This is a multi-part blog post on my views on E-Commerce in the UAE. To read the earlier parts click below:
E-Commerce in the UAE: Part 1.
E-Commerce in the UAE: Part 1
Preface
As someone who has spent a number of years in retail, e-commerce and traditional mail order businesses in the Middle East, it is interesting to always listen to conversations that tend to circulate about the future of retailing and online sales in the region.
It is really, a story of extremes. There are those who see e-commerce as the future and the only way to do things going forward and there are those who think it is a fad that’ll never occupy more than 3-5% of their sales. The reality is that both of them have their heads in the sand.
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| Image: www.wisnetsol.com |
The problem with those who see the former argument as the way forward often base their opinions on what they see coming out of the United States or Europe, which this region isn’t. We’re fairly unique here and the challenges faced by businesses here are not something that many European or American e-tailers face. Those who argue the latter, probably haven’t realized they’ve already embraced it and most likely are buying tickets, booking hotels or benefited from a voucher that they’ve bought online already; all of which are industries that have largely grown because of online commerce.
I have therefore decided to contribute my two cents to the debate and have penned where I think e-commerce and retailing in the region is heading. For most of this, I’ve not gone through Wikipedia, research libraries or consultant reports but rather have based it on the experience I’ve gained over the last thirteen years when I first started working in e-commerce and mail order before moving onto retailing. Having said that, you may disagree with some of what I’ve said but I hope you appreciate we all see things through a slightly different lens at times so I’d prefer to agree to disagree instead of getting into never-ending arguments.
There are a lot of topics that I want to cover and have thus decided to break this write up into various installments that’ll be posted over a number of days for everyone to read.
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 1: What Sells Online
I said the in my initial introduction to this piece that the Middle East is unique. That is indeed true. In most countries of the world, where e-commerce initially thrived were industries that are blocked in the region courtesy of our regional proxies installed by our friendly ISP’s. The industries were porn and gambling. There are many I’m sure who have found ingenious ways to get around this but by and large, this meant the boom in e-commerce that most countries saw, didn’t quite happen here.
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| Is this the screen that slowed down the acceptance of e-commerce in the region? |
Another factor the region was slow to start was that initially credit card penetration rates were extremely low in the region. Back in the year 2000, trying to get a credit card was probably more difficult than getting a driver’s license (hearing stories of people failing their driving test 6-8 times was not uncommon back in those days). With fewer people using a credit card, the only other option was Cash on Delivery (COD) which is what courier companies like Aramex offered. COD though is cumbersome. It still gives the customer a chance to back out of a transaction whereas the moment you’ve entered your credit card details into a website, you’ve more or less committed yourself to the transaction. A lot of e-commerce sites do work on impulse as do many retailers. The impulse quite isn’t the same if you’ve got a day or two to decide whether you want to part with your cash when the delivery person comes with your package.
Today, the story is quite different. Everyone has got a credit card. Correction: everyone has got multiple credit cards. The bigger issue that most online retailers focused on then was trust. Can you trust the vendor or merchant you’re transacting with, with your credit card details? For many people, this is still an issue but has become less of an issue as the convenience factor has over taken the risk issue in most people’s minds.
If you don’t use your credit card online today, you can’t benefit from the following:
- Bonus Skywards miles for using your credit card to book tickets on Emirates Airline website
- Hotel rates that websites like Expedia, Hotels.com, Booking.com, etc. offer
- Download music or Apps on iTunes (unless you use an Apple Gift Card, using another multimedia service or pirate the content)
- Buy coupons from sites like LivingSocial, Groupon or Cobone
- Saving time by paying your utility bills online whether it be through the bank or utility company's website or mobile App
What do most of these transactional traits have in common? Most of them are service related. The industries that have thrived initially in this region have been those that could sell services online. The reason was that delivery could be immediate and prices could be competitive as a middle man could be knocked out of the equation. Furthermore, scalability was possible so a single website could go from serving one customer to one hundred thousand customers fairly quickly since most of the processing of those transactions happens electronically.
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| Emirates are one of the pioneers for e-commerce in the region. Hello Tomorrow. |
When shipping a physical product though, things are quite different. A lot of the processing of a transaction has to be done physically and as you grow in scale, the costs associated also increase whether it be logistics, sales co-ordination, warehousing or physical delivery expenses. The amount of time taken to deliver also becomes more of challenge unless the logistics mechanism used isn’t ramped up immediately. Horror stories of shipments placed on the websites of North American retailers for Christmas where the stocks either ran out or shipments were delayed well beyond Christmas surface every year. Some online retailers have managed this better than others but it is any e-tailers worst nightmare.
The physical products that typically sell best online are those that are well known and easy to ship. Everyone today knows what an iPad or iPhone and that it comes in two colours and different capacities. That’s easy to buy online. Would the same be true if you wanted to buy a Sony Bravia or Samsung Smart TV? There are so many models, variations, picture qualities, etc. to think through and it is much more bulky that all of a sudden, it just seems easier to visit a store when buying a TV. The same may be true in fashion, books and other products where you know the product somewhat before buying it and if you know it’s easy to ship would be the products that sell best online.
Concluding Thoughts on What Sells Online
What is clear is that the growth in e-commerce in this region has been largely driven by the service sector. From what I’ve heard, Emirates Airlines probably does more business online in this country than any other e-commerce player. The scalability, savings and distribution models support this in most cases. That doesn’t surprise me and I don’t think it does anyone else.
E-Commerce in the UAE: Part 2.
E-Commerce in the UAE: Part 2
This is a multi-part blog post on my views on E-Commerce in the UAE. To read the first post, click on E-Commerce in the UAE: Part 1.
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
I know I’m walking on egg shells here but we are spoiled in the UAE. We don’t like self service petrol stations which is why whenever the petrol companies have tried to make us fill our own tanks, they’ve ended up back peddling very quickly. We’re used to have a bottle of milk delivered to our house by the neighborhood grocery at 11pm. Come to think of it, what isn’t delivered to our house today without any extra charge: our newspaper, laundry, appliances, fast food. The list could go on. How many of us actually get up and climb up a ladder when the lightbulbs in our house have to be changed? In a lot of cases, there’s an electrician, a handyman or a maid who does that for us. While we take a lot of this for granted here, these are luxuries for most people in most countries and as much as we can complain about the level of service, we are served in more ways here than we are in many other parts of the world. The self service or DIY culture has always been a slow burner in this part of the world. Even Ikea understands that and will recommend people to deliver and install your furniture for you. When you get a level of service like this from a retailer or service provider, then it becomes even more challenging for an e-commerce player to compete.
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 2: The Retail Experience
The death of retail.
A lot has been said about this with stories circulating every few years of a certain retailer shutting down because they failed to react in time to changing trends. That may be true, but the changing trend isn’t only the role that the online sphere plays today. If a retailer has over-expanded, over-committed or over-expected, they’ll fall, if not fail. This is true in any business and the fundamentals have to be in place for any business to succeed. A lot of these fundamentals have been there for decades if not centuries but they make take another guise or shape over the period.
Retailing in the UAE is unique. A lot of the reasons given for e-commerce to succeed in the US or Europe simply don’t exist in this part of the world because retailing here is quite different which I’ll highlight in a few examples below:
Example 1: Proximity
The vast majority of the population of the United Arab Emirates lives in a city. Most cities in United Arab Emirates are flooded with malls. I don’t have the exact figures but the UAE probably has one of the highest retail ratios in the world if you compare the amount of retail floorspace versus the size of the population. Even in some of the most remote parts of the country, you have a shopping centre, if not a mall located not too far away from you. This isn’t the case necessarily in a lot of the places where e-commerce has thrived.
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| Not quite Rome, but to a mall in Dubai: YES. |
Example 2: Availability of Goods
If you want to find a product in the Middle East, chances are you’ll find it in Dubai. No matter how new it is, what brand it is or how short the supply is, you’re best bet is Dubai within the region. Someone or other will find a way of bringing it here, even if it’s at a price that could make them a small fortune, but it will be available at a shop near you if you live in the UAE. I know a couple of years ago when I worked with a brand to sell their products over the Internet in the region, one of the most successful markets for them was Bahrain and Saudi Arabia because they could ship goods there that weren’t necessarily available in the local market there but were available in stock with retailers in Dubai. These were not because there was a shortage in supply, it was just that the variety retailers kept in Dubai was something that a retailer in Bahrain would struggle to manage with. I’m guessing that a lot of the products that sell best over the Internet in the UAE are those products that aren’t freely available in the UAE because they aren’t as easily available here (point in case, the Amazon Kindle).
Example 3: Retail Hours
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| Image: www.sammydvintage.com |
You get spoiled in the UAE. On weekends, our malls are typically open till midnight. On festive periods, we’re open till midnight. During retail events such as the Dubai Shopping Festival and Dubai Summer Surprises we’re again open till midnight. During Ramadan, we may find stores open well past midnight. In short, if you’ve got free time, you’ll probably find that there is a retail outlet open somewhere not too far from you. Now compare this with Europe. In many countries, retail stores are shut entirely on Sunday’s or open only for limited hours. During the week, where our retail outlets are typically open till 10pm in the UAE, you find retail outlets in Europe are open up till 7pm, 8pm or at times 9pm. The fact that retail hours in Europe don’t match the times when people are typically free has given rise to e-commerce on the continent. This isn’t the case in the UAE and this is probably another reason why e-commerce hasn’t quite taken off as it has in much of the West.
Example 4: Retail Mix in the UAE
Much has been said and is debated about retail standards in the UAE. If you’re looking purely at the quality of service you get on the shop floor, then the United States has been the best experience for me. There is no doubting that. However, if you look at the Retail Mix in the UAE wherein you consider the quality of shopping malls, F&B offerings, entertainment offerings, brands available, retail hours, cleanliness, upkeep, retailer furnishings, etc., then the UAE is one of the most advanced. Whether this is the advantage of being a younger country or whether it is that we’ve got better people managing retail in the UAE, you can’t argue with the fact a lot of the reasons that people move away from retail stores in the West and migrate towards online avenues simply don’t apply here in many cases. Consider an old and tired mall in any country and compare that with what we consider an old or tired mall in the UAE and chances are, you’ll find the mall in the UAE to be so much better off. This is why when you look across the broader region (that is not only the Middle East and Africa but also the Indian subcontinent), any retail developments that are happening here are being benchmarked against what we have in the UAE.
Example 5: Customer Service
I know I’m walking on egg shells here but we are spoiled in the UAE. We don’t like self service petrol stations which is why whenever the petrol companies have tried to make us fill our own tanks, they’ve ended up back peddling very quickly. We’re used to have a bottle of milk delivered to our house by the neighborhood grocery at 11pm. Come to think of it, what isn’t delivered to our house today without any extra charge: our newspaper, laundry, appliances, fast food. The list could go on. How many of us actually get up and climb up a ladder when the lightbulbs in our house have to be changed? In a lot of cases, there’s an electrician, a handyman or a maid who does that for us. While we take a lot of this for granted here, these are luxuries for most people in most countries and as much as we can complain about the level of service, we are served in more ways here than we are in many other parts of the world. The self service or DIY culture has always been a slow burner in this part of the world. Even Ikea understands that and will recommend people to deliver and install your furniture for you. When you get a level of service like this from a retailer or service provider, then it becomes even more challenging for an e-commerce player to compete.Concluding Thoughts on The Retail Experience
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| An aerial view of Dubai Mall. Image: www.stephanecompoint.com |
Retailing is thriving in the UAE and will continue to do so for the foreseeable future. As long as we have tourists in our malls and residents who are financially stable, we’ll continue to see retail prosper. A day in the mall isn’t a chore in the UAE. There is so much to do for everyone in the family that the mall revolves around how we plan our free time. We may not go to the same mall every weekend but chances are that if you’ve got a two day weekend, there is a portion of one day per week that you spend in a mall. It may not be the same mall every week but chances are, somewhere down the line, you’re plans revolve around a mall.
This isn’t necessarily the case in many other countries whether they be in the region or outside of the region. Think about it. When you travel overseas, do you necessarily think of where sightseeing destinations that include malls or are there other attractions that come to mind first? Now compare that with any visitors you welcome in the UAE and can you recommend them five places to visit, one of which isn’t a mall? It’s difficult and this is another reason why e-commerce hasn’t taken off in the UAE like it has in so many other parts of the world.
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 3: Government Regulations
The question of who governs the Internet and what is on the Internet has always been difficult to answer. Does it need governing? Is it always a case of buyer beware? If it is governed, should the same rules apply online and offline? There’s always been stories popping up in the press about Amazon battling the government as several states feel they’re being cheated out of sales tax. Locally, we’ve seen stories appear recently in The National about group buying sights coming under the radar of government officials (click here for the story). Where do we draw the line, if indeed it needs to be drawn and what should consumers be aware of?
The Agency Law
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| Image: www.goodmanlaw.org |
In the UAE, we’re subject to something called affectionately as “The Agency Law.” The Agency Law basically stipulates who the authorized agent is for a brand and says that he should be the legal importer of the brand into the country. Anyone who imports a product from a particular brand and isn’t the registered agent, may be in trouble. A lawyer could probably tell you the ins and outs of this better but this is the Cliff Notes version of The Agency Law.
What does this mean for retailer and e-commerce players in the UAE?
As a retailer, it means we’re bound to buy all of our products through authorized agents if we’re not the registered agent ourselves. In most cases, the authorized agent is one legal entity only which means, we’re restricted to buying from one entity and then selling the good or service onto the consumer. As you can imagine, this can make negotiating the best deal a little more challenging when the agent knows he’s in a sense protected by the government and as a retailer, we’re bound to buy the products at the prices dictated, irrespective of what margin the agent keeps for himself.
When the same retailer then decides to sell online within the UAE, then he is technically still bound to source the products from the same channels he is dealing with for his physical stores, which in this case is the authorized agent. Will an agent sell to a retailer a product cheaper because he is selling it online? In most cases, he doesn’t care. A sale is a sale.
So what then happens when a pure play UAE-based e-commerce player starts selling in the UAE? Technically, he is obliged to buy his products from the authorized agent and in most cases, I’d assume his buying price would be in the best situation on par with that of the retailer as they both would be buying from the same source. The difference in pricing should then come in the form of what retail margins they both decide to work on. However, in most cases, most pure play UAE-based e-commerce players aren’t acquiring the products from the authorized agent. They’re buying the product from wherever they can source it and selling it onto the consumer. These goods are often referred to as “Grey Goods.” In a sense, many of them have an advantage over many UAE-based retailers and this in part due to the fact that many of them aren’t moving in line with the laws of the land.
It could be argued that the authorities have decided to keep one eye shut when this happens or that the volumes are not significant enough for them to take notice but this then opens up another can of worms with regards warranties, refund policies, etc. which I’ll elaborate on further.
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| Aramex's Shop and Ship service has spread its wings to countries like China |
There is another scenario here though that also has to be considered with regards to The Agency Law. The internet is global and as a customer, you are free to visit any website, in any part of the world, including most e-commerce websites. Some may ship to the UAE directly and for some others, you can get goods shipped here more creatively using services such as Aramex’s Shop and Ship service. So when you’re buying a product from an international e-commerce player and importing it yourself to the UAE, are you breaking the law? The common consensus tends to be that if you’re importing one unit for your personal use, that is generally OK but if you starting importing products in larger quantities for the purpose of resale or products that are banned, you can end up in hot water. In such cases, it is then assumed you know the risks of importing these from a non-UAE based entity and as such as a buyer, you’re aware that there may be little legal recourse if the product is not what you ordered or defective.
Grey Goods
The bigger questions of grey goods then arises. In a free market society, we should all be able to buy from where we want and sell to where we want. That doesn’t mean though that as a retailer or e-commerce player we violate the sanctity of current trading patterns that exists but rather we allow them to become more efficient. A lot of the responsibility for imbalances in pricing that exists from country to country lies with the brands themselves. If a brand serves their customer (in this case, the agent, distributor, retailer or e-tailer) properly, then they may not look to source from other countries and circumvent The Agency Law.
The difficult part for most consumers buying online today, is that they can’t distinguish between what products are coming from the authorized agent and what is being sourced from the Grey Market. Why does this matter to the consumer?
It is assumed that a product procured from the authorized agent carries an official warranty which will be honoured by the authorized agent at their service centre on behalf of the brand owner. If there is a complaint that is not being attended to, then matter can be escalated to the Consumer Protection Department at the Department of Economic Development or the Ministry of Economy who will intervene on behalf of the customer with the said retailer and agent where required.
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| You can't talk about Grey and not mention this, can you? |
Buying a product from the authorized agent also ensures that the product comes with right language manuals and user interface for the region. It should also conform to the standards put forward by the UAE authorities. In short, it is authorized for sale and service in the UAE.
For example, in the case of any devices that include a WIFI connection, wireless or wired modem of any sort, they need to be authorized by the Telecommunications Regulatory Authority (TRA) for sale in the UAE. For books, music or movies, they need to be authorized by the National Media Council. For many home appliances, they need to be authorized by the Emirates Authority for Standardization & Metrology (ESMA) to ensure that they conform to certain standards set forth by the UAE government. In the case of food or medicines, they would also have to be approved by the relevant authorities in the UAE to ensure they’re safe to sale.
With a Grey Good bought from an e-commerce site, you are on your own. There is no retail store you can run into to make a fuss or police you can call to the scene. Even where an e-commerce player says they will provide their own warranty, there is no guarantee that said website will be in business a few months from now or what quality of warranty service you will get. There may also not be a government department that may be willing to support you as in some cases, many e-commerce businesses that operate in the UAE have their legal roots outside of the UAE.
Sale or No Sale. Festival or No Festival?
As a retailer in the UAE, you need to take permission for just about everything. To go on sale, you have to apply for permission from the Department of Economic Development (DED). To have a special offer, you need to take permission from the DED. To run a competition, raffle or contest, you need to take permission from the DED. To participate in events such as the Dubai Shopping Festival or Dubai Summer Surprises, you may need to pay a participation fee to the Dubai Events and Promotions Establishment (DEPE).
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| Image: www.bestdubaiholidays.com |
While I’m not going to talk about the need for why we pay and if is it justifiable, what this has ensured is that when as retailers we do advertise a markdown or a discount, these are genuine discounts. The penalties for misleading the consumer are quite hefty and the DED is swift in their actions here. So the question therefore arises, how genuine are the discounts you see online since many of the offers are largely unregulated?
I have seen many cases where discounts have been advertised that are misleading. With electronic products, the price of a product varies depending on the lifecycle of the product. When a product is approaching the end of its life, it tends to be sold at a lower price. Prices may in fact change several times during the course of the product’s life so when a price comparison is made, should it be against the last selling price or the launch selling price? I’ve seen cases where certain websites advertise the “retail” price as the launch price of a product, which may have been the price retailers were selling the product for a year earlier and using this as the benchmark for comparison. This is something that many retailers wouldn’t get away with but we see this happen all the time online. Just as you shouldn’t believe everything you read on the Internet, you also have to throw caution to the wind and look at an e-commerce players reputation before believing that all price discounts are genuine.
Concluding Thoughts on Government Regulation
If there differentiating factor between retailers and e-commerce players comes down to where you source products from (i.e. authorized agents versus grey market), then this may be something for the government to look into. The Agency Law by their very nature are archaic and many of the benefits that the agent system today provides can still be implemented but it would mean that many of the responsibilities that today sit with an authorized agent would shift to that of a distributor or a brand themselves. Even for e-commerce players to grow, they need support of the brands. Many work against the brand in this region and just like retailers who are heavily on brand support, e-tailers would need the same. Amazon for example works alongside most of their major suppliers. There are promotions, offers and a supply chain that is managed in conjunction with that of Amazon and the brand suppliers. The same needs to happen in this part of the world if e-commerce is to grow. At the same time, The Agency Law has to be re-looked into if efficiencies have to be achieved in terms of supplying goods to a consumer competitively. Protectionism is an era that passed us several decades ago but is a concept that still exists somewhat in this part of the world.
E-Commerce in the UAE: Part 3
This is a multi-part blog post on my views on E-Commerce in the UAE. To read the earlier parts click below:
E-Commerce in the UAE: Part 1.
E-Commerce in the UAE: Part 2.
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 3: Government Regulations
The question of who governs the Internet and what is on the Internet has always been difficult to answer. Does it need governing? Is it always a case of buyer beware? If it is governed, should the same rules apply online and offline? There’s always been stories popping up in the press about Amazon battling the government as several states feel they’re being cheated out of sales tax. Locally, we’ve seen stories appear recently in The National about group buying sights coming under the radar of government officials (click here for the story). Where do we draw the line, if indeed it needs to be drawn and what should consumers be aware of?
The Agency Law
|
| Image: www.goodmanlaw.org |
In the UAE, we’re subject to something called affectionately as “The Agency Law.” The Agency Law basically stipulates who the authorized agent is for a brand and says that he should be the legal importer of the brand into the country. Anyone who imports a product from a particular brand and isn’t the registered agent, may be in trouble. A lawyer could probably tell you the ins and outs of this better but this is the Cliff Notes version of The Agency Law.
What does this mean for retailer and e-commerce players in the UAE?
As a retailer, it means we’re bound to buy all of our products through authorized agents if we’re not the registered agent ourselves. In most cases, the authorized agent is one legal entity only which means, we’re restricted to buying from one entity and then selling the good or service onto the consumer. As you can imagine, this can make negotiating the best deal a little more challenging when the agent knows he’s in a sense protected by the government and as a retailer, we’re bound to buy the products at the prices dictated, irrespective of what margin the agent keeps for himself.
When the same retailer then decides to sell online within the UAE, then he is technically still bound to source the products from the same channels he is dealing with for his physical stores, which in this case is the authorized agent. Will an agent sell to a retailer a product cheaper because he is selling it online? In most cases, he doesn’t care. A sale is a sale.
So what then happens when a pure play UAE-based e-commerce player starts selling in the UAE? Technically, he is obliged to buy his products from the authorized agent and in most cases, I’d assume his buying price would be in the best situation on par with that of the retailer as they both would be buying from the same source. The difference in pricing should then come in the form of what retail margins they both decide to work on. However, in most cases, most pure play UAE-based e-commerce players aren’t acquiring the products from the authorized agent. They’re buying the product from wherever they can source it and selling it onto the consumer. These goods are often referred to as “Grey Goods.” In a sense, many of them have an advantage over many UAE-based retailers and this in part due to the fact that many of them aren’t moving in line with the laws of the land.
It could be argued that the authorities have decided to keep one eye shut when this happens or that the volumes are not significant enough for them to take notice but this then opens up another can of worms with regards warranties, refund policies, etc. which I’ll elaborate on further.
|
| Aramex's Shop and Ship service has spread its wings to countries like China |
There is another scenario here though that also has to be considered with regards to The Agency Law. The internet is global and as a customer, you are free to visit any website, in any part of the world, including most e-commerce websites. Some may ship to the UAE directly and for some others, you can get goods shipped here more creatively using services such as Aramex’s Shop and Ship service. So when you’re buying a product from an international e-commerce player and importing it yourself to the UAE, are you breaking the law? The common consensus tends to be that if you’re importing one unit for your personal use, that is generally OK but if you starting importing products in larger quantities for the purpose of resale or products that are banned, you can end up in hot water. In such cases, it is then assumed you know the risks of importing these from a non-UAE based entity and as such as a buyer, you’re aware that there may be little legal recourse if the product is not what you ordered or defective.
Grey Goods
The bigger questions of grey goods then arises. In a free market society, we should all be able to buy from where we want and sell to where we want. That doesn’t mean though that as a retailer or e-commerce player we violate the sanctity of current trading patterns that exists but rather we allow them to become more efficient. A lot of the responsibility for imbalances in pricing that exists from country to country lies with the brands themselves. If a brand serves their customer (in this case, the agent, distributor, retailer or e-tailer) properly, then they may not look to source from other countries and circumvent The Agency Law.
The difficult part for most consumers buying online today, is that they can’t distinguish between what products are coming from the authorized agent and what is being sourced from the Grey Market. Why does this matter to the consumer?
It is assumed that a product procured from the authorized agent carries an official warranty which will be honoured by the authorized agent at their service centre on behalf of the brand owner. If there is a complaint that is not being attended to, then matter can be escalated to the Consumer Protection Department at the Department of Economic Development or the Ministry of Economy who will intervene on behalf of the customer with the said retailer and agent where required.
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| You can't talk about Grey and not mention this, can you? |
Buying a product from the authorized agent also ensures that the product comes with right language manuals and user interface for the region. It should also conform to the standards put forward by the UAE authorities. In short, it is authorized for sale and service in the UAE.
For example, in the case of any devices that include a WIFI connection, wireless or wired modem of any sort, they need to be authorized by the Telecommunications Regulatory Authority (TRA) for sale in the UAE. For books, music or movies, they need to be authorized by the National Media Council. For many home appliances, they need to be authorized by the Emirates Authority for Standardization & Metrology (ESMA) to ensure that they conform to certain standards set forth by the UAE government. In the case of food or medicines, they would also have to be approved by the relevant authorities in the UAE to ensure they’re safe to sale.
With a Grey Good bought from an e-commerce site, you are on your own. There is no retail store you can run into to make a fuss or police you can call to the scene. Even where an e-commerce player says they will provide their own warranty, there is no guarantee that said website will be in business a few months from now or what quality of warranty service you will get. There may also not be a government department that may be willing to support you as in some cases, many e-commerce businesses that operate in the UAE have their legal roots outside of the UAE.
Sale or No Sale. Festival or No Festival?
As a retailer in the UAE, you need to take permission for just about everything. To go on sale, you have to apply for permission from the Department of Economic Development (DED). To have a special offer, you need to take permission from the DED. To run a competition, raffle or contest, you need to take permission from the DED. To participate in events such as the Dubai Shopping Festival or Dubai Summer Surprises, you may need to pay a participation fee to the Dubai Events and Promotions Establishment (DEPE).
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| Image: www.bestdubaiholidays.com |
While I’m not going to talk about the need for why we pay and if is it justifiable, what this has ensured is that when as retailers we do advertise a markdown or a discount, these are genuine discounts. The penalties for misleading the consumer are quite hefty and the DED is swift in their actions here. So the question therefore arises, how genuine are the discounts you see online since many of the offers are largely unregulated?
I have seen many cases where discounts have been advertised that are misleading. With electronic products, the price of a product varies depending on the lifecycle of the product. When a product is approaching the end of its life, it tends to be sold at a lower price. Prices may in fact change several times during the course of the product’s life so when a price comparison is made, should it be against the last selling price or the launch selling price? I’ve seen cases where certain websites advertise the “retail” price as the launch price of a product, which may have been the price retailers were selling the product for a year earlier and using this as the benchmark for comparison. This is something that many retailers wouldn’t get away with but we see this happen all the time online. Just as you shouldn’t believe everything you read on the Internet, you also have to throw caution to the wind and look at an e-commerce players reputation before believing that all price discounts are genuine.
Concluding Thoughts on Government Regulation
If there differentiating factor between retailers and e-commerce players comes down to where you source products from (i.e. authorized agents versus grey market), then this may be something for the government to look into. The Agency Law by their very nature are archaic and many of the benefits that the agent system today provides can still be implemented but it would mean that many of the responsibilities that today sit with an authorized agent would shift to that of a distributor or a brand themselves. Even for e-commerce players to grow, they need support of the brands. Many work against the brand in this region and just like retailers who are heavily on brand support, e-tailers would need the same. Amazon for example works alongside most of their major suppliers. There are promotions, offers and a supply chain that is managed in conjunction with that of Amazon and the brand suppliers. The same needs to happen in this part of the world if e-commerce is to grow. At the same time, The Agency Law has to be re-looked into if efficiencies have to be achieved in terms of supplying goods to a consumer competitively. Protectionism is an era that passed us several decades ago but is a concept that still exists somewhat in this part of the world.
E-Commerce in the UAE: Part 4
This is the last of a multi-part blog post on my views on E-Commerce in the UAE. To read the earlier parts click below:
Whatever thoughts I have on this topic are my own. They aren’t to be linked to my company or anyone else so if quoting me, please don’t quote me in my professional capacity as this has been written in my personal capacity.
Installment 4: Sustainability of an E-Commerce Business
Sustainability. A simple word that often gets neglected by most entrepreneurs when building a business. What sounds like a great idea today, also has to be a great idea tomorrow and the day after that. In order for it to be a great idea, it also needs to be cash positive and profitable without getting carried away. Even though as a budding entrepreneur you’re looking to be disruptive in your own way within your own industry, some of the fundamentals of business haven’t changed and you need to recognize that. Some of this can be done on your own and some of it may require having the right supporting tools along the way available to you.
I’ll highlight a few factors that most e-commerce businesses need to look at uniquely in this region as trying to simply replicate what works elsewhere may not always work here.
Payments
Accepting a credit card over the Internet is risky. It is risky for the cardholder but it’s more risky for the merchant or e-commerce retailer. Firstly, the rates that most credit card acquirers charge for online transactions is in most cases significantly higher than those charged for retail-type swipe transactions. The fact that a credit card isn’t in front of you means there are more chances of fraud in the eyes of most acquiring banks. For most e-commerce retailers, they need to factor in these costs into their cost of sales because in some cases, it may end up that the cost of doing business online is actually more expensive than selling in a physical store.
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If you’re dealing with a local UAE-based acquiring bank, you typically also hear that their rates are higher than that being charged by overseas acquiring banks. If you don’t have volume, then trying to negotiate a rate is going to be difficult. Even a lot of the e-commerce players that you see operating in the UAE, use third-party payment gateways based outside the UAE because they work out cheaper (albeit in most cases, they’re still more expensive than retailers pay acquiring banks for swiping cards in their stores).
From a security point of view, the moment you accept a credit card, you are at risk as a merchant. Most credit card agreements state that the cardholder has got a period of 12-18 months to dispute a claim and even when you’re 101% sure that the claim is fraudulent, the bank will in many cases side with the cardholder. After all, “the customer is always right,” isn’t he and when was the last time a bank sided with you?
In such cases, you may be liable for a chargeback. That means, you lose the money and if the good or service has been shipped or availed, you lose even more because there is that cost that is also likely to go out of your pocket.
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| Merchant beware. Image: http://m.ecommerce-journal.com |
There are companies that can help verify the authenticity of online transactions but again this comes at a cost.
The bigger risk though is that if you’re shipping outside of your legal jurisdiction as there is very little legal recourse. For example, if you are an e-tailer based in the UAE and you ship a product to a customer in Saudi Arabia, if he turns around a year later to dispute the claim and you know he’s lying, there is little you can do. He isn’t in the same country as you and there is no court that can help you in this case. If the transaction happened with a customer sitting in the UAE, then there is still the chance that the legal system assist can you.
A lot of these are issues that aren’t as much of a concern for a retailer who is based in the United States and ships within the United States because for them, there is always legal recourse, even across State lines.
Cash on Delivery is always an option but in an age of instant gratification, there’s nothing like knowing you’ve placed your oder, committed yourself and preparing yourself to benefit from the service or good you’ve ordered.
Logistics
Having discussed in a previous installment about the strength of retailing in the UAE, the role of logistics becomes that much more critical. If you’re going to charge a delivery fee, then this is an additional cost to the customer, if you absorb the delivery fee, it’s an additional cost of sale on you as an e-commerce retailer. In the long term, you need to see how you manage this.
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What is more crucial though is how are you going to differentiate yourself logistically as price alone isn’t a grounds to compete on. Even if you’re product is Dhs. 100 cheaper than a retail store but if it takes 24-48 hours to receive the product and I have a mall five minutes away from me, I may still be willing to buy the product from a retail outlet. Same day delivery, same afternoon delivery, express delivery are all concepts that many e-commerce retailers in the region are going to have to adopt. This though costs money and you need to see how you manage to fit this into your operating model.
Act Local, Think Global
On the Internet, the competition is Global. Even if you’ve got a fantastic selling proposition when compared to local e-commerce players and retailers, you need to not lose sight of the bigger picture. This applies not only to how you price your product but the overall experience you provide the customer, whether it be your website design, mobile experience, social media strategy, etc. You have to be top class to compete with global players.
From a pricing point of view, you need to keep in mind the global price situation as well. Just because you’re cheaper than a local retailer who buys his product at an exorbitant price from a local authorized agent doesn’t mean you’re necessarily competitive if an international website is still cheaper than you.
Know When to Say Stop!
This ties back to the initial word I mentioned, sustainability. In an effort to put all the bells and whistles onto a website, we tend to lost sight of the fact that the Internet is the greatest source of information out there. Sometimes, there are aways of getting things done cheaper without doing it all yourself. Maybe in the pursuit for perfection, you run over budget and time frames. There is no point in having the best online resource if there isn’t business to justify the costs of developing it.
Stand out from the Crowd
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How many group buying or coupon sites are there out there? How do you stand out from the crowd and provide a value proposition that stands out not only to your customers but your investors as well? How many group buying or coupon sites do you know of in the UAE? Will all of them succeed? Loyalty is difficult to come by but shoppers are actually more loyal online than we give them credit for.
From my own personal experience, I know I’ve used Expedia or Amazon to book hotels or buy books without looking at the alternatives. Even when I know there are alternatives that are cheaper, I’ve still continued to use these websites because there is a level of confidence I’ve developed with them and don’t mind paying a premium in these cases. There are some local e-tailers who’ve started gaining the same trust from their customer. Whether they’ve done it with service, responsiveness or logistical advantages, they’ve managed to shift the conversation away from price at times and get away with charging more than traditional retailers do at times.
Revenue Stream
How often have you heard someone talk of a great idea and then realize there is little or no revenue stream? Worse still, how many people have spoken of revenue streams that seem completely unrealistic. At the end of the day, money talks.
Economies of Scale
If you do have an idea, you need to ask yourself if it is scalable. Scalable in two senses: one is can you grow within a budget that makes sense and secondly, is there a big enough market for it so you have enough volume generated to make a profit. Remember, this isn’t the United States or Europe where there are millions of consumers who can potentially buy from you.
Concluding Thoughts To E-Commerce in the UAE
For any business to succeed, it needs enough volume at the right price. If this doesn’t happen, you’re fighting a battle before you’ve even started. As excited as we get about the UAE, we need to assess the fact whether we indeed have the critical mass. For a retailer, hotelier, restauranteur or airline, there is always a tourist population to fall back on. For an e-commerce retailer that only serves the UAE population, there is a much smaller population that makes up your total potential market size. If you decide to work outside the UAE as well, then you need to see whether you’ve protected yourself legally and if you’re business is scalable at a cost that makes sense across more than one geography.
The fact is that the UAE is a unique market. A textbook approach will not work in this part of the world. There is a growing retail and e-tail market. Whichever way you look, you can’t avoid it. How it grows, who grows it best and what models adapt themselves best to the UAE is something we will see. I know of a few e-commerce players who seem to have their game hat on and are talking the right language and many more who are talking in general terms but look to have missed the boat fundamentally. The same goes with retailers. Many have grown aware of the fact that they need to recognize e-tailing however, some have understood better than others how to adopt it into their business. If retail grows, it is not necessarily at the cost of e-commerce and vice-versa, e-commerce may grow in the region not at the cost of retail but because the number of opportunities that exist have increased overall.
In the meantime, there are a lot of consultants out there who are making a lot of money from this. Some of them doing it justifiably as they know what’s happening but again like in any business, it’s a case of buyer beware. The consultant you’re hiring may not more much more than you.
I hope you’ve enjoyed this read on my thoughts on the e-commerce space in the UAE. As I mentioned earlier, you may or may not agree with a lot of what I said. I’d be happy to hear your thoughts as well but do appreciate the fact that this is an opinion piece and I don’t expect everyone to agree with everything I’ve said.
In the next and final installment, I’ll talk about: Sustainability of an E-Commerce Business
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