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Wed 5 Feb 2020 11:02 AM

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UAE well placed to become the e-commerce centre of excellence

From a marketing perspective, the UAE represents everything that e-commerce retailers could possibly want

UAE well placed to become the e-commerce centre of excellence

Stuart Milligan, course leader, MSc International Logistics and Supply Chain Management, University of South Wales Dubai

E-commerce is booming in the UAE. The latest insights from Statistica indicate that the rate of growth in the e-commerce sector is slowing down in Europe and the US, now averaging 15% per annum, whereas in the UAE, growth in 2019 was 23%.

The e-commerce story is typically one of two divergent narratives, that of the marketing proposition, and that of the supply chain infrastructure to support it.

This is especially true in the UAE, where the very young market is already experiencing some of the characteristics and challenges found in the mature markets of Europe and the US.

What are the nature and implications of such rapid growth?

From a marketing perspective, the UAE represents everything that e-commerce retailers could possibly want.

Residents in the UAE are tech savvy, with high ownership of smart mobile devices and an appetite to embrace the associated use of mobile wallets, which means that it is easy for e-commerce retailers to transact with customers.

A large proportion of the population are either Generation Z or Millennials, so not only are they comfortable with technology, they are also typically in employment - and the seamless, on-demand retail solutions offered by e-commerce therefore fits in with their demands of increased convenience.

This market has attracted attention both internationally and locally. The merger between Amazon.com and Souq.com, resulted in the launch of Amazon.ae in 2019. This new e-commerce platform now offers 30 million products (25 million from Souq and 5 million from Amazon US) from local and international retailers.

From a local perspective, Noon.com launched in 2017, offering 20 million products to customers, recently including own-brand products to rival Amazon.ae. Locally, Dubai-Store, an e-commerce retail platform operated by Digital Economy Solutions LLC, a joint venture between Dubai Economy (DED) and Emaratech, offers a trusted digital space for local start-ups and SMEs.

This intense interest has resulted very quickly in a highly competitive market, really benefiting the customer. The market has reached a maturity in two years that took other regions 15 years to reach. For the customer this means that prices are competitive, there is plenty of choice, and retailers are desperately fighting for their custom by making their proposition more convenient.

Amazon.ae launched Prime last year, with the benefits of the cost of shipping included in the subscription fee, as well as access to the Prime Video platform. Non-Prime members get free next day delivery on orders above 100AED and can pay for same day delivery in most regions.

The week after Amazon.ae launched Prime in June 2019, Noon made the move to offer free delivery on all purchases, and can offer same day delivery through their in-house transport fleet.

Dubai Store, in comparison, is attractive to customers because it allows them to engage with the trusted local brands through multiple touchpoints, at their convenience, whist having the benefit to retailers of not only reaching new customers but also increasing their basket spend.

The growth of e-commerce in the UAE and the region is inevitable, and so is the need for an ideal business environment where the sector can better serve its customers, while addressing current and future challenges.

The 2019 launch of EZDubai, the purpose-built e-commerce zone within Dubai South’s Logistics District came at the right time, tapping into Dubai South’s strong capabilities in logistics and supply chain through its supportive policy environment, infrastructure, strategic location, and world-class facilities, in order to meet the needs of the market.

The freezone hub supports multi-modal shipments both inbound and outbound to the region, and places retailers in proximity to their market. Very often, operators are forced to trade-off inbound requirements with customer demand; however, this challenge is much less prevalent due to this infrastructure.

What is a real challenge, however, are the demands that such favourable market propositions to the customer place on the last mile.

Not only are such short lead times very expensive to deliver, the increased shipment delivery is associated with increased congestion, increased emissions and increased road traffic accidents. Both Noon.com and Amazon.ae are trying to address these challenges; Noon.com is exploring the use of autonomous vehicles and Amazon.ae are exploring the feasibility of drone deliveries.

Additionally, there are also challenges associated with product returns. Typically, the level of returns on e-commerce are at least double those of offline purchases, however this is much higher in the UAE as a result of failed deliveries owing to the customer preference of cash on delivery payments.

Not only do these returns bring the usual problems associated with reverse logistics, due to the supply chains crossing geographical boundaries, there is also the customs challenges associated with getting products upstream back to suppliers.

The e-commerce sector in the UAE represents an exciting market that is truly unique. The marketing proposition is mature and innovative solutions are being sought to make shopping more convenient.

The supply chain infrastructure is excellent. There is the challenge globally within e-commerce that, at present, the ideal supply chain model to meet the marketing proposition simply doesn’t exist. Best practice in this area tends to focus on collaborative solutions, both downstream and upstream, but whilst there are challenges to overcome, the UAE holds the potential to become the e-commerce centre of excellence.

Stuart Milligan, course leader, MSc International Logistics and Supply Chain Management, University of South Wales Dubai