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GCC e-commerce sector to reach $50 billion by 2025, boosted by COVID-19 consumer trends

A report by Kearney Middle East titled ‘GCC e-commerce unleashed: a path to retail revival or a fleeting mirage?’ predicts that the e-commerce sector will be the main source of growth in retail post COVID-19.

The report forecasts a larger acceleration in e-commerce between 2020 and 2022, at 20% CAGR, and a gradual growth at 14% until 2025 The likely implications and imperatives of a more definitive shift to online on the three key factors within the retail ecosystem - major retail groups, real estate and small and medium enterprises (SMEs), are also addressed Internationally, the situation has been the same

When we often speak about the fallout from the ongoing COVID-19 pandemic, we often discuss economic slowdown, job layoffs, and overburdened infrastructure. However, just as the pandemic had a devastating effect on some aspects of the world, it provided a boost to others. 

This is perhaps nowhere as prominent as with the e-commerce industry – after all, it makes sense. With most people stuck at home during lockdown, and with many preferring to order goods online as opposed to going out shopping for them, online retailers have seen an unprecedented surge in demand. 

In the GCC, the situation has been no different. In fact, its e-commerce sector is forecasted to continue this growth trend, reaching a value of $50 billion by 2025, according to a new report by Kearney Middle East, thanks to COVID-19 having a permanent effect.

Chart: Kearney Middle East

The report titled ‘GCC e-commerce unleashed: a path to retail revival or a fleeting mirage?’ predicts that e-commerce will become the main source of growth in the retail sector over the next five years. The report forecasts a larger acceleration in e-commerce between 2020 and 2022, at 20% CAGR, and 14% until 2025. Without COVID-19, the same growth was projected at 14 and 10% respectively. This highlights the impact of the pandemic on accelerating the growth of the sector in the region. 

“E-commerce continues its rapid growth in the region. In our last e-commerce outlook for the GCC in 2017, we forecasted growth of 35% CAGR, which was essentially more than a four-fold jump in value for the sector between 2015 and 2020,” commented Adel Belcaid, Partner, Kearney Middle East. “By the end of 2019, it was worth just short of $18 billion, with signs of maturing growth and intense market competition. However, COVID-19 caused an unforeseen push and gave a new, accelerated lease of life to the sector, in line with what we have seen in global markets. This is due to a rapid change in consumer behavior, with unprecedented adoption of e-commerce by all population segments, spurred to a large extent by the new normal of social distancing, lock-downs and reduced capacity in physical stores.”  

Chart: Kearney Middle East

Risks to traditional retailers and real estate sector

While the report highlights the effects of a more definitive shift to online on major retail groups, it also explores the likely implications and imperatives on the two other key actors within the retail ecosystem; real estate and small and medium enterprises (SME). 

Key challenges including the rise of pure play e-commerce marketplaces, the large investment in digital by retail giants, and the declining physical store sales pose a threat commercial real estate and the survival of SMEs that have not yet adopted to online sales channels. An earlier survey by Kearney in the UAE indicates that just 36% of SMEs have made the investment so far, while only 4% planning to sell online in the future.

“The projected growth in GCC e-commerce rests on crucial factors like the logistics infrastructure, flexible manpower models and centrally governed policies. All stakeholders should take note and revisit their strategies, operating models and policies to adapt and make the best of this e-commerce driven new normal. Those who have already made the investment have weathered the storm and are well positioned to lead in the post-COVID retail revival. More than ever, those who fail to make the required changes and investments will be sidelined and put their very survival in question,” concluded Debashish Mukherjee, Partner, Kearney Middle East

The international e-commerce industry

Internationally, we have seen a similar rise in demand for e-commerce. 

Back in April, when the US had just began placing lockdown restrictions, e-commerce in the country “had jumped 49%, compared to the baseline period in early March before shelter-in-place restrictions went into effect,” TechCrunch reported, referencing data by Adobe’s Digital Economy Index. “Online grocery helped drive the increase in sales, with a 110% boost in daily sales between March and April. Meanwhile, electronic sales were up 58% and book sales have doubled.”

“US ecommerce sales were only up 2.4% quarter-over-quarter in the first three months of the year. Now, ecommerce accounts for 16.1% of all US sales, compared to 11.8% in Q1,” ROIRevolution explains. “Retail sales, however, continue to decline, down 3.9% QoQ in Q2 after a 1.3% decline in Q1. Grocery, office supplies, electronics, and, of course, essential goods are some of the categories that have grown the most online during the pandemic.”

Naturally, e-commerce giant Amazon was naturally among the greatest to benefit from this change in consumer trends. Results from its second quarter ending July 30th revealed sales were 40% higher, year-on-year, rising to $88.9bn. Additionally, the company recorded $5.2bn in net income.

Internationally, the situation has been the same.

“According to Kantar consulting group, international e-commerce grew 41% in only three months (Q2 2020) compared with 22% growth for 2020 as a whole to date, as the pandemic ‘transformed’ retail habits,” AFP writes this past August. 

The challenge now will be for traditional retailers to try and catch up with their digital counterparts.