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Digital disruption: what GCC retailers should do to avert impending risks?

Are disruptive digital technologies posing new threats of risks in GCC’s retail sector? A new study by trade credit insurance solutions provider Euler Hermes suggests that the increasing adoption of such technologies such as mobile e-commerce has heightened the non-payment risk in many countries in the region.

In the last two years, Euler Hermes downgraded the UAE, Saudi Arabia and Kuwait in relation to their retail sector risk to “medium risk” from “low risk”.

“Medium risk” means there are signs of weaknesses and a possibility of slowdown in these three GCC economies.

Commenting on the digital transformation in the retail industry in the region, Jules Kappeler, CEO Euler Hermes Middle East, said: “Retail must undergo a painful-yet-necessary consolidation phase. Technology has transformed the ‘Walmart’ experience to an ‘Amazon’ one: faster, closer and in some cases easier.”

Euler Hermes says that the impact of the digital shift is already visible to its 1,500 risk experts who track 40 million companies worldwide.

Globally, cumulated revenues of top 10 major retailers’ insolvencies in 2016 amounted to $5.2 billion, according to Euler Hermes. “Even worse, the number of insolvent retailers with a turnover of $10 million or more soared plus 66 per cent year on year in 2016,” explained Jules.

More importantly, respondents in the digital survey have identified Big Data as an important challenge for the first time.

Three game-changers

Euler Hermes, an Allianz Company, has identified three game-changers for retailers, said Jules: “Omnichanneling (a cross-channel approach to sales), the cost of online presence (soft and hard infrastructure, double marketing budget) and mobility (where to shop, how to pay).”

Kappeler added: “Interesting to note two of the top three challenges are about growing the top line and only online presence is about the costs.”

Retailers have two choices, according to Euler Hermes: “Adapt or close”.

“The crucial question is whether retailers – be they traditional, online or both – can determine how to upgrade their business models in the most efficient way before it is too late, bridging brick and mortar and online sales, old tricks and new needs. That’s the new Digital Equation,” adds Kappeler.