5 minute read
E-COMMERCE
THE ECOMMERCE CATCH 22
Consumers have well and truly begun to embrace the selection and convenience of eCommerce, but at what cost, writes Niranjan Gidwani, Consultant Director, member of UAE Superbrands Council and Charter Member Tie Dubai
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ince the onset of the pan-
Sdemic, consumers intent to purchase goods through eCommerce channels has increased significantly across categories - from everyday essentials to clothing, beauty products and accessories, and to electronics, and now appliances. These shifts in consumer behavior are likely to stick over the long term as individuals become more accustomed to purchasing online.
More than half of consumers are expected to continue their online shopping habits even after we see the end of this pandemic. This pattern is likely to further fuel the growth of online sales. Forecasts made by top consultancy firms suggest that online sales could account for nearly half of all retail revenues within the next four to five years.
CAUTIOUS VIEW Having informal chats with several key executives of organisations and
retailers, the general feedback received is that those that have initially viewed eCommerce as a lifeline now take a slightly more cautious view.
While current online operations may look promising for quite a few, many have realised that skyrocketing online sales have also been accompanied by costs that have risen just as fast.
Fulfillment costs can now be as high as for 10 to 18% of eCommerce revenues, depending upon the category and industry segment. Digital marketing and customer acquisition costs, which could be in the region of 6-8%, sit on top of these.
Furthermore, frequent investments in updates to software, anti-hacking, more user-friendly and AI based websites will be recurring costs which will progressively squeeze margins and may end up making profitability a distant mirage. Retailers are already, or if not, will soon recognize that all growth is not the same, and that unprofitable growth could end up destroying value, while they would need also to ensure that the brick-and-mortar model is still sustainable and profitable.
Retailers that give too much of emphasis to investing in building up their e-commerce models and revenues could end up causing more harm to their organisations. The thumb rule needs to be - digital growth is not enough; only profitable digital growth will create value. Since eCommerce is a significant contributor to growth for most retailers, they must ensure that their strategy creates long term value for the organisation as a whole.
MARGINS AND DIGITAL LITERACY It’s a known fact that higher item value and basket size in categories such as electronics incur lower shipping costs as a percentage of sales. In comparison, a fast-fashion retailer with a low threshold on the free-shipping amount may need to absorb a large number of negative-margin sales. Such retailers can have better control on margins by introducing their own inhouse brands. Retailers that offer a unique or custom product or service via online are more likely to protect their margins.
Retailers in this region, whose traditional strength has been brick-and-mortar operations are likely to have many employees who lack the necessary digital knowledge. As eCommerce and digital technologies become larger parts of the business plan of many organisations, developing this knowledge will be critical to foster effective collaboration—not only in digital and eCommerce teams but also across the organisation.
A baseline of digital fluency will become an additional cost to be factored in but will enable retailers to achieve true cross channel coordination. And while investing in training for digital literacy, organisations and their HR will need to find ways to ensure greater retention of their tech savvy staff.
The massive increase in e-commerce over the past two years has led retailers to focus on capturing growth, but with not too much of focus on real online profitability.
To win in the years ahead, retailers will have no choice but to scale their digital channels while maintaining a relentless focus on costs. The increasingly complex matrix of customer engagement creates friction points that can cloud or confuse decision making.
The past two years have tested many companies to the limit. And while supplychain issues have commanded the world’s attention, supply-chain shocks are becoming increasingly common. By investing in supply-chain resilience now, organizations have an opportunity to build critical speed and agility into their supply chains, which will help them withstand not only the current crisis but also those to come. Ultimately, the online and ecommerce business is all about speed and the last mile delivery experience for the end consumer.
One thing is certain: the pace of change and operating rhythm is only accelerating. Retailers are no longer in the world of monthly or fortnightly reviews. The model has shrunk to on-the-go review of retail operations and supply chain processes which have got even more interlinked.
TRUKKER CLOSES USD96 MILLION FUNDING ROUND
ruKKer, a digital freight
Tnetwork that currently operates in eight MENA and Central Asian countries, has completed a US$96 million funding round comprising a combination of Series B equity and debt funding.
The Series B equity funding round was led by Abu Dhabi-based investment and holding company ADQ and Riyadh-based venture capital fund STV, along with the participation of Mubadala Investment Company, and TruKKer’s existing investors Riyad Taqnia Fund, Shorooq Partners, and others.
TruKKer has also raised a $50 million venture debt from Mars Growth Capital, a Singapore-based joint venture between Mitsubishi UFJ Financial Group (MUFG) and Israeli financial tech firm Liquidity Capital, and Partners for Growth, a San Francisco-based fund backed by the Silicon Valley Bank.
In a statement, TruKKer noted that it will deploy the fresh funds to deepen its presence across all existing markets and launch several new products and features. “TruKKer’s growth has been exponential, both in our home markets of KSA and UAE, and in new markets across North Africa and Central Asia,” said Gaurav Biswas, founder, and CEO, TruKKer.
“We are constantly improvising on our launch playbook that allows us to rapidly launch new markets followed by scaling our offering in each of them. At the same time, the core market teams are becoming more data and analytics driven in business processes to ensure improving user experience, setting standards, and leading the sector’s direction.”
The current deal follows a USD23 million equity raise by TruKKer in 2019. Since its inception in the B2B space in 2018, TruKKer has brought together a fleet of more than 40,000 trucks and 700 enterprise customers across eight countries in the Middle East and Central Asia region.
Other notable investors in TruKKer include PIF-backed Riyad Taqnia Fund, IFC (World Bank Group), Shorooq Partners, Endeavor Catalyst Fund, Oman Technology Fund, Middle East Venture Partners, Iliad Partners, 500 Startups and others.
