Once dominated by one company
Before 2016, the entire ecommerce industry in the Middle East was … quiet, barely noticed by ecommerce giants like Alibaba.
Souq.com, founded in 2005, was the dominant player. Ecommerce experts would know that it was far behind Chinese counterparts in supply chain and operations, but its leading position in market left investors few options.
In February 2016, Souq received a $265.1 million investment from Tiger Global Management, Naspers, IFC, Standard Chartered and Scotland Baillie Gifford. It became a unicorn.
Its only sizeable rivals were Wadi, which is affiliated to Rocket Internet, and a few small local companies.
Within a year, however, the situation changed dramatically. Mohamed Alabbar, the chairman of Dubai developer Emaar Properties (which developed Burj Khalifa), jointly announced a $1bn investment in establishing ecommerce platform Noon with Saudi Arabia’s sovereign investor Public Investment Fund (PIF).
Souq probably realized its deficiency when JollyChic, China’s then low-key cross-border ecommerce platform, entered the market and grew its business quickly.
Under pressure, Souq started negotiation with Amazon on acquisition. But the negotiations broke down at the end of 2016. Amazon probably adopted its usual negotiation tactic (which Alibaba also used in its talks with Lazada) to push down the prices.
2017: Flourishing blossom
Souq didn’t give up. After several further rounds of negotiations, in March 2017, it was finally bought by Amazon at a valuation of $580 million, almost a 50% discount to the previous one.
Noon was originally scheduled to be launched on January 1, 2017, but was repeatedly delayed due to unclear strategy and team problems.
Alabbar tried to outbid Amazon for Souq, but failed. After Souq was incorporated by Amazon, Alabbar quickly took a series of remedial measures:
In may, a technology fund owned by Alabbar announced an acquisition of ecommerce company JadoPado. Also in May, Emaar Malls announced a $150 million deal to buy a 51 percent stake in Namshi, a fashion ecommerce platform owned by Rocket Internet (and sister company of Zalora). Reports said it just took five days to reach the deal. Both Amazon and Souq were weak in fashion category in the Middle East.
At the time, among all ecommerce business owned by Rocket Internet in the global market (including Zalora in southeast Asia), only Namshi was profitable. There is only one reason: the unit price of Namshi was over $100, while that in other regions was around $30 to $40.
In September, Noon was finally released after several team changes, nearly a year later than original schedule. Noon poached many from Amazon and Rocket over the year, but most were on operations. They didn’t make Noon develop faster at a strategic level.
At the same time, JollyChic developed rapidly in the Middle East. Its turnover increased by several times, and earned handsome profits .
2018: Undercurrent surges
The rapid development of Amazon and Noon suddenly made ecommerce in the Middle East a hot spot. JollyChic’s new round of financing at the beginning of this year and the speech delivered by Luo Yonghao (a famous talkshow host) on New Year’s Eve brought the Middle East into the eyes of Chinese investors and companies.
Many Chinese companies started to enter the Middle East in teams. Chinese cross-border ecommerce companies including JollyChic, SheIn, ClubFactory and Fordeal take the Middle East as key market. Momentum Works team in Dubai have also received waves of Chinese investigation groups.
However, it’s not easy for foreign ecommerce companies to develop at a high speed here.
Generally, when entering the Middle East, companies first consider the six Gulf countries, members of Gulf Cooperation Council. The biggest market among them is Saudi Arabia, which has undertaken a series of reforms in recent years.
In ecommerce, Saudi Arabia has strict restrictions on small packets, not only in the categories of goods, but also on the Arabic logo on the external packaging and the position of “made in China” signage. Besides, the GST imposed by both UAE and Saudi Arabia this year have serious impacts on the clearing process.
In addition, the logistics and payment in the Middle East are relatively under-developed, and it is mainly cash on delivery (COD) for China’s cross-border e-commerce companies. COD not only hampers success rate (many leading companies put it at below 70%), but also incurs huge cost in payment reconciliation and collection.
One of the core issues of logistics in the last mile is that no company has enough capacity during key sales seasons. During this year’s Ramadan, many small players did not even bother with any promotional activities, because they were aware that they cannot obtain enough delivery capacity.
In 2018, many Chinese ecommerce companies began to enter countries outside the GCC. Alibaba, for example, has bought a stake in Trendyol, a fashion ecommerce company in Turkey. Some Chinese companies are investigating Egyptian market – a very tough shell to crack in our opinion.
The Six Gulf Countries where markets are relatively mature are moving vertically. Two big rounds of funds were raised this year. One was Luxury Closet, a luxury ecommerce firm, which raised $8.7 million in August, and the other is Mumzworld mentioned at the beginning of this analysis.
Mumzworld
Founded in 2011, Mumzworld sells lines of products mainly catering to babies to children aged 12.
Mona Ataya, the founder of Mumzworld, is a well-known female serial entrepreneur. In 2001, she co-founded bayt.com, a job search site, with her brother Rabea Ataya. Bayt.com is still the leading recruitment site in the Middle East, and has never received external financing since establishment. Bayt.com is also an early investor of Mumzworld.
Prior to B-round, Mumzworld had received a multi-million dollar funding round in February 2016 from Wamda Capital, Twofour54, Endeavour Catalyst and others.
The new investor Gulf Islamic Investments is an UAE investment firm founded in 2004, which stepped up its spending on e-commerce in recent years. It bought Amazon logistics hub in Germany at $144 million in the beginning of this year.
Due to the fierce competition, Mumzworld doesn’t have high order volume, and ranks below 60 on App downloads in Saudi Arabia and UAE. However, the e-commerce market in the Middle East is not yet settled. After this round of financing, Mumzworld will expand in Saudi Arabia. There is still a lot of room for development in the Saudi market where vertical e-commerce just started.