Online Retail Market , UAE

1. RedSeer
Consulting
Online Retail in MENA
Ready To Roar
Sandeep Ganediwalla
by
Mrigank Gutgutia

2. This growth will be driven by a combination
of supply side initiatives. Product selection is
expected to show manifold growth, as the
nascent seller ecosystem expands sharply.
Growth in operational efficiency driven by
inventory stocking will shorten delivery
times significantly - leading to strong
consumption spike. Thirdly, hyper
competition will drive consumer experience
focus especially on after sales - boosting
adoption significantly. Together, these
factors should push the market to its tipping
point and truly make it roar.
The online retail industry in the Middle East
and North Africa (MENA) is at the cusp of
reaching its tipping point and is likely to grow
exponentially to more than $20bn by 2020.
| RedSeer Consulting
SUMMARY

3. Online retail market is
evolving at a rapid pace in MENA region.
We believe that the last 12 months will
go down as a watershed moment in the
history of online retail in this region.
There were two game changing events
over the last 12 months : announcement
of Mohammed Alabbar’s ecommerce
venture and the acquisition of Souq, the
largest regional e-tailer, by Amazon.
Mohamed Alabbar has been on an
aggressive capability building spree to
build end-to-end ecommerce
capabilities since 2016. He has
announced the launch of Noon, a new
e-tailing portal and acquired talent
across the world. His companies have
also acquired stakes in a regional
logistics leader (Aramex), an
international online fashion portal &
white label technology provider
(Yoox-Netaporter), two regional
ecommerce providers (JadoPado /
Namshi), a regional venture capital firm
(Middle East Venture Partners) and a
FMCG company (Americana).
On the other hand, Souq, the regional
online retail leader, has been acquired by
Amazon, the global leader in online
retail. Amazon is a pioneer in online
retail and has deep online retail
capabilities with more than 50% market
share in USA. Also, Amazon is
war-hardened after it cracked open an
emerging ecommerce market, India, as
demonstrated in our latest E-tailing
leadership index. As the index shows,
Amazon is now neck-to-neck with
Flipkart, the incumbent, across
dimensions.
Indian online market grew by almost
3x in 2015, it’s breakout year. We
estimate MENA online retail market also
to break out in the coming three years to
reach more than $20bn by 2020.
2016-2017:
A Watershed Moment
in Online Retail in MENA
Page 1 | RedSeer Consulting

4. Capability: Steep Improvements
Expected
Theseinitiatives will provide an
unparalleled access to processes,
technology and more importantly talent
(a recurring challenge for the region).
This will in turn improve capabilities
across the online retail value chain. Key
capabilities where we expect to see
significant improvement are:
• Improved product variety and
availability
• Better operational efficiency
• Better customer experience
Mohamed Alabbar has stated that his
ecommerce venture will offer ~20m
product listings. Amazon had a
productlisting of 15m in India within 10
months of its launch. Souq, in
comparison, has <8m products (with
~6m of them in the “book” category).
These numbers also vary significantly by
the country of delivery. We expect the
online product assortment to increase
multi-fold in the coming years.
One of the challenges to increasing
product assortment is the nascent seller
ecosystem in the region. A survey of
sellers by Redseer Consulting showed
that 50% of sellers were willing to go
online – a healthy number given the
current size of online retail market (~1%
of total retail). However, there was a lack
of understanding about ecommerce and
cost of online sales was perceived to be
high.
Improved Product Variety and
Availability
We are not comfortable with technology
and do not understand e-commerce
Online demand is poor as very few
customers shop online
We cannot affort logistics and
commissions costs in online selling
We only sell locally, no need
for us to online.
IncreasingnumberofMentions
Hurdles to selling online
As A % of sellers surveyed
Source : RedSeer survey of ~70 Sellers in MENA region.
~20 sellers were selling online
Fig : 1
Page 2 | RedSeer Consulting

5. Source : RedSeer Database
Fig : 2
Fig : 2
This indicates that seller-related
processes need to be further optimized.
Emerging markets such as India have
already gone through this transition.
For example, Flipkart tied-up with local
vendors to reach out to sellers and created
a seller protection fund to resolve disputes
quickly.
Amazon India increased seller awareness
and onboarding through its innovative
Tatkal and Seller Café concepts.
SELLER ONBOARDING PROCESS
SELLER POLICY DESIGN
• Flipkart tied up with local vendors reaching out
sellers and driving up the seller count on its
marketplace.
• Seller protection fund in place to enable quick and
hassle free resolution of disputes related to
damages and returns.
SELLER DASHBOARD
SELLER ENGAGEMENT PROGRAMS
• Detailed performance dashboard showing SKU
level sales performance and shipment tracking.
• Easy to use advertising feature,priced on a per
click basis.
• High performing sellers are able to interact
regularly with the account mangers for expectation
and target setting and obtaining feedback.
• For larger sellers, direct access to account
managers enables swift customer support.
KEY LEARNINGS
Launch of easy-to-use advertising
feature has helped increase seller
visibility and is showing increased
adoption to 2-4% of seller base.
Best practices
Page 3 | RedSeer Consulting

6. MENA market is divided into multiple
countries with different legal
framework and custom taxes making
the operations complex to manage. This
is very different from other large
markets such as USA, India and China
which are relatively homogenous to
operate. This is arguably one of the
biggest challenges for e-tailing to grow
in the region. Smooth operations impact
speed of delivery to customer which in
turn impacts both profitability and
customer experience.
We estimate that less than 10% of
the orders in the region have a promised
of less than two days currently. This is in
part because majority of the orders are
still fulfilledby the sellers (inventory is
stocked with sellers). In the coming
years, weexpect that e-tailers will start
stocking inventory required for fulfilling
orders in warehouses controlled by
them. In India, today more than 60% of
orders are warehouse fulfilled. When
Indian e-tailers transitioned to stocking
inventory in their warehouses, the
order-to-shipment delivery times
reduced by one full day.
Better Operational Efficiency
We expect that MENA will also witness
similar improvements in delivery times
once they moved to stocking inventory.
Redseer’s research indicates that
customer satisfaction improves with
improving delivery speeds. It is not
surprising that Souq is already
experimenting with same day delivery
while Noon is expected to make two-day
delivery a central part of their
proposition.
Page 4 | RedSeer Consulting

7. We expect e-tailers to build on the best
practices across different geographies
while customizing them to the region.
Some examples include :
• Communication channels: Currently,
customer interactions are primarily
through call centers and emails while
other channels are used sporadically.
We expect additional channels of
engagement such as virtual messaging
chats between stakeholders to be more
widely available. Also, currently, many
e-tailers insist on returns only through
call centers.
With increasing competition, most
e-tailers would decide to provide
website / in-app based returns to
remain competitive.
• After-sales care: E-tailers will look to
move away from pricing to identify
sustainable sources of differentiation.
For example, installation services
provided after sales in electronics have
a significant impact on the net promoter
score (NPS) of the e-tailer.
25
After Sales Impact on NPS
NPS
Installationservice
Promoters (5)Moderators (4)Detractors (1 - 3)
High
Low
X%
Overall NPS Score
Scheduling
channels
Customers to be allowed to
schedule installation using
calls, chats and mails
Installation
Personnel
In-house team of service
personnel for installation
Better Customer Experience
After Sales Effect: Electronics Category Example
Fig : 3 Fig : 4
Slotted
Installation
Slots to be provided for
installation and demo of
products after selling.
Options Description
Page 5 | RedSeer Consulting
-25% 63% 13%
-14% 64% 21%
-14% 64% 21%
-7% 53% 40%
-12%
7%
7%
33%

8. Margins Pressure to Increase
Conclusion : Ready to Roar
While we expect the revenues to
grow and capabilities to improve, we
also believe that the online retail will
see hyper-competition from the
regional online players, international
online players (for example, Alibaba
although not officially present already
has significant market share) and the
large brick-and-mortar players who are
currently experimenting with the digital
channels.
In such a scenario, online players might
be tempted to choose growth over
profitability. For example, at one stage,
it is estimated that the Indian online
retail industry was losing ~30 cents for
every one dollar of sales couple of years
ago – now we estimate it to be losing
~20 cents for every dollar of sales.
Online retail is at its inflexion
point in MENA. Experienced,
well-funded and deep pocketed players
with a long term view are entering the
market - this is expected to
exponentially improve capabilities and
topline.
Online players that take a data-driven
approach to decision making and
continuously innovate will be able to
exploit the online opportunity and come
out stronger on the other side.
We, at Redseer Consulting, have helped
many e-tailers to accelerate their
performance through our in-depth
E-Acceleration Program using our
proprietary Integrated Research
Approach (IRA).
We should see improvement across all
key capabilities: sourcing, operations
and marketing. However, topline growth
with a clear path to profitability will be
equally important for long term
sustenance for e-tailers.
Page 6 | RedSeer Consulting

9. RedSeer
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Authors
Sandeep Ganediwalla
sandeep@redseerconsulting.com
Mrigank Gutgutia
mrigank@redseerconsulting.com
Sandeep is the Managing Partner of RedSeer Consulting looking at the Middle East and
Africa regions. He is a digital strategist with a focus on emerging markets with 13+ years
of experience in consulting and technology.
Mrigank is an Engagement Manager at RedSeer. He heads the Consumer Internet Division
and has led over 100+ engagements in the space, advising leading Indian and international
corporates and funds on business strategy, market entry, growth strategy and M&A.