By Soren Billing
The Gulf's shopping mall culture has so far kept retailers from looking to the internet to boost their sales.
The Gulf's shopping mall culture has kept retailers from looking to the web to boost sales, but a surge in Saudi Arabian broadband usage over the next three years could change that.
Jarir Bookstore, the Saudi Arabian bookstore chain that is also the country's largest seller of laptops, has an impressive website. There's a form for prospective employees to fill out, a section with the latest discount deals and information about virtually every product the company has to offer, including 18 different types of pencil sharpeners.
One catch: you can't actually buy anything unless you're headed down to your local branch.
Jarir is still doing better than most. Many of the firm's competitors have no online presence at all, and even when they do, prices are only updated sporadically. While the Middle East may be home to some of the world's keenest and most discerning shoppers, they're splashing the cash in-store and not on the internet.
The reason internet shopping worked in other parts of the world is that there weren’t mall facilities.
However, that could be about to change as analysts predict that a huge increase in broadband usage in the region's biggest economy, Saudi Arabia, will prompt a new era of online shopping in the Gulf.
"Go to the website of any of the big luxury car dealers in Dubai, and go to the used cars section, for example," says Laurent-Patrick Gally, a retail analyst at SHUAA Capital in Dubai. "I'll bet that none of the used cars you can see displayed on the website have been changed for the last five months."
Elsewhere it's a very different picture. Research suggests 17 pence of each pound spent in the UK in the first half of the year was spent online.
According to the IMRG Capgemini e-Retail Sales Index, UK shoppers spent over $50.9bn on the internet in the period - up 38% from $36.9bn in the first half of 2007 - despite consumers being squeezed by rising mortgage costs, falling property prices and soaring energy costs.
Sales of clothing saw the biggest gain, totaling $3.38bn in the first half, as shoppers tried to reign in spending by finding the best deals on the web.
British shoppers are Europe's biggest online spenders by far. Two of the key drivers behind their love for the net have been their long workday compared with the rest of Europe, and the relative ease with which they can get a credit card.
Both factors would appear to apply to the Gulf as well, but at SHUAA Capital Gally doesn't see the Middle East experience mirroring the UK anytime soon.
"Think about the opening hours of shopping centres in the UAE, and the same in Saudi Arabia," he says. "In certain periods of the year you can shop until 2 o'clock in the morning."
And whereas UK retailers now attend workshops on what to do with all their bricks-and-mortar stores, as more and more of their revenue shifts online, Gulf malls have managed to become a destination in themselves.
"In terms of shopping, the malls are a much more important part of the culture here than they would be in other parts of the world. They are almost the centre for every part of entertainment," says Michael Hughes, executive director of strategy at branding firm The Brand Union. "In Saudi Arabia, it's sometimes the only place people can go."
However, the third big driver of online sales, broadband penetration, is about to change dramatically in the region.
Investment bank EFG Hermes said in July that broadband usage in Saudi Arabia could see a 16-fold increase over the next three years as new operators enter the market.The country invested $10.6bn in telecom services last year but broadband currently reaches less than one percent of the population. To date, the vast majority of Saudis who surf the internet do so on a dial-up connection.
"That's a massive leap for the consumer," says Duncan James, director of strategy at The Brand Union. "When broadband penetration increases a lot of other things increase because of it: gaming, video on demand, internet banking, internet retailing, and more."
But like Hughes, he believes the consumer culture in many Gulf cities, where the average resident lives only a couple of minutes away from the nearest mall, will pose a unique challenge to retailers who try to grow their businesses online.
"The reason internet shopping worked in other parts of the world is that there weren't facilities there," James argues. "So consumers who didn't live near a good facility could have literally the whole world in front of them."
Not all products lend themselves to online retailing: UK-based chocolate retailer Thorntons, for example, has said that many consumers are less likely to treat themselves to a box of chocolates online than they are in real life.
James makes a distinction between more functional purchases such as food, that people are happy to buy online, and others that will continue to be bought in real stores.
"The more emotional purchases, such as a dress or some shoes, you'll still go to the mall for because it's still all about the sensual experience and you're buying into a brand much more," he says.
In many Western countries, ageing populations mean that it is the "40 plus" generation that is worth the most to retailers. However, across the Gulf, and particularly in Saudi Arabia, it's the Facebook generation that has the biggest spending power.
"Some of your consumers with the biggest buying power are in the 18 to 24 demographic or sometimes even younger," says Hughes.
The internet, although partially censored, is where young Saudis engage with what's happening in the world, he adds.
However, many towns scattered across the kingdom are too small to have a mall and driving to your favourite shop in another city is not always an option.
To that end, Gally at Shuaa Capital believes the Saudi roll-out of broadband could trigger a dramatic rise in online retailing. "If you live in Dammam and you want something from Jeddah, then it makes sense if you have the capability to buy online," he suggests.
But it's only the larger players that should consider taking their business online, Gally cautions. An AED200m business might be able to put aside AED1m a year to run their online operation if they think it's going to bring in another AED10m, but smaller firms are unlikely to have the time or the resources.
"From a consumer perspective I think only certain types of products will work," he says.
Airline tickets and "other time sensitive products" are among those items, whereas groceries are not.
In the UK, online food delivery service Ocado, which sells products from supermarket chain Waitrose, recently announced that total sales had reached $1.9bn. But that is in a country with a significantly older population and where public transport has made people less dependant on cars.
A lack of trust in the internet, due to the perception of a high number of online scams in the region, along with a preference for using cash, is also likely to hamper online sales in the Middle East. Gulf banks have struggled to get customers to use their online banking facilities for the same reason."I certainly believe that a lot of people will be reluctant to spend online until they feel that they can put in their card details and have it done in a very safe fashion," Gally says.
Ian Cochrane, Middle East marketing manager at anti-virus software producer Trend Micro, says that the fears are unfounded, and insists that online fraud is no more common here than it is elsewhere.
If anything, internet fraudsters are less likely to target the region due to a lower number of high-profile websites than elsewhere, but this is offset by a lower awareness of internet security, he says.
"E-commerce usage by the public is rising dramatically here," he says, citing the success of concert and cinema ticket websites. "We're seeing an awful lot of online transactions."
The mall will remain a staple of the Middle East shopping experience, but as Saudi Arabia plugs into the World Wide Web, Gulf customers may increasingly find themselves logging on for a spot of retail therapy.