The UAE e-commerce landscape

The E-commerce landscape in the UAE is rapidly expanding with many opportunities and niches for expansion and development driving up company formation in Abu Dhabi and the wider UAE. In 2020 e-commerce sales in the UAE reached $4.2 billion with projected growth of 20.9% to 2023.

Despite the still solid presence of offline brick and mortar stores on cultural and geographical grounds, e-commerce is challenging the traditional business model leading the way to increased convergence between online and offline channels i.e. Omni-channels.

Several factors come into play accounting for the accelerated growth of the e-commerce sector in the UAE.

In this article we highlight the key driving factors and growth opportunities in the UAE e-commerce landscape, and we discuss the best way to set up to in the UAE to undertake online sales and e-commerce in the region.

Beyond covid-19

Whereas the pandemic lockdowns certainly fast-tracked the adoption and development of e-commerce transactions, the impact of covid-19 is not the sole contributor to the changing e-commerce landscape of the UAE. Other significant drivers or “readiness factors” allowed for the expansion of e-commerce.

Technology penetration

As digital natives, millennials and gen z are considered early technology adopters. This segment is very eager and comfortable trying and testing new technologies.

The UAE infrastructure of high-speed internet, high mobile usage provides favourable conditions for the tech-savvy population of the UAE to approach and adopt online shopping channels and electronic paying systems.

In numbers; the UAE has 90% internet penetration, an average of 7 hours and 49 min. of online time and 66% and 99% smartphone and social media penetration respectively.

Technology transformation

The effective transformation of technological capabilities boosted the rapid e-commerce growth in the UAE allowing for more personalized and safer experiences as well as larger prospects for company formation in Abu Dhabi and other Emirates.

• Personalisation: The introduction of AI-based recommender systems that pools large amounts of data from users including; demographics, shopping behaviour and market trends and associations that allows for user-tailored experiences.
• Social commerce and in-app purchase: social media platforms providing in-app checkouts facilitated the online shopping experience significantly.
• Augmented reality: AR technologies enhance the buyers’ experience, increase sales conversion and build consumers trust and confidence.
• Digital payment: Digital payment facilities provide a secure, seamless and easy e-commerce experience.

Additionally, the country is abundant with prospects for omni-channel experience that combines computer vision, artificial intelligence and machine learning. Carrefour is a good example of a market disruptor that combines digital and physical store channels in one integrated omni-channel.

Strength factors

There are several enabling drivers for the fast-paced growth of the e-commerce sector in the UAE. Among these are the alignment with stakeholders objectives, escalating consumer demand, innovative merchant distribution models, venture capital funding prospects and state of the art logistical capabilities and government policies.

Merchant distribution and payment innovation

The increased usage of debit and credit cards online with a 7% increase in the past two years is a indicator of the willingness and convenience of the UAE population to opt for online shopping options.

The thriving mall culture creates an inviting climate for traditional brick and mortar retailers to enter the e-commerce field by adopting omni-channel models.

On the other side, online retailers are increasing their product selection either organically or via partnerships. The integration of Souq.com with Amazon opened up ranges of products for the UAE population.

Another pivotal factor is the launch of payment solutions tailored to Small and Medium Enterprises (SMEs). For instance, the launch of Go-Online by Network International enabled merchants to launch and run their e-commerce website and accept payments.

Investment and acquisition

The rapid expansion of the start-up ecosystem attracted the attention of venture capitalists and e-commerce giants who took acquisition as a route to enter the regional market. Amazon acquisition of Souq, Uber acquisition of Careem and Germany food giant Delivery Hero acquisition of Instashop are telling examples of vast e-commerce opportunities in the region.

On the investment side, among the 564 startups launched in 2019 with total funding amounting to $704 million, the UAE head-quartered 23% of the initiated startups acquiring 60% of the funding. For instance, Mohammed Bin Rashid Innovation Fund Accelerator is considered one of the major attraction points for promising enterprises in the country.

Improved logistics

Technical innovations have been addressing the challenges of the e-commerce supply chain. For example, last-mile delivery options allowed SMEs to scale up their online stores and expand their services.

Emerging technologies such as GPS-driven solutions and RIFD tracking systems are game-changers allowing online stores to adapt to small order cycles, seasoned and fragmented orders as well small shipments other than bulk delivery.

Government initiatives

As an ICT hub, Dubai Internet City launched Innovation Hub as a community for innovators to explore new technologies and prospects.

In 2017 Dubai Airport Freezone Authority and West Asset Management Group launched Dubai CommerCity as a joint venture promoting Dubai’s position as a leading platform to support small transformation strategies in the-ecommerce arena. The city investment increased 18.5% within a year of its inception.

Additionally, the UAE Smart City agenda has been supported by the government of the UAE. For example, the Central Bank implemented National Payment System Strategy to expedite and accelerate the digital transformation of the UAE economy.

Prospects and opportunities

The pivotal shift away from conventional shopping to online and e-commerce transactions is evident from the following statistics:

• 196 e-commerce licenses were issued to retail businesses during May 2020.
• 300% increase in consumer demand for the first five months of 2020
• 943 Trader licenses were issued from the Department of Economic Development in the first three months of 2020.

In addition to the surge of e-commerce businesses in the past years, the UAE continues to be a promising market for robust emerging e-commerce players. Potential niches for a wide range of services including:

• Government services and educations
• Food delivery
• Retail goods
• Telecom and utilities
• Apparel and accessories
• Professional services

Despite the diversity of the landscape, sectors like entertainment, health, home improvement and transportation and insurance still have room for further expansion.

The UAE e-commerce landscape is abundant with lucrative opportunities for many business owners and investors to set up their online retail stores. Whilst setting up an online business in Dubai and the wider UAE can be relatively straightforward, many pitfalls can be avoided by seeking professional help. At PRO Partner Group, our team of expert advisors can help you select the correct Free Zone or Mainland location for your company as well as assist with other areas such as Investor Visas, staff and family Visas, PRO services and HR, Payroll and Company Secretarial Services. If you need assistance with any of these matters please get in touch with us on +971 (0)4 456 1761 for Dubai or +971 (0)2 448 5120 for Abu Dhabi, email us at info@propartnergroup.com or complete the contact form below and we will be delighted to assist you.