Is the ‘brick and mortar’ business model losing its charm? Well, yes and no. As e-commerce continues to rise in popularity, the retail industry is not dying per se but merely evolving, especially considering the increasing number of tourists, malls and experiential technology coming to the Middle East market.
A recent report by Alpen Capital suggests that size of the GCC retail sector is expected to grow by 25%, from $250.5 billion in 2016 to $313.2bn by 2021, driven by economic and population growth, and increase in tourist arrivals. The report goes on to say that the region’s e-commerce sale is expected to touch $41.5bn by 2020 with the UAE becoming the largest online retail market in the GCC.
According to Oppo, even with the rise of e-commerce, real time experience and feel are still primordial in the decision-making process of consumers especially since smartphones are still considered a high involvement product for a big part of the population globally.
“Independent retail represents the biggest chunk of our business, as they constitute in terms of quantity the highest number of point of contact, followed by organized retail; unfortunately, online business is still not as big as one would expect,” said Naoufel Madih, Marketing Manager at Oppo.
This means there is a need for retailers to adopt a balanced approach between the online and in-store shopping experience. In the Kingdom, retailer segment takes up 70% of Transcend’s revenue while reseller accounts for the rest.
“Since consumers in KSA tend to purchase products in shops, the online customers aren’t our typical target and most of the retailers have their own shopping website as well which leads to high portion of revenue going to retailer,” stated Damon Wu, Country Head for KSA and PK at Transcend.
The rise of online business has in fact complemented activities in the retail showrooms, where prospective customers research about a product online but walk into the physical showroom for clarifications and expert advice before finalizing their decision.
Alex Tchablakian, Operations Manager at letstango.com adds that the main reasons why online is gaining popularity are its competitive pricing, convenience, seamless purchase options and exclusive products.
“Yes, the online price-tags on various products could be slightly lesser compared to the showroom price as the overhead costs are limited when sold from a warehouse. But, for a serious customer who intends to virtually experience the product, avail some valuable professional advice and instantly collect the desired product, this slight price variation is never a barrier,” explained Gopal Sudhakaran, Media & Marketing Communications Manager at Grand Stores.
Contrary to this view, Tchablakian adds that discounted prices are the main reason why customers purchase online and keep returning regularly. Power retailers do not have the option to offer online prices different from their offline prices as customers won’t be happy with this, and this tilts the scale towards ecommerce business.
“For retailers, keeping these silos in place is eroding retail margins and raising costs. To maintain margins and optimize costs, Middle East retailers need to work with channel partners to deliver the technology infrastructure and platforms that can enable an omni-channel experience,” stated Hichem Maya, Head of Industries at SAP MENA.
For this to happen, channel partners need to understand that while many retail CIOs are eager to invest in the next generation of immersive technologies, they need specialized channel partners who have experience either in retail or on specific IoT solutions.
“As online business is gaining momentum in the region, our channel partners are encountering aggressive prices and loss of market share. I would like to tell our channel partners that Transcend will maintain strict pricing and product line control toward different types of clients to ensure the channel map shows balanced growth,” explained Wu.
With global players like Amazon setting up shop in the region, leading retailers should now start to look at, not an alternative but a complementary presence online that will help users interact with their brand in a better way. It is about better serving customers when and where they chose to transact.
Viren Jagdev, Business Head at Micromax MEA asserts that the lower cost of operation of the e-commerce business is a key reason for its popularity and rapid growth in addition to its more obvious benefits. “For our customers, it is very convenient to browse online and compare different models before making any buying decisions. While offline stores offer the ‘look & feel’ experience, all smartphone models may not be available at the same time to compare. This tips the scales a little towards the online shopping experience. Coupled with the lucrative deals and offers that many online shops offer, online business will only continue to grow,” Jagdev added.
As e-commerce continues to influence consumers’ shopping experiences, brick and mortar retailers must ensure sales associates are data driven to better understand buying behaviour and deliver the best possible customer experience. As a result, providing customized and value added service are what future holds for resellers, and creating product differentiation will be an essential factor for them to prevail in the market.
“I think that brick and mortar business will continue but, inevitably, retailers should include an online presence beyond a simple web site. This is where solutions like ours that make the user experience easier will help traditional retailers expand their online presence and add a new dimension to customer interaction,” explained Maseeh Ahmed, Founder & Managing Director at Omnia Pay.
Visiting friends, shopping in the mall and dining out are all intrinsic part of the lifestyle and culture in the UAE and shopping malls are also entertainment destinations. This lifestyle is highly unlikely to change at least in the near future.
As the brick and mortar retail grows hand-in-hand with the shopping malls, business opportunities on this front continue to rise. In addition, government initiatives such as the Dubai Shopping Festival, Dubai Summer Surprises and so on provide multiple benefits such as special offers, price discounts, mega raffle prizes and much more for visiting retail outlets and making physical purchases, encouraging the customers to drive the popularity of this shopping format.
Admittedly, due to the advent of technology, easy online payment facility, various bonus features offered online and shrinking order delivery lead time, online transactions in the UAE are on the rise. Hence the number of customers who’d purchase their products online would significantly increase over the years but brick and mortar is not ready to lose its charm just yet, however, it’s essential they adapt. Physical stores may never die out completely; they will continue to exist as ‘virtual experience zones’ enabling the customers to physically visit, explore and understand the products offered by the seller which means that the retail store businesses shouldn’t dwell on their current structure for too long or they may be playing catch up in the years to come.