Local online retailers are starting to notice a shift in consumer behavior, which has sparked a gold rush in the Middle East’s ecommerce business.
According to a recent study from Dubai CommerCity, the GCC will have the fastest ecommerce growth in the MEASA region between 2019 and 2022, with Saudi Arabia and the UAE leading with CAGRs of 39 percent and 38 percent, respectively.
The report also stated that the cross-border online sales in the Gulf region increased 214 percent year over year in H2 2020, and Visa Middle East expects the whole MENA ecommerce market size, including all categories, will be worth $48.6 billion in 2022.
“MENA’s ecommerce market is rapidly evolving, and 2022 will be a gold rush for brands that can capture the increasing number of customers who prefer to shop online,” Nicolas Bruylants, cofounder and CVO of CNNB Solutions, a firm that helps brands define D2C ecommerce and e-distribution strategies, said in a recent report about MENA Ecommerce in 2022.
“Increased online shopping usage, access to digital financing, improvements in logistics and delivery alternatives, and businesses adopting direct-to-consumer strategies will boost ecommerce revenues to $50 billion in 2022,” he added.
The GCC loves to shop
One of the biggest drivers for ecommerce growth in the region, even before the pandemic, has been the GCC shopper.
Young, affluent, and digitally connected consumers have a plethora of shopping options due to some of the world’s highest internet penetration, and smartphone and social-media usage.
According to a CNNB report, the UAE has the highest yearly spend per online consumer in the MENASA region, at a staggering $1,648 per person.
In addition, the average transaction size in the UAE is $144, compared to $79 in more established markets in Europe and North America.
Now, the market is expected to expand further as infrastructure, cross-border trade, logistics, and the supply chain improve in the next years to meet rising consumer demand for online shopping.
Saudi prospects
On the other hand, BCG stated in a recent report that Saudi Arabia is well-positioned to become the regional ecommerce powerhouse. Ecommerce in Saudi Arabia has grown as the kingdom steadily realizes Vision 2030.
Online sales have increased almost 60 percent on average annually across all categories, with the growth perceived the most in media products and the apparel and footwear segments.
Aramex, the logistic leader company, highlighted Saudi Arabia as having the region’s most significant potential for logistics sector growth and demand for ecommerce space.
According to the company, Saudi Arabia is leading the regional ecommerce boom with a 39 percent CAGR, just ahead of the UAE’s 38 percent CAGR.
Four supporting factors
The BCG report mentioned that Saudi Arabia’s telecommunications, internet, regulation, and financial services all contribute to the expansion of ecommerce.
Saudi consumers’ shift from using desktops to smartphones as their preferred device for shopping online is an important consideration. The country boasts one of the highest smartphone penetration rates in the world, which enabled around 60 percent of Saudi customers to discover new sellers through social networks in 2020.
Another aspect of technology also works in favor: Saudi Arabia features many mobile broadband internet subscriptions — higher than the vast majority of advanced markets and ranking 10th in the fastest internet speed globally.
Combined with the move toward an increasingly mobile ecommerce offering, this creates a very fertile environment for an ecommerce explosion.
Furthermore, Saudi Arabia has a relatively high share of 72 percent of the population that is 15 years or older with a bank account, enabling future ecommerce growth.
Additionally, the government is supporting commerce legislation, which legally defines e-payment services and creates a customer protection framework, thus increasing the technology’s trustworthiness for users across channels and devices.
In addition, the state’s role in its central bank and subsidiaries (SAMA31, Saudi Payments, and electronic payment system mada) is vital. Overall, these actions should enhance customer confidence and increase the adoption rate.
Another trend that showcases Saudi consumers’ willingness to engage in ecommerce involves the informal sales conducted by fashion designers and other small businesses directly over social media.
When consumers view a desired piece of apparel on Instagram, they ask whether the item is on sale. If it is, they are given details on transferring money to a bank account as payment. Then the item is sent to the customer.
While the government does not condone such informal sales because they present a risk for the consumer, they suggest that Saudi shoppers are ready to tap into the online market.
In a nutshell, the development of ecommerce and the overall enhancement of digital infrastructure are critical national strategic priorities in Saudi Vision 2030. Ecommerce will also help drive economic growth, with the domestic online market expected to double to $2 billion by 2025.