E- commerce needs to break discount habit
Emphasis on ‘ best rates’ affecting profitability
The time has come for the Gulf’s e- commerce portals to think beyond discounts as the hook to pull in buyers. While the number of portals has shot up and the volume of transactions has grown exponentially each year, not many ventures have been able to achieve consistent profitability. In fact, the rate of failed ventures is also building up simultaneously, according to industry sources.
Blame it then on the culture of discounts or the ‘ best rates available anywhere’ that portals are getting into on their sales pitch.
“By heavily subsidising the actual selling price, the region’s portals are caught in a bind they cannot get out of,” said Dikran Tchablakian, CEO of Lets Tango. com portal.
“What this does is limit the number of categories and products that the region’s online retailers sell because volume demand only exists for mostly discounted products.
“This means there are around 2,000- odd products — essentially tech gadgets and fashion — that most of the portals sell, whereas for scale they need to be offering in the range of 9,000- odd. Only when portals are able to offer that kind of merchandise can they expect sustainable cashflow.”
Catch- 22
This is the Catch- 22 for the region’s online sellers. Widen their offering and they would immediately face higher sourcing and stocking costs.
And no business would want to be caught out with unsold inventory if they can help it.
If the portals limit themselves to just the categories and products that generate consistent volumes, chances are that more players will enter this space, ramp up the competitive offers and eat into already thin margins. This has already been proved by the many “discount coupon” sites that were all the rage about two years ago and have since seen many going bust.
So, can the region’s e- commerce portals ever get out of the discount trap?
According to Hosam Arab, a founder of fashion portal Namshi, “This perception has been shaped through the region’s first websites whose business models were based on deals and heavy discounts. If you look at international online stores, you’ll see they don’t operate on this business model - Amazon, Zappos [ and] Asos all are very popular and successful, and all of them retail at non- discounted prices and build on their selection as well as their customer service rather than deals.
“E- commerce in the Middle East is undergoing evolution; discounts will not disappear but their importance will dwindle. Imagine bricksand- mortar department stores where you might happily go for bargains and luxury goods at the same time — this is how the online shopping landscape could look like.
Convenience, variety
“There is a large set of online shoppers who value convenience and variety over deals, this applies here just as much as it does in other markets.” According to market sources, there was a levelling off in new e- commerce portal launches in the UAE/ Gulf in the recent fourth quarter.
Also, much of the recent action centred around the big brick- and- mortar operators getting online, as happened recently with Landmark Group’s via its Landmark-Shops. com.
Another front to connect
This is a trend that should continue through this year as physical retailers open another front to connect with customers rather than leave all of the online action to dedicated ecommerce portals.
Namshi’s Arab is not fazed. “Many of the brands we work with already sell direct in our markets.
“They sell through us because we can offer them reach that they cannot achieve on their own. These brands are willing to offer us a premium for what we bring to the table.”