Mideast e-tailers need to get their returns under control

More so as these can eat away into their precious margins, and that is high-risk

By Michael Truschler, Special to Gulf News
06:52 March 13, 2018

The future of retail is shaped by a powerful consumer who has thousands of choices at his fingertips and high expectations when it comes to product offering and customer service. A traditional retailer can often not answer fast changing consumer expectations — brick-and-mortar retail is dying and online commerce is booming.

We can observe this everywhere in the world with the decline of shopping malls and city centres that become wastelands.

In the MENA region, it is no different — traditional retail businesses are struggling to survive and looking for new concepts to attract shoppers. On the other side stand, online retailers see strong year on year revenue growth. Traditional retailers understand that an online presence is a must-have and are all rushing in to set up their online shops, often with little success as they have no experience on how to do this.

I am regularly asked by people how to run a successful e-commerce business in the region. It’s clear ... but at the same time very complicated. The clear part lies in the bare essentials you need (no, a good looking website is not enough!). The complicated part manifests itself in the execution, operation of the business, and, last but not least, achieving profitability.

Let’s turn to the essential ingredients for a successful ecommerce business first: products, technology, marketing and customer experience.

* Products

It all starts here. If you don’t have the right products you will not succeed. A right product answers a demand from the market and gives you sufficient margin to operate.

To be clear, it’s great to have a product that is in high demand, but if it does not give you sufficient profit margin, don’t take it on or ensure that you have other products that create the right mix to operate a profitable business.

In fact, it is one of the biggest challenges of the business to get the product mix right.

There are many parameters that need to be considered, especially in this region. The simple comparison between retail price and purchase price of an item is not enough. Size and weight of the item are important dimensions of the equation.

They define your delivery costs and that can be very meaningful in the region. Expected return rates are another important aspect to look at. Fashion items for example have a much higher return rate than cosmetics or kitchen articles.

The same goes for low versus high quality products obviously. Returns are expensive.

Apart from return costs, products that come back to you, have to be checked in the warehouse to decide if they are in resaleable condition or not. They often have to be repacked. A returned product might represent a complete loss.

In my view, a business with less than 30 per cent gross profit margin (product, delivery and logistic costs included) cannot be profitable in MENA.

* Technology.

You need to present your products on good platforms. This is not only a desktop website ...

Ensure that the site is mobile optimised — 70 per cent of your traffic will come from mobile or tablets. A good mobile app is a great advantage as it gives you effective marketing tools on hand (for instance, push notifications).

Implement a business intelligence (BI) tool into your software infrastructure. BI will give you insight into key areas essential for any ecommerce business: inventory management, pricing strategy, cost strategy analysis, campaign analysis, buying patterns of costumers and sales and margin performance of different products.

Even a small business will benefit from having additional insight into their data. There is endless data in an ecommerce business. So collect as much as you can to optimise your business and your customer’s experience. 
There are multiple BI tools out there. To choose the BI tool that is right for you, consider your target audience, your existing systems and classify the features and functions you consider as must-haves vs nice-to-have.

The use of artificial intelligence (AI) in ecommerce is growing rapidly. Many ecommerce businesses already use forms of AI to better understand their customers, generate new leads and provide an enhanced customer experience. More about AI later …

The writer is a digital and tech entrepreneur.