Momentum picks up for regional e-commerce

E-commerce is steadily gaining ground in the Middle East. (SUPPLIED)

Once dismissed as a money-loser and a model that would never take off in the region, online shopping, or e-commerce, has recently begun to make a lot more noise.

Sounding the trumpet is Dubai-based start-up Nahel.com, whose foun?der Saeid Hejazi is determined to change the public's mindset. The service is currently available only in the UAE, but Hejazi plans to extend it across the GCC, Levant and North African countries. Emirates Business spoke to Hejazi to find out more.

E-commerce has never been considered a viable model in the region, yet you have invested heavily in it. Why?

The market didn't exist before. People used to say e-commerce wouldn't work here. The thing is there was nobody doing it before. Over the last couple of years a bunch of small e-commerce sites have appeared.

They focus on niche segments but are gradually gaining a footing. Today the business is becoming more available and customers are accepting it. There are more people entering the e-commerce segment with small ventures and you can feel the momentum picking up.

If you look at our figures, we grew by 35 per cent in sales in March over February.

The number of new registrations on our site grew by the same number. And traffic has been increasing steadily since we launched in August 2009. So all the signs are very positive and very encouraging.

Did you find it easy to obtain funding for your venture?

No, it wasn't easy. When the business plan was ready and written for the local market in 2008 the economy was booming. Everyone that had liquidity was putting it into real estate. I found someone who was interested in starting something online. He wasn't a strategic partner but had liquidity so I punted up with him. It's definitely not easy to get funding.

Online shopping is competing in a retail environment that already has very low profit margins. What other revenue streams exist?

The main revenue source is still sales. The percentage of profit varies. Some products are loss-leaders so you make money from the accessories. In other segments the margin is pretty good. Because we sell everything from watches and perfumes to electronics the percentage varies, but on the whole it is still healthy. We are very bullish about sales. We add 500 products a day and have 10,000 available. We are growing our inventory.

We have a no shelf place policy when it comes to inventory, we just want to grow it. We have a blanket approach. So we would go to a Samsung and say, 'Give us everything you have'. So customers are not stuck at the store where they have just three options and are forced to go for the one with the best price. We have six departments right now and within the next 12 months we will have 13. We will continue to upload products for as long as factories in China are open because that is where everything is getting made these days. Another revenue stream is selling our knowhow to other offline stores. We offer e-solutions where we build the platform, upload and translate the product and do the taxonomy. There has been a lot of interest from retailers in this. We have already built two sites for retailers.

The biggest hurdle for online shopping is the security threat perception. What have you done to allay these fears?

We have the highest level of security. It is twice as high as that of UAE banks, and that's a guarantee. I know it's a big thing to say. Go to our website, check our security level and go to your bank and check theirs. We're making people trust us.

We're being there as people. They have a map of our location. They have our names and numbers. We have intense security. I don't think it's a matter of trust. It's getting them through their first experience. I don't think there's a fear, I think they're just not accustomed to shopping online.

People in the region enjoy shopping at malls, so why would they choose to go online?

That's true, but that's social shopping. Take your mobile phone, for example. Would you buy a mobile phone at the mall socially? You need a phone, it's an investment for you, you want a good price on it. You trust the brand, you know its features and you want to save money. So you'd go online because we undersell the product. We have a 'don't-be-greedy' pricing model. We have tiny overheads compared to retailers and consequently we'll always be cheaper.

Are only Western expats taking to it?

Absolutely not. Don't underestimate Arabs and the local population, they form the huge majority of our customers. Locals who speak only Arabic are big customers. They come to our website and buy 10 to 15 bottles of perfume at a time.

Are companies in this emerging industry coming together to tackle common challenges?

Yes, we have started talking to other players. We want to create an association where we as the e-commerce community come together and tell the customer we've all checked each other out and we know we are all safe. But the biggest benefit of this is to push the government and banks because they are the ones standing in our way. We can't get payment gateways, the government and banks aren't really pushing for it. They are scared of fraud. It's a trust issue. Today to get a payment gateway you have to put a Dh1 million bond.

What kind of start-up has Dh1m sitting in the bank just in case someone scams a credit card and buys a phone? Because e-commerce didn't exist before there was no reason for them to push for it, but once we become bigger we hope they will.

The government could lower start-up costs. You have to put Dh300,000 in a bank account just to get a trade licence. You need all these documents from the governments and everything costs money. Then you have to have an office in a specific zone for you to get that trade licence, so before you even start you're broke.

You cannot legally start in your apartment like in the US where they start businesses in garages. As an entrepreneur you don't have much money, so every dirham counts. It's very tough. Let me add, though, that Dubai is still hands down the best place to start from. No place can compare to it. Dubai is a trade hub for my kind of business. All the partners I'm looking for are here, the biggest ports are here, everybody's here.

 

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