FEATURE: Souq.com and its plans to dominate MENA e-com
Souq.com is a company that is used to taking risks. When it was founded in 2005 e-commerce in the Middle East was still regarded as experimental. When it launched its ﬁ rst White Friday sale, modelled on the Black Friday event in the US and UK, the market was sceptical.
During that first sales event in 2014, however, Souq.com registered six million visits, 120,000 orders, and 246,000 sold items during its White Friday sales period. In 2015 it more than doubled its sales during its second White Friday sale, with 13 million visitors and 600,000 items sold during November 25-28 across the UAE, Saudi Arabia, Kuwait and Egypt.
This year, it doubled those figures again, selling twice as many goods during the biggest online shopping weekend of the year as shoppers swapped the mall for the web. According to Ronaldo Mouchawar, the chief executive and founder of Souq.com, daily traffic during the sale was ten times its usual volume, with 1.2-million products sold in just four days. “The numbers are truly amazing,” he says. “The share of credit card payments show that customers are now embracing e-commerce and are convinced of the merits versus cash payments. As a rule we are the sixth most visited site in the UAE, above Instagram, Snapchat and Twitter, so we are now a destination that people enjoy visiting.”
The Middle East has lagged more developed economies in ecommerce adoption by a wide margin. It is estimated that only 2 per cent of regional retail sales are conducted online against more mature markets such as the UK, where 17 per cent of retail sales are online, but according to Wisam Daoud, chief operating officer, Souq.com, this is changing rapidly.
“We are bullish on the growth of e-commerce in the region. It’s still early days,” he says. “It’s significantly underpenetrated in this region where all indications suggest that there’s really no reason for it to be as such. We have the highest mobile penetration in this part of the world and GDP per capita is very high.” But the e-commerce sector is quickly catching up, with huge investments from industry titans who see the growth in e-commerce as a major opportunity. With the US $1 billion, 20 million product online project Noon.com launching in January, the UAE’s current leading online shopping platform is going to face competition.
According to Daoud, however, Souq.com is not worried. In fact, it’s a welcome evolution of the eco-system. “For Souq.com, we are clear leaders in this market. Whether be it local competitors or global ones, we are far ahead,” he explains. “We’ve seen new entrants to the e-commerce sector come and go and those that have stayed have contributed to raising awareness and normalising online retail. So this increased competition is good for the ecosystem in that sense. It will bring a lot more consumer awareness, but we are far ahead, and we believe we will remain ahead.”
The success of this effort to remain ahead is centred around not just the website and the number of products on offer, but depends equally as much on the strength of Souq.com’s last mile fulfilment operations. In its formative years, the company relied on 3PLs for storage, picking and delivery, but quickly brought those operations in-house, following the example set by Amazon.com, which incidentally is rumoured to be considering buying Souq. com for US $1-billion.
“There wasn’t much platform in the beginning, so we did have partnerships with logistics providers, and payment providers, but, as time progressed we started entering to our own fulfilment,” Daoud explains. “We started doing our own logistics, and our own last-mile delivery. We very quickly integrated operations from the supply chain in terms of getting goods into our fulfilment centres or into our logistics networks, to actually doing default settlements ourselves, storage and fulfilment, packing, packaging, shipping goods and all the way out to doing last-mile delivery to end users.”
Just days before its 2016 White Friday sale, Souq.com announced that it would be offering same-day delivery in the UAE for the first time. The development is the first of its kind in the region for e-commerce, and according to Daoud its much-need. “A customer doesn’t want to wait for a new pair of shoes, or a phone or book. They want it when they order it.”
Buying a product in a brick-and-mortar store imparts instant ownership and it is this delay between purchase and delivery that analysts have said is holding e-commerce back. For this reason, Souq.com has spent many months preparing for same-day delivery and is using the experience gained over the last decade to streamline its standard delivery operations.
“We’ve fully integrated our technology and operations so that we’re able to guarantee that a customer will get their product on the date or at the time specified,” says Daoud. “We have terabytes of historical data that we use to plan ahead of a major event like White Friday, and we also have warehouse operating systems we’ve built from the ground up to match our exact needs.”
The WMS being used by Souq.com has built-in features specific to Souq.com’s needs and its focus on streamlining delivery times. “If an order is placed and that product is picked in one of our fulfilment centres and the customer has selected next-day delivery, but then another customer buys the same product and selects same-day delivery, we can switch it out immediately at the packing station. It happens automatically,” explains Daoud.
“That sort of technology, that sort of capability does not exist on the market, there’s no other e-commerce company that can do that sort of stuff.” Souq.com has also had Android devices built in China to its exact specifications. “We then built our own native applications for them. The ability for us to direct a picker to exactly where they need to go is highly optimised. They get to see the location in a manner they can easily comprehend and they see the product they’re selecting beforehand as well. We never have pickers re-tracing their footsteps in search of products. They quickly loop through the warehouse and come out with a trunk full of shipments.”
From an operational cost perspective, and an efficiency perspective, in terms of the time it takes to do a loop through the warehouse, Souq.com is also keeping its fulfilment centres a manageable size. “We are optimised for speed, agility, and massive volumes of throughput and are not in the business of ‘storage’, we use the just-in-time model. If somebody buys something online we go pick it instantly, cross dock it, pack it, and ship it. In terms of our ‘fulfilled by Souq’ service, we’ll then order additional inventory from the merchant so come back into the centre.” For Souq.com the speed of this process is what matters, not the capacity.
“It’s all about through flow,” says Daoud. This is important as well, given the irregular nature of the products that Souq. com is selling. “We view the world in terms of sortable and non-sortable. We use bin shelving, with each shelf being a different height, width, depth to match the type of product and a computer system that controls it all, keeping track of exactly what is on each shelf.”
This kind of system, which Souq.com calls ‘random stow’, is systems directed and allows it to maximize storage capacity by storing a tooth brush, a book, and a phone in the same location. This allows full utilisation of a given space and helps optimise picking; thus resulting in reduced storage and operational costs while maximising speed. “We brought our logistics operation, from storage to last mile fulfilment, in-house because we’re able to ship and deliver faster if we have control of inventory as opposed to third party sellers. So the motivation in getting to actual fulfilment was pure customer service, not cost.”
Through this, Souq.com is able to offer the delivery guarantees it does. “We have much control over that part of the business from a logistics stand point, from a last mile, from a delivery stand point, if you will.” And it’s maintaining a successful on-time delivery rate in the high 90s.
“We can’t leave products on the doorstep, so often it takes more than one try to make the delivery,” says Daoud. To get around this, Souq.com has established depots across the UAE and Saudi Arabia, from which customers can collect their product, if they wish, and is open to new ideas when it comes to enhancing its sameday delivery evolution. “We definitely envision a future where we’ll have drones making home deliveries, but from a practical perspective, it isn’t in the near-term future,” says Daoud.
“There are a lot of challenges that are outside of our control to do that in this region. It’s a future that will happen, we just can’t say when.” And in fact from a cost perspective, such ‘disruptive’ technologies are not needed. Souq.com’s same-day delivery costs AED22, while standard delivery is just AED12. “We don’t want same-day to be a ‘premium’ product,” says Daoud. “We want it to be accessible to everyone.” To this end, Souq.com is planning to expand same-day delivery across the region in the coming months.
“By the first half of 2017, we want it to be available in most of the major cities of the GCC,” says Daoud. “We’re able to do this because we are on the ground in all the major markets that we operate in. We have fulfilment centres in the UAE, Egypt, Saudi Arabia and in smaller markets like Oman, Bahrain, Qatar, where we’re exporting out of the UAE, we’re working with world-class 3PLs.” Because these markets are too small to warrant a full-scale fulfilment centre, Souq.com is planning to roll out same-day delivery in the UAE, Saudi Arabia and Egypt.