Covid-19 and all the resultant market conditions have proved a catalyst for the GCC’s e-commerce market, which was already building up steam over the last years. This is according to a new Kearney report.
Kearney – a global strategic consulting firm – started tracking the region’s e-commerce landscape from 2015 onwards. A sparkling growth story has unfolded since, marked by a jump in market value from $5 billion in 2015 to $18 billion at the end of last year.
Certain positive signs emerged to spark this boom, according to Kearney. First is an increase in online engagement – from both retailers and consumers. The number of ecommerce-enabled websites has more than tripled since 2015, while visitors to the top five sites alone have seen a 50% jump to reach 21 million monthly users.
Add to this a wider increase in screen time and social media usage, which has reached up to 90% penetration in some markets. With familiarity comes engagement – reflected in the conversion rates for GCC ecommerce. Up to 3% of visitors to ecommerce websites in the region end up making a purchase, which is comparable to other regions. Big and shrewd players such as Amazon achieve between 3% and 5%.
And users are not just spending – they’re spending big. The average annual spend on e-commerce in Saudi Arabia and UAE, for instance, rose by 30% in just one year between 2018 and 2019. Consumers spend between $600 and $1,300 online every year in these countries, and have come to expect a certain standard of customer experience – leading retailers to rapidly expand their omnichannel capabilities.
Some consumer segments are drawing more spend than others. Dominant in the GCC market over the last half a decade have been the online fashion & beauty sector, as well as the food & grocery delivery sector. These two segments alone have generated a combined value of more than $8 billion.
If the numbers were promising before, then they have been remarkable this year. Lockdowns, virtual working arrangements and infection risks caused myriad changes in consumer behaviour – with most preferring to shop from the safety of their homes. Kearney suggests that these changes are here to stay.
While devastating for many businesses, these changes have only strengthened the GCC – and global – e-commerce proposition. The resultant numbers are staggering. Until the start of this year, Kearney predicted that GCC e-commerce would reach a value of over $21 billion by the end of 2020. Now, these figures have been revised to $24 billion – marking a $2 billion plus contribution from Covid-19 alone.
The researchers expect this momentum to persist over the next two years at the very least, with some carrying over all the way to 2025. Before Covid-19, GCC’s ecommerce market was projected to grow at a compound annual growth rate of 14% in the lead up to 2022, and tail off into a 10% CAGR up until 2025.
Now, the CAGR for the next two years will amount to 20% according to the report, with a carry over of 14% between 2022 and 2025. At the end of this period, the GCC ecommerce market will have reached a value of $50 billion.
The same factors that sparked growth between 2015 and 2019 have only gotten stronger in the wake of Covid-19. More people were forced to take up online shopping during lockdown, which has accelerated digital adoption, familiarity and engagement. Recognising this, retailers are likely to expand the size and scope of their ecommerce offerings. Dominant markets in the ecommerce landscape – Saudi Arabia and UAE – will continue to grow stronger, while Qatar, Kuwait, Oman and Bahrain will grow in profile.
At the same time, the sector-wise contribution to ecommerce spending is rearranging itself to some extent. No doubt, fashion & beauty products remain a bright spot, and few need reminding of how central food & grocery delivery has been during the lockdown. That being said, lockdown also brought a number of other consumer segments into the spotlight.
Electronic appliances and other media, for instance, are likely to become the leading segment in the region over the next five years. With more functions being carried out at home – for both work and leisure – consumer and business tech is expected to become invaluable. Kearney also highlighted the role of millennials in this trend, given their fondness of electronics and the central role they are set to play in the consumer market.
Another trend that came up during lockdown is a more passionate pursuit of hobbies and a do-it-yourself (DIY) culture. Purchases in this segment are also expected to rise in the near future, alongside other homey products such as digital music, video games and furniture. According to Kearney partner in Dubai Debashish Mukherjee, these sectors might draw the bulk of spending, but the ecommerce boom is likely to have effects across the entire GCC economy.
“With ecommerce set to take on even more prominence in the coming years, the effects of a more definitive shift to online will ripple through the entire retail ecosystem. In addition to major retail groups, these will be felt by real estate developers and SMEs,” he said.