The UAE has a vibrant retail landscape; disposable income levels are on par with those in top western European markets.
And yet online sales in this country are only 1 per cent of the total retail spend – compared with 10 per cent in most mature markets.
Souq.com is the biggest locally based online retailer and biggest online market place with more than three million people visiting its site every month. “Nearly half the population of the UAE visit us monthly, that’s good traffic”, says Ronaldo Mouchawar, the chief executive of souq.com.
For an online market place to succeed and grow, the ecosystem has to thrive. Much like the success of bricks and mortar hypermarkets and retail parks, the online experience has to be one that caters to all customer needs – as Amazon has shown. The US-based juggernaut started selling books online but soon saw the benefit of offering a one-stop-shop and now it caters to a multitude of vendors across a variety of product categories.
In 2014, it delivered more than 5 billion items, 2 billion of which were from third-party sellers. Amazon takes a percentage commission from outside companies when it sells their goods and collects other fees, such as for product storage, leading to higher profits than those from products acquired and sold directly by Amazon.
Souq.com seems to have taken note and last week released its first API (application programme interface), or a set of routines, protocols and tools for building software applications.
While that may not sound very inspiring, it allows external retailers to use its own website, with Souq’s functionality built in.
That means a niche T-shirt seller, for example, does not have to tackle the myriad challenges of building its own payment gateway with all the associated problems of security, and returning and refunding goods, while huge retailers can begin selling online with no costly start-up, infrastructure, storage or delivery costs. The need for a vendor to set up delivery or warehouse infrastructure is eradicated as souq.com will be the back end of the operation using its own fulfilment centres with the third-party stock.
“APIs are not new in the region, both Aramex and DHL logistics firms have them for e-commerce,” says Khaldoon Tabaza, the founder and managing director of iMena Group, which operates the online businesses sellanycar.com and Easy Taxi Middle East, among others, in the region. But it means “souq.com will be able to leverage their investment in marketing and technology and use their decent traffic numbers as a lure to other online retailers,” Mr Tabaza says.
“For third-party vendors they will have to work out what the costs are of acquiring a user. Businesses will have to evaluate the differing benefits and costs of advertising on Facebook, or Google, or souq.com, or traditional channels. It can be very expensive acquiring users and with margins already cut to the bone it is not easy to make profits.”
Online sales in the UAE are primarily driven by hotels, air travel and electronic appliances according to Google’s consumer barometer.
In 2014, 35 per cent of hotels were booked online, 34 per cent of air tickets and 11 per cent of appliances were all bought and paid for on the internet, it reveals. That is a marked difference from 2012 according to a statista.com survey in January 2013 that showed 17.6 per cent of UAE online shoppers bought travel and event tickets, 14.3 per cent paid for hotel bookings and 7.7 per cent bought downloadable games.
In Saudi Arabia last year, a whopping 55 per cent of flights were booked online, 34 per cent of hotels and just 10 per cent of appliances were bought over the counters, Google says. The kingdom accounted for 14 per cent of apparel sales. This contrasts with the United Kingdom where 49 per cent of apparel sales were online in 2014 – the highest rate in Europe.
The growth of online spending in the UK is put down to broadband penetration, the ease and security of credit card payment and technology enhancements on mobile devices. E-commerce is the fastest-growing retail market in Europe. Sales in the UK, are expected to grow from £132.05bn (Dh724.4bn) in 2014 to £156.67bn in 2015, a growth of 18.4 per cent according to the Centre for Retail Research.
The British Retail Consortium says retailers have invested in their websites and improved delivery times, and adds that the surge in the popularity and use of smartphones and tablets has also contributed to the rise in online retailing. The UAE is something of an entrepreneurial hub and setting up an online presence that reaches a potential audience and facilitates websites in Arabic and English languages will be a draw to many smaller operators.
One such, the local distributor for Boardman bicycles, Frontier Adventures, believes the visibility Souq offers can only enhance a small business.
“The API is exactly what I have been looking for,” says Jason Bryan, the founder of Frontier Adventures, the exclusive distributor of Boardman bikes in the GCC, based in Dubai.
“The use of its payment gateway, fulfilment centres and last-mile delivery – the ability to get my cycles to buyers in Saudi Arabia, Bahrain and Kuwait – could be crucial for my business.
“I have the exclusive rights to the GCC region but crossing some borders is easier than others. Souq’s established name and business could smooth any kinks in the road,” he says.
“Chris Boardman is an Olympic cycling champion and Boardman Bikes want to become established in the Middle East so are offering bikes 10 per cent cheaper than in the UK and anywhere else in the world, but how do I get that message out? The Arabic language help that the API apparently offers will enhance my business no end.”
The ease with which traditional retailers can operate an online channel is key to creating a digital ecosystem. ToysRus UAE started using the souq.com API in October as a test case, it has its own website that is devoid of Souq branding and it is only once you use the payment gateway that Souq’s involvement becomes clear. This is where souq.com’s API hopes to forge a seamless link between the actual and the virtual world.
Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, recognised Souq’s pre-eminence in online shopping here, presenting Mr Mouchawar with an award at the Arab Social Media Influencers Summit last month.
Mr Mouchawar believes souq.com’s remit has now developed from simple commercialism.
“The API is not just about making money for souq.com, although, of course, we want to be profitable,” he says. “We want to create an ecosystem that allows anybody in the region to become an online vendor.
“It is not a new idea; Facebook has its own API, which builds an ecosystem around its platform and that is where I see Souq. We are local, we have a huge merchant base and this is a normal progression for someone of our size and reach.”
The API will be followed in the next few weeks with the launch of Souq’s seed fund. The seed opportunity is open to any developers in the region who have an idea that may enhance the online shopping experience. Souq.com will invest cash or provide marketing and development strategies to promote the platform and the online experience.
“I don’t want to say we have this much or that much available,” says Mr Mouchawar.
“We will want to see business plans and understand how the idea will benefit the ecosystem and if it does we will be happy to invest, if that is what is needed, for some equity.
“Or we will mentor the business offering back office support and marketing the idea to a wider audience,” he adds. “If we get 12 to 15 solid ideas a year, that we can back, I will be very happy because that means we have new ideas and creative tools being added to our online experience.”