This article was originally written for The Brandberries.
If 2020 and 2021 were the years in which ecommerce took flight across the region, 2022 was the year when gravity started taking its toll. Due to the rising costs of customer acquisition, digital development, and last mile fulfillment, growth this year was hard-fought. There is no doubt that economically the GCC has fared significantly better than the US or Europe, where central banks’ fight against inflation has weighed on consumers. Yet there are storm clouds on the horizon. So, what do I think will happen in 2023? While humility dictates I caveat these predictions, here we go:
As interest rates continue to rise for the immediate future, running a profitable business – or at least a business with a road to profitability – will become increasingly important. This will shape ecommerce in various ways, be it forcing a reduction in discounting, increasing targeting effectiveness of online advertising, or strengthening operational discipline. Measurement and analytics will play a critical role in this as well.
Given the aforementioned pressures, it is possible that we will see a consolidation of brands operating online. Multichannel retailers might choose to scale back their ambitions, while pure players will need to maintain market share and relative profitability, else face being acquired or shut down altogether. The sale of a significant stake of Yoox Net-a-Porter to Farfetch is but one example of this consolidation.
Despite the mounting costs of ecommerce operations, brands will need to continue to invest in creating great customer experiences. After all, familiarity often goes hand in hand with mounting expectations. This means that any cost-saving efforts need to be implemented judiciously by businesses, lest they risk alienating their customers. The digitally native habits of burgeoning Gen Z consumers will only accelerate this trend.
While paradoxical, one challenge facing ecommerce businesses is the fact that MENA will be one of the few regions to see healthy growth next year. Therefore, international ecommerce players looking to maintain their top-line numbers have a strong incentive to target customers in the region. For some this will include launching localised sites, but in most cases this will be limited to cross-border targeting and shipment.
Buy Now, Pay Later (BNPL)
Over the last year, BNPL has emerged as a leading payment method for consumers in the region. While generally a boom for brands offering this service – some witnessing a double-digit uplift in average order value – this is also a double edged sword. It is unlikely that BNPL players will be able to extend credit as freely in 2023 as they have in the past, given the significantly increased cost of financing. This in turn can have a negative effect on growth projections as customers forgo purchases.
Throughout 2022 there has been a strong realisation that physical retail has not been replaced by digital channels, contrary to many of 2020’s narratives. Looking at next year, brands with a large retail footprint will be stepping up investment to enable true omnichannel experiences, such as buy-in-store-deliver-anywhere and omnichannel gift cards, to ensure they can unlock the synergies between all their different channels.
With the US Federal Reserve’s ongoing rate hikes, the dollar is likely to remain strong against foreign currencies. Given currencies in the GCC region are pegged against the dollar, this means that shopping will remain relatively expensive for most tourists. This will weigh on store sales, meaning pressure on ecommerce channels to close the gap. Additionally, retaining local customers will be more important than ever.
Artificial Intelligence (AI)
It is hard to overstate the speed of AI development. Here is a stanza that OpenAI’s ChatGPT wrote when I asked it about next year: “So while the future may be unclear, One thing is certain: ecommerce in MENA will continue to steer, The regional economy forward into a bright new age, Where convenience and ease are the driving force on the stage.” Just imagine the impact of such a powerful AI tool on ecommerce merchandising and copywriting. We are facing a tidal wave of disruption on this front.
In summary, what can we expect in 2023? If you are a consumer, expect less discounting and at times higher prices as brands pass on their increased operating costs. At the same time, while the amount of online players might be reduced, prepare for them to double-down on the quality of the experience to retain your business. If you do not feel valued by a brand, it is likely because they are struggling.
If you are a brand, 2023 will be a challenging year if you want to drive both growth and profitability. With increased costs and wavering consumer sentiment, running an efficient business that focuses as much on retention as it does acquisition will be key. While some of your competition might disappear, the ones that remain will be smarter and hungrier than ever. As they say, history does not repeat itself, but it often rhymes.
While the last two years have seen a lot of hype about the future of retail and even a virtual landrush of sorts, this bubble has all but burst. When investment capital is available in prodigious quantities anyone with a Powerpoint deck can claim to be running a business. As the tide now turns, the fundamentals exert themselves: having a real strategy, an ethical business model, and positive contribution margins.
If it sounds boring, remember: in ecommerce, it is often boring that pays the bills.
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