Fashion goes digital in the UAE

Soaring figures suggest 2017 is the year that fashion e-commerce in this region finally took off. Experts say that the only real questions that remain are who the big e-commerce players will be, and how brick-and-mortar malls will compete with the online players
Fashion goes digital in the UAE
The value of UAE's apparel and footwear internet retailing is estimated to reach $490m in the next five years
By Shoshana Kedem
Thu 30 Nov 2017 10:19 AM

In the four years since 2013, online general retail sales in the UAE have jumped from $490m to $1.6bn in 2017, marking a 108 percent growth rate, according to data from global market researchers Euromonitor.

During the same period, fashion purchases made online in the UAE jumped from $85m in 2013 to $272m in 2017, and are expected to grow to $354m by 2018. Online fashion sales in Saudi Arabia also jumped from $86m in 2013 to $249m in 2017, and are expected to climb to $293m by 2018.

“As the market gets more mature, fashion e-commerce grows,” says Nooruldeen Agha, CEO of mid-range Middle East fashion e-commerce site Elabelz.

Online electronics retail has traditionally been a big market in the UAE, while fashion e-commerce has been less developed, with luxury fashion online retail faring better in the UAE and GCC compared to other markets, simply because the region has traditionally veered more to the luxury fashion side.

New platforms such as Ounass, launched by UAE department store operators Al Tayer Group in December last year, and the launch of e-commerce site Noon this year by Emaar Properties’ Mohamed Alabbar, who also owns one of the world’s biggest malls, signal a new trend, Agha says.

Another venture by Alabbar announced in November 2016, will bring Italian luxury fashion platform Yoox Net-A-Porter (YNAP) to the region. Yoox and The Outnet are expected to launch early next year, with Net-a-Porter and Mr Porter following later in 2018. The physical presence of those brands in the region will allow for same-day deliveries, further cementing growth for Net-A-Porter in what is already one of its fastest growing markets.

To give some context, e-commerce has been a long way behind the curve in this region. Online fashion sales in the UAE stood at just three percent of total retail last year, compared to 40 percent in the UK. The figure has jumped to six percent this year and, according to Agha’s forecasts could grow to 20 percent in the next two to three years. “This is the year that e-commerce has really started. Next year is going to be even bigger,” he says.

Physical meets digital

The reason why the growth could be so dramatic is that online shopping requires time-honoured, old-fashioned infrastructure. The explosion of big e-commerce players onto the scene such as Noon, coupled with Amazon’s acquisition of a stake in Souq.com this year, translates into millions of dollars’ worth of investment in the region’s physical infrastructure, such as warehousing, delivery systems, payment systems and marketing. All this will ensure the ease of transactions and rapid delivery that help bring shoppers online for the first time, analysts say.

Megan Biebuyck, a spokesperson for Dubai-based online fashion retailer Namshi says infrastructure for internet retail in the region has been traditionally under-developed compared to western Europe and North America, but the UAE and wider region is catching up quickly. However, Namshi’s target market for expansion, Saudi Arabia, is still lagging behind.

“While Dubai has good infrastructure around payments, delivery, and ease of doing business, the broader GCC still has a long way to go,” she says. “Things like the lack of credit card penetration and lack of street addressing are quite painful to manage, though fortunately there has been progress in these areas.”

Despite these challenges, Biebuyck says 2017 has been a “special moment” for fashion e-commerce in the region. “We see the major players entering the market as not only healthy competition, but also a means to collectively grow the number of online shoppers altogether in the GCC. The more ecommerce advertising and noise, the more online shopping will become a natural behaviour.”

Where for art thou malls?

Skyrocketing online sales are not good news for everyone, and the challenges to traditional retail should not be understated, says Euromonitor’s Senior Research Manager, Nikola Kosutic.

“I think a lot of big, big players in the offline retail business are not aware of the size of this threat, because consumer behaviour can change overnight,” he warns. Consumers who start off buying clothes online, can move to groceries, beauty products and furniture until suddenly they’re buying everything online, he adds.

With UAE retail trends traditionally following those seen in other markets, albeit slightly lagging behind, Kosutic says there is precedent for his warnings. “Those markets show there is a tipping point when heavy acceleration happens, and growth rates skyrocket.”

The last few years have seen “tectonic movement” in some e-commerce markets, where historic growth rates of 50-60 percent have the potential to shoot to 200-500 percent over the next few years. “We think that this can happen in the UAE,” he adds.

With the region’s youth saturated with high mobile connectivity, online purchases are seen as the inevitable ‘next step’ in this generation’s digital transformation. In addition, Dubai authorities have launched the AED2.7bn Dubai CommerCity, the first free-zone dedicated to e-commerce. This is designed to further accelerate the growth of the GCC’s e-commerce ecosystem, which is estimated to be worth $20bn by 2020, reports by consulting firm AT Kearney say.

The owners of well-known brands such as Gucci and Burberry already have well developed online shopping options on their websites, while department store Saks Fifth Avenue e-store website also ships to the UAE, despite no longer having a physical store in the country, their report says.

“Finally, e-commerce is taking off significantly and we have seen online sales go through the roof this year, more significantly than any year before,’ says Adel Belcaid, senior principal from AT Kearney Middle East.

“This is the year where everyone is finally on the same page. Internet retailing is here to stay and it’s going to grow. It’s not ‘maybe’ or ‘if’, it’s a fact, now,” he says.

It is important to note, however, that comparisons with other countries might not be so helpful when talking about the role of malls in this region. Due to cultural factors, the weather and ease of accessibility, malls should still have a place in this reordered landscape. But clearly they will have to work harder and smarter for that business – presumably as lifestyle destinations rather than purely places to buy things.

Tomorrow’s Amazon

If we are at the start of a new era, perhaps the biggest question is: who will become the dominant online player?

Alabbar clearly has ambitions of dominating the e-commerce space as he did with his malls. But, says Belcaid,“the jury is still out as to whether there is a dominant destination for online fashion retail. No one on this platform has emerged yet.”  In both the UAE and Saudi Arabia, Amazon has dominated the e-commerce market, ranking first in 2017. In both countries Souq.com, which it now owns, followed closely behind, ranking second.

“It’s a time of change where everyone is trying to ramp up their game,” says Belcaid. “Traditional retailers are fighting for their market share, versus specialised online [fashion] retailers. There are specialised ones, such as Namshi and MarkaVIP, but in terms of scale they are still pretty small, so let’s see how they develop.”

Fashion focussed e-commerce platforms will clearly not be as big as general retail providers, but their place in the rapidly expanding space looks set to grow. 2018 should be a good year for the e-players.

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