As more people are turning to online shopping with less of a reliance on cash on delivery, new ways of paying are becoming increasingly popular.
APMs, including digital wallets and ‘buy now pay later payment solutions’, give customers flexibility in how they pay, with many now attracting huge investment in the region.
Redbox partner Klarna offers a number of financing options such as monthly instalments or paying after 14 or 30 days. Merchants are paid immediately on each transaction through Klarna.
Buy now, pay later providers tabby let customers buy online and pay back in monthly instalments, or 14 days after delivery – approving a customer in seconds without a debit card check-in needed.
These give merchants new payment options in-line with the growing needs of customers while eliminating risks and logistical issues.
Redbox recently provided support in improving and configuring the tabby plug-in for Abdul Samad Al Quashi(ASQ) – one of the biggest perfume retailers and OUD across the globe which could help change online shopping habits across the region.
The company recently raised $23million investment to help fund its expansion – thought to be one of the largest amounts raised by a start-up in the region and showing the world that the area is ripe for investment and is serious about digital growth.
9. Combating the worry of online fraud
One of the many obstacles in embracing technology in the region has been the large numbers of consumers worried about online banking fraud.
In the third edition of VISA’s Back to Business Study – 2021 Outlook, it found that 94 per cent of SMBs in UAE had encountered customer concerns surrounding fraud and technology – the second highest of the markets surveyed after Hong Kong. Companies said this had been problematic in maintaining positive engagement with customers.
However, the company also found that the region’s businesses were switched on to the issues and keen to do more to combat these fears, with 54 per cent believing that security and fraud protection were the most important consumer expectations to meet.
With customers noting first-hand the lessening risks of mobile banking and businesses doing more to tighten security, 2021 is set to continue where 2020 left off. As customer confidence in online banking grows, so will online business.
10. Retailers investing in their digital operations
A recent report predicts the GCC ecommerce sector will be worth $50billion by 2025 and that ecommerce will be the main source of retail. Ecommerce sales in Dubai alone, are expected to rise 23 percent to US$27 billion (AED100 billion) in 2022.
The Middle East has long been a few steps behind other countries and regions when it comes to digital, but it is clear the pandemic has transformed the region’s ecommerce fortunes and allowed it to play digital catch up.
More brands are investing in their digital strategies in the region than ever before and it is crucial to act now or get left behind.
Redbox customer Nahdi – the largest pharmaceutical chain in the Middle East and Africa – saw 10 times more traffic to its digital platform during the start of the pandemic. The Magento Commerce Cloud platform, with Redbox assistance, proved to be robust and agile in the face of the extra demand.
Redbox Digital is also partnering with premium fashion retailer Beside Group to bring the fashion brand Diesel online to customers in the Middle East. The digital solution will be built on Magento Commerce Cloud and launched in the UAE and Saudi Arabia to begin with.
For merchants in the region, or around the globe, there has never been a better time to begin or accelerate their digital strategies in the Middle East. They must act decisively to make the most of these exciting times.