Growth of D2C Ecommerce in the Middle East
Slowly but surely, D2C eCommerce is gaining ground in the Middle East. The share of D2C in the overall online sales is making significant leaps with every passing year. Ecommerce itself is growing well in many countries of the region. So, D2C’s increasing share in eCommerce sales indicates the growing significance of this distribution strategy in the Middle East. There is a strengthening realisation among businesses in the region to connect directly with their customers, jumping the traditional format of brick and mortar or even the relatively new, the online marketplace model. So, what is the reason for this quick transition in channel strategy in the region?
In this blog, we shall dig into some of the important factors that are driving the growth of D2C eCommerce in the Middle East.
Proof of Concept
The success of eCommerce in many Middle Eastern countries has served as a Proof of Concept for companies that wanted to go the D2C route. The success of D2C eCommerce brands further reiterates this for D2C-intending companies. Ecommerce sales have almost doubled in the last five years in the Middle East. We can use some examples here. Saudi Arabia, the most populous country in the GCC, has eCommerce user penetration level at around 80%. Egypt is almost three times larger than Saudi Arabia in terms of population and has eCommerce user penetration at about 47%. D2C brands are also well aware that there is an increasing acceptance of digital payment modes among the customers in the Middle East, especially in those countries where eCommerce is booming.
Young, Tech-savvy Population
In terms of median age, the Middle East is one of the youngest regions in the world. The presence of a large young generation indicates affinities to digital tools and technologies like the internet and smartphones. The comfort levels of customers when it comes to awareness and usage of digital technologies play a big role in their acceptance of eCommerce. The customers from the younger generations are also more welcoming to trying new brands, products, and ways of shopping. They are less averse to taking risks in purchasing products online. These demographic features and their positive impact on online shopping are making businesses adopt the D2C route that establishes better connections with customers.
Internet Penetration
The entire Middle East is catching up fast with the rest of the world in embracing and leveraging the internet. Countries like the UAE, Saudi Arabia, Kuwait, and Bahrain outperform the global standards with their internet penetration hovering over 90-95%. Egypt has one of the highest numbers of internet users in the world and the highest in the Middle East. Also, consider that Egypt has a population of over 100 million. With high internet penetration, it becomes possible for companies to directly reach out to their customers via various digital platforms. And this is what makes D2C an exciting channel strategy for domestic and international companies in many countries of the Middle East.
Per Capita Income
The GCC countries in the Middle East register some of the most impressive per capita income levels in the world. Qatar tops the world list. Within the global top ten are the UAE and Kuwait. Within the top 30 are Saudi Arabia, Oman, and Bahrain. High per capita income translates into a high purchasing power. This is one of the reasons that luxury retail is a flourishing sector in the GCC. With other factors toeing the line, D2C eCommerce emerges as a promising distribution channel for the niche and luxury segments. The non-GCC countries may not reflect the same statistics but many countries like Egypt, Turkey, and Iran perform well on one or other favourable parameters like internet penetration, population and urbanisation that make these countries favourable for D2C eCommerce.
Urbanisation with Infrastructure and Support Systems
A developed state of infrastructural facilities goes a long way in the growth and development of eCommerce in a region. This includes road connectivity, railways, cargo and shipment services, ports and airports, advanced logistics and transportation, warehousing solutions, manpower availability, etc. Urbanisation and development of these systems take place hand in hand. When the size of a market expands with an increase in population and purchasing power, it also attracts businesses. To boost economic development and increase tax revenues, governments spend on building the necessary infrastructure and support systems. Better facilities attract more population and businesses to urban areas which in turn further accelerate the need to develop even better facilities. This is typically the case with eCommerce and D2C eCommerce.
In Egypt and Iran, over 40 million people live in urban areas. The urbanisation rates in all the GCC countries are above 80% with Qatar topping the list at 96%. This speaks for the presence of infrastructural and other D2C eCommerce business support systems in the region.
Pro-business Environment
In the last published Ease of Doing Business Report by The World Bank for the year 2020, the various areas of business regulation that were considered included starting a business, permission for construction, electricity subscription, property registration, credit facilities, tax payment, etc. Many Middle Eastern countries like Saudi Arabia, Kuwait, Bahrain, and Jordan made impressive progress in this list over the subsequent years. The UAE already is favoured by international companies from around the world for their strategic geographic location and pro-business environment. These are also the countries that have been performing well on other parameters for business and specifically, eCommerce. The combined favourability of environmental factors makes some of the markets in the region ideal for D2C eCommerce. But, of course, this does not negate the need for market research. For startups and budding entrepreneurs, finding experienced D2C consultants in the Middle East for this task can get a little time-consuming.
Dubai as an International Trading Hub
As retail consultants for the Middle East market, we have witnessed that Dubai stands as an epitome of the success of physical retail and eCommerce in the region. Many MNCs already have a strong omnichannel presence in Dubai. With the route of shopping malls and online marketplace platforms like Amazon and Noon, many domestic and international brands have been able to cater to Dubai’s retail market and establish their presence. Apart from being a big retail market in itself, Dubai also serves as a launching ground for businesses to expand to nearby regions. The strategic geographic location of the UAE places the country as a connecting point between the East and the West. All these factors provide impetus to manufacturing brands to enter Dubai’s retail market and try their hands on D2C for better market penetration and expansion in the Middle East. According to a Gulf News report, online D2C sales in the UAE reached USD 1 billion in 2021 alone.
The role of Social Media
Digital marketing is critical for the online D2C and eCommerce business. The favourable digital usage patterns in the UAE have contributed in a big way to the emerging success of D2C eCommerce in the country. With high smartphone and internet penetration and a high number of social media users, advertising on social media platforms holds the key to the success of digital marketing in the UAE. Influencers with a high number of followers on popular social media platforms like TikTok and Instagram are useful for businesses to mass promote their brands and products. The point here is not the brand name of the platform but the outreach of the platform and the influence of the influencers.
D2C eCommerce in the Middle East is still in its nascent stages. With various factors specific to the region aiding online D2C, more businesses are on the way to adopting this distribution strategy. But for the continued growth of D2C eCommerce in the region, it will be important that the supporting factors remain stable and keep growing at the global standards. The online D2C model may not be hard to be replicated as many brands have already successfully done it. The challenges would revolve around marketing improvisation and operational efficacies. The model may be the same everywhere but customers are unique in every market. Different product categories perform diversely on different channels. Even the supporting factors in the business environment would vary from place to place within a region.
About YRC: We are retail and eCommerce consultants for the Middle East market. We help businesses adopt D2C with our planned and proven services and solutions. Of course, we improvise these solutions for each client depending on their unique business requirements and specifications. The services design and delivery are carried out by an expert team of D2C Ecommerce consultants for the Middle East market.
To know more about our D2C eCommerce consultancy services in the Middle East, please visit our website.