Is the UAE going to see a retail apocalypse soon?

In case you missed it, Noon, the US$1 billion e-commerce platform founded by Emaar Properties chairman Mohamed Alabbar, started operations in the UAE on Saturday. The hope is the website will tap into the region’s substantially large e-commerce industry, which is set to double by 2021.

The retail apocalypse

The UAE is a shopping haven. That’s not to say that the million or so people visiting the mall every weekend are always shopping. Malls have evolved over the last few years into all-purpose lifestyle destinations. At this year’s Arab Luxury World conference in Dubai, Researcher and Consultant Nadine Touma Gammage presented the results of a year-long Mall Mapping study. The study kept tabs on the habits of 4,800 people living in the UAE. It found that more than half visit a mall at least once per week.

With 4.7 million square metres of shopping centres in Dubai and Abu Dhabi alone, the UAE boasts one of the highest numbers of shops per capita in the world. Despite the country’s obvious obsession with shopping and its continued growth in Internet usage and speeds, it has been fairly dormant in terms of online shopping.

However, those habits are poised to change in a big way in the near future. Back in 2015, internet sales in the UAE accounted for 3.9 per cent of the total sales in that year. This year, online sales in the Middle East and North Africa (MENA) region are set to top $2 billion, with the UAE among the most booming e-commerce markets. Those aren’t just numbers pulled out of a hat either. According to a 2016 Digital Middle East report by McKinsey & Company, e-commerce penetration in the Middle East is estimated at a mere 2 per cent of retail sales.

For e-commerce in the UAE, there is nowhere to go but up

The growth projections haven’t gone unnoticed. Some of the biggest international luxury brands in the world, the likes of Burberry and Dolce & Gabbana, have already launched Arabic-language sites aimed at experienced shoppers in the UAE. On November 15, Sephora Middle East will be launching a dedicated e-commerce site. Considering the Middle East accounted for three per cent of the global luxury consumption in 2015, we’d say that’s a smart investment.

The growth rates have been so staggering that in March last year, Tiger Global had invested $275 million in Souq.com. In fact, Souq was growing at such an unprecedented rate, that everyone in the region referred to it as the Amazon of the Middle East. In July this year, Jeff Bezos’ e-commerce giant acquired the Dubai-based retail and marketplace platform for close to $700 million. Note, Bezos was briefly the richest man on the planet in July this year. Nothing he does is a fluke. Shortly after being acquired by Amazon, Souq.com announced it had acquired Wing.ae, a marketplace for merchants and couriers based in the UAE. The acquisition is expected to boost Souq.com’s last mile delivery.

Souq isn’t the only unicorn to come out of the UAE. In February last year, Dubai-based Wadi.com announced to have raised $67 million in Series A funding with Al Tayyar Travel Group as the lead investor. Elsewhere, Net-a-Porter reported that average order value in the Middle East is 50 per cent higher than the rest of world. It’s little wonder that in April last year, Alabbar’s Symphony Investments announced a joint venture with Yoox Net-A-Porter Group (YNAP), which will see Alabbar focus his entire online luxury retail activity in the GCC exclusively through the joint-venture, of which Symphony Investments owns 40 per cent. Off-price brands Yoox and The Outnet are set to debut localised sites in the region in 2018, while Net-a-Porter and Mr Porter will launch in 2019.

Another bigwig in the UAE’s e-commerce market is Namshi. Part of the Global Fashion E-commerce Group and created by Rocket Internet, Namshi is a Dubai-based online fashion retailer with over 40,000 exclusive in-house collections and brands posted a $1.8 million profit last year. The timing could not have been better. At a time when Rocket Internet’s seen the collective value of its fashion startups shrink by $2.4 billion, Namshi was its saving grace.

The launch of the region’s newest e-commerce company, Noon.com, will only help the already impressive growth forecasts. With an initial investment of $1 billion, Noon will launch in the KSA markets later this year and will soon cover the entire Middle East region. It aims to grow online sales in the region from 2 per cent of the total market ($3 billion), to 15 per cent ($70 billion) within a decade. Emaar Properties Chairman Mohamed Alabbar, who is leading the venture with prominent GCC investors, described Noon as ‘nothing less than a quantum leap in retail in the region, and the world’.

That may sound like a tall claim – after all, finding success in e-commerce when you are living in a country where many prefer to frequent the luxury of the air-conditioned shopping centre over clicking online, isn’t easy – but it’s backed by every market analyst around the world. E-commerce is set to become the next big thing for burgeoning businesses in the region with the market expected to be valued at $10 billion by 2018, according to Frost & Sullivan. Those numbers are subject to the growth of complementary industries like smartphones. Thankfully for anyone involved in e-commerce, the country’s smartphone penetration is the highest in the world at 73.8 per cent, with more than 90 per cent of the population having access to the internet.

With that headache basically curing itself, the focus will shift on keeping the target audience happy. The e-commerce industry hinges on millennials to keep it going. According to awok.com, shoppers aged 25-34 make up 65 per cent of the online shoppers. The longer e-commerce platforms can keep these millennials online, the higher number of daily activities are likely to be conducted. As such, retailers in the region and globally will have to focus on being mobile friendly to offer efficient, convenient and safe click and shop experiences to customers.

The way things stand, there can only be winners within the industry. Sure Souq.com dominates the others and Noon will disrupt that order to a degree, but the market remains largely untapped with figures from AT Kearney showing that e-commerce contributes precious little to the GCC’s economy, accounting for just 0.4 per cent of GDP in 2015. When you look at e-commerce’s 1.8 per cent contribution in France and 2.2 per cent in Japan – countries with similar GDP per capita figures to the GCC as a whole – it’s hard to believe that even the minnows operating in the region would struggle for a decent piece of the pie.