Ronaldo Mouchawar is standing at the entrance of Souq.com’s cavernous warehouse in Dubai’s Al Quoz district, getting patted down by one of his own security staff.
“There’s always rumours flying around,” the chief executive smiles, batting away a question about a recent report that suggested his firm might be bought by American internet leviathan Amazon. “You see, we touch on so many people.
“There was a recent study in the UAE that 50 percent of online shoppers have bought on our site, and we know from our traffic that 50 percent of the population come to the site once a month.”
Perhaps it’s not surprising that the only route in and out of the Souq.com fulfillment centre looks more like an airport security barrier than a passageway. Despite only being opened just over a year ago, the warehouse is packed to the rafters with flat-screen TVs, tablets, clothing, diapers and jewellery.
For Souq.com itself, it’s not just products on the shelves that are starting to stack up — the numbers are looking pretty good as well. It’s by far the Middle East’s biggest e-commerce site, and quite possibly the region’s biggest website full stop. It sells well over 200,000 products, with a network of almost 75,000 traders. It grew last year by 170 percent and has expanded ten times over in the last two years alone, with around 22 million visits last month.
Small wonder, then, that investors have been beating a path to the firm’s door. Launched in 2005 as an auction site linked to internet portal Maktoob, the site has already raised $150m in financing, with $75m received from Naspers just two weeks ago. With Naspers already having a 36 percent stake in the company prior to that investment, and with the South African firm remaining a minority partner, that deal values Souq.com at $577m, at the very least. Not bad for a firm that started out with only five employees less than a decade ago.
But you get the impression from Mouchawar — a tall, affable Syrian who co-founded the site alongside the Jabbar Internet Group’s Samih Toukan and Hussam Khoury — that the story is just getting started.
“If you look at what’s really transacted online as opposed to offline in the region, we still have a huge gap to fill,” he says. “There’s 1.5 to maybe 2 percent in this market sold online, whereas elsewhere in the world is double digits — in the UK, it’s maybe 18 percent.
“And there are some categories that are at 20 percent, so there’s a whole shift that’s still to come.”
Souq.com has evolved from its origins as an auction site to become a retail portal and a marketplace for third-party sellers. For Mouchawar, the switch away from Maktoob, which was bought by Yahoo! in 2009 made sense if the site was to work as a pure-play e-commerce provider.
“We initially tried with Maktoob to do certain verticals, like ‘Shop@Maktoob’, but really Maktoob catered to more of a younger audience,” he says. “So at one point, we sat together and came up with a plan to introduce a real commerce offering, to really focus on transactions and build the trust around that.”
The inspiration for the brand’s name — ‘souq’, of course, means ‘marketplace in Arabic — came from the town where Mouchawar was born. Aleppo is one of the world’s oldest trading hubs, and is also home to some of the planet’s most famous souqs.
“My father is a merchant, and commerce is the heartblood of Aleppo,” he says. “I studied engineering — so a lot of technology — so e-commerce as a fit was natural. I understood margins, categories, trade, and then you combine all that with technology and the internet, it’s a powerful vertical to be in.”
In part, Souq.com launched at a particularly fortuitous time. By focusing on electronic devices — which still make up 40 percent of its overall sales — and kicking off in the UAE, the site immediately tapped into huge demand from a young population with high disposal income. It also rode on the back of first the smartphone boom, and then the introduction of tablets. Even now, Souq.com’s average basket size is higher than that of Amazon.
Perhaps even more crucial than any of those factors has been the huge growth in internet penetration in the region, which was at less than 10 percent at the time the site launched. According to the United Nations Broadband Commission’s figures for 2012, mobile internet penetration in the Gulf countries now ranges from between 50 to 75 percent.
However, the Middle East is still a nascent market when it comes to e-commerce, with Paypal and Visa both estimating the value of the sector in the region at around $15bn. That sum is dwarfed by the industry in the world’s biggest market, Europe, which amounted to a whopping $483bn in 2013, according to the European Multi-Channel and Online Trade Association (EMOTA). However, the region is doing its best to catch up. While e-commerce grew by a healthy 17 percent in Europe in 2013, it’s rising by about 60 percent every year in the Middle East.
Even that growth is being easily surpassed by Souq.com, which aims to beat that 60 percent “by two or three times”, Mouchawar says. The kind of growth that the site has been posting over the last couple of years might sound fantastic, but it also creates problems in terms of scalability and matching customer service with demand.
Mouchawar declines to talk about profits, pointing out instead that “margins are always a challenge because you are giving great value to the user.
“You also have to have the infrastructure, and the reason we go out to raise the capital is because the infrastructure needs to suit those very huge growth numbers,” he adds. “Some companies talk about growth rates in single- or double-digit terms on a yearly basis — we have to do that almost month in and month out.”
Right now, the platform is available in the UAE, Saudi Arabia, Kuwait and Egypt, with a technical and development office in Jordan, and another technical back-up office in India. The focus is on continuing to build out those markets — after all, as Mouchawar points out, those four markets add up to some 120 million consumers — but more geographical expansion is on the way. Souq.com will be rolled out to Qatar and Bahrain “ideally within a quarter” with the plan to extend to Jordan and possibly Lebanon in the future.
When questioned as to how the site might expand even further in the future, the chief executive hints that the transactional experience his team has built up might be used to build up new brands outside Souq.com.
“We have a lot of know-how to add to the value chain,” Mouchawar says. “But the internet connects a lot of people, so maybe we don’t connect it with the brand, maybe it’s the know-how, the technology. It doesn’t necessarily need to be a replica of what we’re doing, it could be one of the layers that we have.
“Maybe payments could be extended, so airlines from the region could use our payment services, or something like that. There’s definitely room there, especially if you look at our investors, like Naspers, they are keen on e-commerce in the region and that sharing of know-how and capability allows you to think outside the box.”
On the products side, Souq.com recently launched its babyware category, and the chief executive says that “a natural extension would also be home… be it home décor and so on” as well as widening existing categories. But the real sea-change will come in the form of digital content and media, especially Arabic content. A recent Booz & Company report suggested that 37 percent of internet users in the region are dissatisfied with the availability of Arabic-language websites, and there is a huge gap between the global share of Arabic content online (estimated at just 3 percent) and the world’s roughly half a billion Arabic speakers.
Mouchawar says Souq.com will be aiming to bridge that gap by signing up partnerships with media firms who will be able to provide content for the site. In part, it’s already kicked off that process via the launch in December of the QTAB, a mid-market eight-inch wi-fi Android tablet aimed squarely at Arabic audiences. It’s a bold step, especially given the huge competition any new device in that range faces from the likes of Apple and Samsung, but Mouchawar says the tablet itself is only half the story.
“It’s just a complementary component of the platform,” he points out. “It’s serviced, so if our customers have any questions, our service centres are across the region. The plan is to connect as many customers as we can to this tablet, and then in phase two, we will add more services to that platform.
“We will also need to iterate and come out with a 3G version, but I think the real value add comes when we add the services, in terms of the content on top.”
So far, Mouchawar says demand for the QTAB has been “great” especially from its target audiences in Saudi Arabia and Egypt. On average, the firm is shipping about a thousand devices every day. While one might assume that a Souq.com-branded smartphone might also be in the works, the chief executive disagrees, at least in the short term.
“At this stage, to be honest, we’re not looking at a mobile phone,” he points out. “We felt that a 3G tablet that can deliver content to the user was really more strategic for us, as it’s really a home computer in that sense. And I think there’s quite a bit of a mobile range already, so we’ve not quite yet looked at phones.”
None of the geographical expansion or the glitzy product launches would be possible, however, without a supply chain system that can cope with the huge demand that the website generates. The fulfillment centre in Al Quoz is a bustling hub, with colour-coded tape on the floor specifying specific areas for certain products. Items that have arrived from suppliers are shrink-wrapped to protect them from dust. Ex-Amazon employee Mani Asadi, who runs the warehouse, keeps a watchful eye out for any transgressions, such as pallets or products in the wrong location, and IT glitches. Products tend to stay for less than 24 hours in the warehouse, before being shipped out to customers either via Aramex or Souq.com’s own fast-growing fleet of 200 vans. From an outsider’s point of view, it all looks pretty slick, and with a 65 percent repeat customer ratio, it’s clearly a system that is finding favour with buyers.
All this has, however, come at a cost. Mouchawar points out that the company’s first round of capital raising was virtually all spent on operations and fulfillment. In the UAE, where infrastructure is the most established, Souq.com delivers about 50 percent of the orders itself. But in other cities, it relies on partners to do much of the heavy lifting.
“In tier two cities in Saudi Arabia, we are not set up, so we use partners,” he says. “In tier one cities, where we have set up, then we share the load. The driver behind that is there’s quite a bit of seasonality in the business.
“We need to make sure that we have capacity internally, so even if our partners are not able to scale very quickly as the business expands, we are able to utilise the extra capacity and utilise that to improve the customer experience in terms of quicker delivery, or getting the returns back if the customer is not happy with the product.”
Mouchawar is also not ruling out the use of any technological advances that will help the firm in the future. When questioned about Amazon’s bid to launch a drone delivery system at some point this decade, he seems pretty sanguine.
“I think there are applications where I feel drones can help — for example where you have two warehouses, you can ship products across,” he says. “There’s a lot of innovation around delivery because it’s such a core component in the e-commerce space. Whatever it takes for us to improve that service, we will look at.”
The $75m raised from the latest round of capital raising will also go towards the back end of the operation, as well as on what Mouchawar refers to as “customer relationship technology”. As the business transforms to the mobile platform (approximately 40 percent of all purchases on Souq.com are made via mobile devices), the firm will be looking to provide more catered content for its user base. Another tranche of that cash will also go on attracting new talent.
“We want to become a place where people aspire to come and work, and for me that would be just as much a win as the number of transactions, or the value of the company,” the chief executive says. “That would allow us to create so much more for the region. A lot of technology expertise is being exported from east to west, but not the other way round. Right now, people in India are choosing to come and work for us rather than a big US firm — and that’s flattering.”
That focus on blending talent brought in from abroad, as well as making the most of the brains that already exist in the region is clearly a central plank of Souq.com’s strategy for the future. From five staff in 2005, it now employs over 1,000 people directly. Indirectly, through its networks of partners, suppliers and couriers, it has provided jobs for another 6,000 people — and that’s not to mention the 75,000 sellers, many of whom have built a livelihood via the website.
“The fact we’re already a regional brand is exciting,” Mouchawar says. “In e-commerce, we’re definitely a leader in the region and we’re committed to the region. We’re from the Arab world and we love the Arab world.”
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