Few are Buying into E-commerce

Having achieved some headway of late, e-commerce in the region is still a long way from where it needs to be.

The Strategist- Nader Museitif

E-commerce remains the talk of the town. Big funding rounds continue to pop up for the few big players in the field, everyone speaks of solid growth in regional online transactions, and many yearn to see validation in a global retail superpower like Amazon or Alibaba snapping up regional companies. But this is all happening elsewhere. We have to face up to the fact that our region’s e-commerce is still light-years behind the rest of the world. Yes, there is a handful of sizeable e-tailers with strongholds in wealthy, spend-happy GCC markets. But everyone else on the scene is either a struggling startup or a failed struggling startup. Markets are highly fragmented due to rigid borders, divided customs systems, and cultural differences that don’t make it easy to scale without replication.

But entrepreneurs love a challenge, and some have so far overcome these hurdles to build durable business models. Yet we still don’t have enough home-grown success stories for a territory the size of the Middle East. Millions of people are shopping online, so where’s the discrepancy? Why don’t we see more promising online retailers?

Starting with the obvious drivers, more cash is needed to get past the hurdles. Cash buys good technology, pays for the right talent, and builds the right infrastructure with suppliers and customers. But all these are a walk in the park when compared to the holy grail of customer acquisition. With existing e-commerce professionals throwing numbers like $15 per customer acquisition, we must stop and think for a moment. In a region where an average order hovers around the $100 mark, such customer acquisition cost figures are guaranteed to eat up most, if not all, of the gross margin. Even $10 is on the high side.

So is throwing a few hundred thousand dollars a month the only way to get sales and growth? Maybe it is. But anyone looking at their e-commerce business model should do the math with five main variables: average order value, conversion rate, digital advertising budget, advertising effectiveness, and the gross margin. Efficiency on at least one of these can make a huge difference in profitability.

Another hurdle in getting to a respectable regional e-commerce state of existence is leadership. Talk to any startup entrepreneur and they will lament the lack of go-to know-how in the region at all levels, starting from the board, and all the way down to the customer service staff. The number of investors who actually add real value in e-commerce can be counted on one hand.

This pain extends to experienced talent on technology, digital, and commercial fronts. Couple that with cash shortages, and it’s not difficult to see why e-commerce still remains very much in its infancy in our part of the world. Some initiatives and platforms are trying to address the lack of know-how, but I wouldn’t bet on them being sufficiently complex to delve deep into business model issues.

A lot of elements have to come together for any industry to take off. Efforts so far have all been immensely worthy and valuable, but we need to push harder to make our e-commerce a real industry. No secret formula is needed to achieve this, it just needs dedication and resources, and some stamina for the long haul.