6 Ways E-Commerce is Different in the Middle East

With its high internet penetration rates, youthful demographics and tech-savvy population, the Middle East is on the verge of transformational e-commerce boom. According to a recent report by Business Monitor International, the value of e-commerce in the MENA region will hit $48.6 billion by 2022, up from $26.9 billion in 2018.

Countries across the Middle East and North Africa vary greatly. There are wide differences in GDP, disposable income, population size and consumer preferences, but there also are shared attributes that shape the e-commerce landscape and could hamper online sellers looking to expand in the region.

The Vulnerability of the Franchise Model

Consumers in the MENA region are no strangers to international brands, but branded goods are typically available through stores and outlets operated by local franchisees. In most cases, franchisees do not have the rights to sell online. For example, the Reebok store in the UAE is operated by the corporation Al-Futtaim, which is the national brand owner (NBO). However, most local franchisees can’t sell online because e-commerce sales are exclusively the domain of the global brand owners (GBOs). Brands that are trying to grow and exploit online sales in MENA could find themselves at odds with their franchisees if online sales begin to cannibalize in-store purchasing. Western brands and local franchisees need new thinking if they are to figure out how in-store and online sales strategies can complement one another.

Postal Code Confusion

Most countries with mature e-commerce markets have clear, well-developed postal code systems that allow for smooth delivery. That cannot be said in much of the Middle East. In countries such as Lebanon, residents typically define their places of residence through proximity to nearby landmarks – restaurants, mosques, intersections, natural features in the landscape, etc. The lack of established postal codes is the result of an outdated address system and unchecked development. As you can imagine, saying you live “next to Hardee’s restaurant” is not conducive to efficient online delivery. The advent of geolocation tagging and geocoding are the answer and are beginning to come into use.

Cash: Still King

Middle East consumers’ preferred mode of payment remains cash on delivery, which is inefficient and problematic for online sellers. Debit and credit cards are widely in circulation, but many consumers worry about sharing their banking details online. There is also the problem of access to popular online payment gateways like Paypal, which is not available in all Arab countries. In some cases, credit cards issued by MENA banks are not accepted by all vendors for online payment because of sanctions or restrictions imposed by the U.S. or European Union.

Trust Deficit

On a related note, there is a significant trust deficit among MENA buyers when it comes to the authenticity of goods and sellers. Flourishing black markets and gray markets, along with weak consumer protection laws, have left consumers wary of buying online. Counterfeit goods still flood the market so people are wary of being duped. They like to see and touch goods before they pay, hence the preference for cash on delivery. In addition, the idea of a full refund is rare in MENA, where many sellers also take a hardline. As research and advisory firm Gartner notes, only 15 percent of the businesses in the region have an online presence.

Cultural Differences

E-commerce is appealing to consumers because it opens up a world of choice: products and services that they otherwise would not have access to. That doesn’t change the fact that the MENA region remains socially and culturally conservative, so fashion trends and tastes in movies, books and other content often play out differently. Marketers frequently find that what works in the U.S. or Europe needs a rethink in the Middle East. For example, the highly popular mascara by the company Two Faced had to change its name for the UAE market from Better than Sex to Better than Love.

It’s Hot Out There

The growth of e-commerce in the Middle East will, in part, be affected by the searing heat in the region. Many consumers still prefer shopping malls and bricks-and-mortar stores because they are cool, clean, pleasant places to be when the weather is intolerable outside – and because they typically stay open late (malls are open to midnight in the UAE, for example). Shopping centers aren’t just retail destinations but places offering a wide variety of services and food options that e-commerce can’t match. Family excursions to buy children new clothes and presents for major holidays such as Eid al-Adha are family affairs at major malls, where people socialize in a way they can’t if they are doing their shopping online.

E-commerce in the MENA region continues to enjoy double-digit growth despite the many obstacles. Amazon’s purchase of Souq.com in 2017 is further proof that the business world is keeping its eye on the potential of e-commerce in the Arab world. Like elsewhere, its success could ignite a cultural shift in the region.