Souq.com leads the way as online shopping in the UAE continues to click

The UAE online retailer Souq.com is a major part of an online revolution that is gaining momentum, taking an increasing market share from real-world operations.

Ronaldo Mouchawar, CEO of Souq.com. Pawan Singh / The National
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Not too long ago, if you were buying something on the internet in the UAE or Mena region, it meant you were buying an airline ticket – but not anymore.

As the UAE’s physical space was being rationalised, with street numbers and building addresses, cyberspace moved out of the home and into our hands with the use of smartphones, tablets and Wi-Fi fuelling the growth of e-commerce. From a retailing point of view the main winner is the UAE’s Souq.com – the region’s biggest online retailer.

When Souq.com started in 2005 it was an internet auction site linked to the Arabic portal Maktoob.

As with many technology start-ups Maktoob is no longer with us and, in its original form, neither is Souq.com. In 2011 it changed tack to become a retailer and marketplace for third-party vendors and, from that second start, it has become the de facto leader for e-commerce in the region.

In mature markets, such as the US and Europe, e-commerce commands more than 10 per cent of all retail spending – whereas the Mena region claims a fraction of that. Souq.com has raised in excess of US$425 million in two rounds of funding as, among others, venture firms and local banks recognised an opportunity. Its target for next year with regard to traffic is nearly 100 million visitors a month. While it began as an online retailer, today 60 per cent of its business is done through third-party vendors – its marketplace model. The company is also looking to float within the next two years.

“The market is still small but growing exponentially, today it is maybe 1.5 per cent of all the retail in the region,” says Ronaldo Mouchawar, the chief executive and co-founder of Souq.com. He says Souq.com has done a good job but, as the market grows, competition increases and profitability becomes more difficult.

“We are growing at between 60 and 90 per cent every year depending on the different countries we cover. We deliver to 40 cities across the region and we have a huge user base of over 45 million users a month. We intend to double that by next year. We will look to return something to our investors within two years,” Mr Mouchawar says.

The competition he talks about includes the biggest retailer in the world, Amazon.com. It recently became India’s second-biggest retailer and has started using the Jordan-based Aramex as a logistics provider for the region – including the region’s favourite method of payment cash-on-delivery (COD). However Amazon is not the only big fish in this pond – China’s Alibaba, which incorporates three different businesses, had total transactions of $248 billion last year, more than eBay and Amazon combined.

“I don’t know how the region scales in their scope,” says Mr Mouchawar. “We are not a confrontational company. I would welcome more players in the market because it means the ecosystem is attractive and supportive for e-commerce. This region is not like China or the US, we have many borders with a myriad of different rules and regulations which slows growth and the investment required for fulfilment and logistics can be prohibitive.”

The top of the market would seem to be an increasingly competitive place to be, with the region’s biggest player in growth phase, the world’s number 1 dipping its toe into the Mena water and Chinese traders already gaining traction here.

So how is it for the region’s smaller players? Omar Kassim is the founder of JadoPado.com which, much like Souq.com, changed horses half way through the race from a pure play online retailer to a marketplace.

“Retail has had a bit of shock since the highs of 2014 and I think the online sector is starting to pick up market share from bricks and mortar,” says Mr Kassim.

He says he is not overly worried about eastern and western competitors, saying it is all about scale – Amazon is huge in India which is a $1 trillion industry, while the Mena region is a $250bn industry. JadoPado.com, he says, now gets 2 million visitors a month after it moved to a market platform – it jumped from 8,000 products to 160,000 worth $300m. The big opportunity on the horizon is, he says, Iran with 70 million people and an underserved market – potential and opportunity abound.

“Since 2015 our visitors have grown at a factor of 10 at about 200,000 very month. Most eyeballs come from the UAE, KSA and Egypt but a lot of interest is coming form the sub continent.

“Souq.com is regional where as we are global – our top three sellers are from Hong Kong because we are globally focused and increasingly focusing on emerging markets.”

Of course it is not just the online players that have embraced the e-commerce bandwagon, bricks and mortar players are now moving to a bricks and clicks model. One of the earliest movers into the online space in the UAE was The Landmark Group. It began in December 2012 by offering just three of its 14 brands online and 8,000 products, today it has just revamped its online portal and offers seven brands and 45,000 products citing a 300 per cent jump in sales revenues on a year previously.

“The e-commerce space is showing explosive growth,” says Savitar Jagtiani, the business head of e-commerce for Landmark Group. “While e-commerce is currently worth about $2.5bn in the UAE, it is forecast to be worth $10bn by 2018.

“We have had to look at how far we can spread the business throughout the region because we are a mid market and value offering whose prices can be effected by the logistics of delivery and return. We cover the UAE fully and have started in India and we are assessing the viability of other countries.”

While it would seem that the e-commerce industry is moving from strength to strength there is still the problem of COD, which has become a regional stalwart and an argument against making online purchases cheaper.

“COD costs retailers between 3 and 6 per cent, which of course will get passed on to the consumer,” says Niles Younis, the vice president for market development at MasterCard. “As the growth of e-commerce was driven in most mature markets by savings buying online, those savings are not as evident in the [Mena] region.

“The basket size is growing but the market size is not growing as quickly,” he says.

“From a wider perspective, looking at bricks and mortar companies and the Web, the Mena region is unprepared for e-commerce – only 18 per cent of SMEs have a transactional website, so there is massive opportunity here.”

If one was to wonder just where and how far the online shopping space may travel in this region one has to look no further than Souq.com. While it is known for its electronics, its perfumes and its fashion, it is using Ramadan to spring into another sphere of influence – the car market. Souq.com’s newest promotion, and its first time in the vehicle market, offers a potential Dh43,000 discount off a Chevrolet Corvette, Camaro or Impala.

For a company that made its name on the information super-highway it now sees another route for growth on the highways and byways of the UAE.

ascott@thenational.ae

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