Middle East e-commerce ups and downs: Commanding the fold, the rise of Noon, TikTok attack

In late 2017, in a New Year's Eve speech, Luo Zhenyu brought the Middle East into the public eye. Luo Fat once described JollyChic in Zhejiang at that time: "A Zhejiang company sold thousands of small and medium-sized manufacturing enterprises in the Yangtze River Delta and the Pearl River Delta to the Middle East, becoming the most well-known local e-commerce company. ”

Luo Fat's words are true. Around 2017, on the streets of Riyadh, the Saudi capital, random passers-by were interviewed, "out of 10 people, there should be two or three who knew JollyChic." Middle Easterners first came into contact with e-commerce through JollyChic. The former employee of the executive revealed.

2017 can be described as the first year of e-commerce in the Middle East, and the wind is surging. On one side is the Chinese Legion at the head. That year, Fordeal, founded by early members of Mushroom Street, was officially promoted. The following year, Ajmall for the Middle East went live. Club Factory, Romwe, Banggood, MumShop, ZAFUL, RoseGal and other Chinese cross-border e-commerce platforms have targeted the Middle East.

On the other side are local teams. In 2017, Amazon acquired Souq, a local e-commerce platform in the Middle East, to officially expand the Middle East station, and in October of the same year, Noon was established in the United Arab Emirates, behind which is the Middle East's largest real estate group Emaar and Saudi sovereign wealth funds.

In the yellow sand of the Middle East, the trumpet has been sounded.

However, within two years, the news of a supplier run came from Zhejiang. In 2022, the former king of the Middle East officially collapsed, and the Chinese platform behind it also disappeared on the battlefield one after another, either out of business or becoming low-key. The early Chinese pioneers fell, Noon rose to prominence in the melee, and among the new Chinese players, Shein became a dark horse.

The Middle East's high unit price, high profits, and early development characteristics continue to attract the investment of Chinese cross-border e-commerce entrepreneurs. In 2022, Shein launched a menswear collection in the Middle East; Entering 2023, it is reported that Temu and Kuaishou are also planning to enter the Middle East; TikTok has tested shelf e-commerce in the Middle East in February and launched investment promotion.

Entering 2023, Chinese platforms are making a comeback.

Discover the Middle East

Before taking over, Middle Eastern e-commerce could be described as barren. Major e-commerce platforms include integrated e-commerce Souq, fashion e-commerce Namshi, mother and baby e-commerce Mumzworld, Aliexpress and 3C e-commerce Awok.

There are about 23 countries in the Middle East, but there are three main markets: Saudi Arabia, the United Arab Emirates and Egypt. Among them, the United Arab Emirates is the most open country in the Middle East, so early Middle Eastern e-commerce was mainly concentrated in Dubai, United Arab Emirates.

Souq, the first e-commerce platform in the Middle East, was founded in 2005 as an auction site similar to eBay and affiliated with Arab portal Maktoob. Although it was founded early, it took seven years for Souq to raise its first financing, with a $35 million investment led by Jabbar Internet Group, and then Naspers and Tiger Fund invested $40 million in Souq, and Souq entered the fast lane. It was also in this year that Souq launched its first app.

In 2016, Souq was valued at $1 billion and was the first unicorn in the Middle East and North Africa. Before it was acquired by Amazon, Souq was already the largest e-commerce site in the Arab region.

The founder of Souq is Syrian-American Ronaldo Mouchawar, known as the "godfather of e-commerce in the Middle East", and the Middle East e-commerce festival "White Friday" was introduced by him. After receiving investment in 2012, Souq successively developed the online payment tool Parfort and launched its own logistics Q Express, which promoted the construction of early e-commerce infrastructure in the Middle East.

"From the current point of view, they can do this at that stage, I think it's good." Zeng Haipeng, a joint venture ruled by Zhejiang, said to Zhixiang. Zeng Haipeng is now the co-founder of ISHOW, a Saudi MCN agency.

But for the construction of e-commerce ecology, this is far from enough. When he entered the Middle East, there were only a dozen traditional logistics companies in Saudi Arabia, and "the service level was still very backward," Zeng said. ”

On the other hand, there are almost no local sellers in the Middle East, "except for purchasing branded products from Europe and the United States, about 80% of the products on Souq come from China, but these sellers are not necessarily Chinese, they are purchased from China by middlemen and then sold on the Souq platform." Zeng Haipeng said.

In 2015, the second year of testing the waters of the Middle East, Shein also went to the Middle East. At that time, Saudi Arabia's e-commerce scale was only 1.8 billion US dollars, the United Arab Emirates was 1.3 billion US dollars, and the overall e-commerce scale of the Middle East was 6 billion US dollars, in contrast, the total value of online shopping in China this year reached 3.88 trillion yuan, and the total value of e-commerce in Southeast Asia has reached 32 billion US dollars.

With a lack of local supply chains and lagging e-commerce development, the Middle East naturally attracts Chinese adventurers.

Zeng Haipeng said that the reason why the executive dared to enter this new and blank market was mainly based on two advantages, one is the advantage of China's local supply chain, the second is the advantage of technology, relying on the development of China's e-commerce for more than ten years, China has accumulated rich experience in Internet products, user experience and e-commerce operations, which greatly complements the emerging format of cross-border e-commerce.

"These advantages are what we can compete with local companies, so we are growing very fast in the Middle East." Zeng Haipeng said.

The subsequent development was exactly what the entrepreneurs had imagined, and to this day, when participants recall JollyChic's early development speed, it still feels like a myth.

The highlight of the reign

Before deciding to bet on the Middle East, Li Haiyan, the founder of the government, did fieldwork in the local area.

After Li Haiyan ran around shopping malls in the Middle East, he came to a conclusion: in the Middle East, the luxury goods market has become saturated, but the development of the low-end market is not mature, and many consumer needs have not yet been satisfied.

After returning to China, Li Haiyan cut off other regional markets and concentrated all her resources in the Middle East.

Reign is favored by the times. At that time, the mobile Internet in the Middle East was growing rapidly. According to Statista, smartphone ownership in the Middle East increased from 138 million to 267 million from 2014-2016, taking the UAE as an example, the smartphone penetration rate in the UAE increased from 78.98% in 2014 to 90.56% in 2016. Since then, the six Gulf countries have been the countries with the highest mobile Internet penetration rate in the world.

The local e-commerce companies in the Middle East have not yet realized that the wave of mobile Internet has been photographed, and their position is still the PC side. Boss fills the mobile gap. Li Haiyan said in a media interview: "Our installation cost and the cost of acquiring users are also relatively low, and the number of users has risen all of a sudden." ”

In 2016, the number of orders reached 3 million, sales reached 300 million US dollars, and the number of App downloads has reached 10 million. In just three years, the revenue soared from 100 million yuan in 2014 to 5 billion yuan in 2017. By the end of 2017, Zhiyu had 35 million users in the Middle East, accounting for eighty percent of the Middle East Internet users, and JollyChic also became the number one mobile e-commerce platform among GCC (Gulf Cooperation Council) countries.

Yang Gongmin, who was the general manager of Saudi Arabia, commented on the executive at that time: "During the most 'ruthless' period of business, Zhiyu incubated and cultivated almost all local e-commerce logistics. ”

Also at the end of 2017, Luo Zhenyu mentioned the executive in his New Year's Eve speech, and for a time, the executive was put in the spotlight, and countless eyes were looking forward to the executive becoming the Taobao and Jingdong of the Middle East, realizing the ideal of Chinese e-commerce "dimensionality reduction and fighting" Middle East tycoons.

Capital gives greater confidence to rule. In May 2018, he completed a series C financing of hundreds of millions of dollars led by Sequoia Capital, with a valuation of more than US$1 billion, and entered the ranks of unicorns.

After obtaining financing, Zhiyu began large-scale business expansion, not only began to build its own warehousing and logistics system, built a 160,000-square-meter overseas warehouse and investment logistics company in Riyadh, the capital of Saudi Arabia, built its own terminal distribution, launched its own payment system Jollypay, intended to create a Middle Eastern Alipay, but also launched O2O retail Jollymart.

These measures laid the groundwork for the shift from self-operated e-commerce to open platforms after one year of enforcement, and also buried hidden dangers for enforcement. When referring to the business expansion that year, Zeng Haipeng told Zhixiang that he still felt that this was a necessary investment, "The lack of every link in the ecosystem will have a very adverse impact on the future development of e-commerce." But at that point in time, Zhiyu obviously underestimated the difficulty factor of building an e-commerce ecosystem in the Middle East, and underestimated the new competitors.

At the time, Zhi was not the only Chinese e-commerce player, but also competed with Global Tesco, Shein and AliExpress. Global Tesco has two top-ranked apps in the Middle East, namely Zaful and RoseGal, and at the end of November 2017, Global Tesco announced "Black Friday" sales data, and Saudi Arabia increased by 1229.3%. Shein entered the Middle East in 2015, and in 2016, Shein's sales in the Middle East earned 200 million yuan. Back in 2014, Shein also acquired rival, Middle East-based fashion e-commerce platform Romwe.

Since 2017, the Middle East market has been flooded with e-commerce players from all over the world, and they have begun to scuffle in the hot climate.

scrimmage

2017 was also a watershed year for e-commerce in the Middle East.

In March of that year, Amazon bought Souq for $650 million. In October, the Middle East local e-commerce platform Noon was established in the United Arab Emirates, financed by Emaar, one of the largest real estate developers in the Middle East, and officially supported by the Saudi sovereign fund, with a base amount of up to $1 billion at the time of its creation.

"Emaar once wanted to buy Executive," the person said, "but for various reasons, it didn't work out." ”

Local giants are betting hard, and players from new domestic platforms and even other regional markets are also turning their attention to the Middle East.

In 2017, Fordeal was founded. In 2018, Fordeal's sales reached 700 million yuan, and in 2019, sales exceeded 2 billion; In 2018, AjMall was launched and squeezed into the forefront of Saudi shopping apps within a year.

In 2019, Gao Qi participated in the creation of the pendant e-commerce platform MumShop in the Middle East, and its ranking in the shopping list was once higher than JollyChic and Fordeal, he told Zhixiang that in those years, capital saw the growth of dominance and flocked to the Middle East, "At that time, some capital invested in some third or even fourth Middle Eastern e-commerce, because they could not invest in JollyChic, and could not invest in Fordeal, they felt that it was okay to invest in a third man, and there was a possibility of being merged. Therefore, at that time, many investors were investing in small and medium-sized e-commerce platforms. ”

"At that time, everyone recognized the e-commerce platform in the Middle East and thought it was smooth sailing." Gao Qi said.

According to ePanda's statistics, in 2019, the US e-commerce Wish has entered Saudi Arabia and the United Arab Emirates, and it is at the top of the mobile e-commerce app download list. In addition, Flipkart in India, Lazada in Southeast Asia, and Bukalapak in Indonesia have all expanded their Middle East sites during that time to make initial attempts.

In the vertical field, from 2017 to 2019, Namshi, Boutiqaat, Wadi, Awok, and Mumzworld have successively received financing or been acquired.

At the time, there was also an unnoticed "interloper" Shein. At that time, almost no one in his peers was optimistic about Shein.

"We were doing vertical mother and baby e-commerce similar to Shein, we talked about a dozen capital partners, everyone was generally not optimistic about pendant e-commerce, almost 80% of the voice at that time was platform thinking, everyone did not understand where the advantages of doing pendant class are," Gao Qi said, "Recently I communicated with the CEO who was doing Middle East e-commerce at the time, and everyone did not expect that Shein could do so much." ”

Capital is also expecting the Middle East to copy a JD or Taobao, rather than a product similar to Mushroom Street and Meili Said.

The fight between the platforms is hot, but the hidden dangers are already emerging.

Li Mei (pseudonym), a logistics practitioner who has lived in the Middle East for a long time, recalled that the deepest impression of buying things from e-commerce platforms in those two years was that the service was very poor, "Buying a product on it, there will be various problems and bugs in the process of placing an order, and it is not very smooth from the address to the payment." ”

Behind the rapid growth, there are huge hidden problems. Several industry insiders told Zhixiang that many Chinese e-commerce platforms, led by Zhiyu, have big problems with their business models.

In the dividend period of the market gap, the platforms quickly obtain sales with a huge supply chain. But after the dividend, when consumers become calm, when strong competitors enter, the problem of business model is enough to take the platform from the peak to the ice valley.

Platform clearance

Since 2019, the problem of enforcement has come out one after another. Zhiyu adopts a self-operated model, the platform from the supplier unified procurement, to the back, the goods of Zhiyu began to produce a large number of returns and slow sales.

"JollyChic, AjMall and Awok all went out of business later, and what all three have in common is a low-price supply chain, low value of goods, and unreliable quality," Yang said. ”

Yang Gongmin recalled that at the end of 2017, the executive began to enter a stage of weak growth, and the entire sales began to decline, "costs continue to rise, and the company's cash flow is eating every day." Whether it's Awok or AjMall, every business has internal problems, when you keep dumping cheap goods, you will have wild growth in the early days, but after a certain period of time, after the user has been educated a few times, your repurchase rate will decrease. ”

A person familiar with the matter revealed that the executive actually missed a good transition time. Shein's team once went to Li Haiyan's office to ask for advice, "At that time, Shein was a small company for the executive, and the executive had studied and judged whether to deepen the supply chain. He said.

Zhiyu has always adopted a sweeping model, and the quality control and store management are very lacking, "The early barbaric development of Zhiyu was because there was no competition in the market. In the later stage, it will definitely compete with the cost performance and quality of the goods, which is where Shein does well. The person added. After the sales volume decreased, the executive considered the transformation problem, established a complete process internally, and prepared to implement it, but in the end, he felt that the link was too long and did not choose this direction.

In the end, he chose another way of transformation, from self-operated e-commerce to open platforms, that is, to become a platform-based service company similar to Taobao and Amazon. The property rights, sales and traffic of goods belong to the seller, and the profit model of the platform is transformed into a commission model.

While transforming into an open platform, the executive also had to increase investment. Zeng Haipeng said that as a platform-based service provider, most of the energy must be invested in infrastructure construction, "such as warehousing and logistics, payment, and even the payment cycle of the account, and helping merchants solve cross-border transportation customs clearance, delivery time and other issues." ”

"It's too much stuff involved, too detailed." Zeng Haipeng sighed.

In 2019, China has formed a complete e-commerce infrastructure. In many cities, next-day and next-day delivery is the norm. Alipay and WeChat Pay have largely replaced cash transactions. For the return of goods, there is a complete service process. E-commerce services that have been regularized in China, Europe and the United States are even more extravagant in the Middle East.

Taking payment as an example, the proportion of COD (cash on delivery) is still quite high. Moreover, unlike China's single market, Middle Eastern countries are scattered, each country has a wide range of national conditions, each country needs to apply for logistics and payment licenses separately, and the business environment is very different.

Even in a country, the construction of logistics and payments is unimaginably difficult.

In the 70s of last century, with the development of the oil economy, the Middle East began to enter urbanization, which also led to extremely difficult logistics construction in the Middle East. "Saudi Arabia does not have a postal code system, address positioning is chaotic, each e-commerce platform has its own set of address database, and logistics cooperation needs to be re-adapted." The other is COD, which has a particularly high rejection rate in the Middle East and has been a difficult point until now. ”

Li Mei believes that self-built terminal delivery is a very dangerous thing. After 2019, the orders of the executive fell sharply, and at the same time, the logistics of the executive could not get the orders from outside, and a very large warehouse was built, resulting in an extreme waste of resources.

The consequences of the early dumping of cheap goods soon swallowed up the ruler.

Before successfully transforming into an open platform, it managed to trap the cash flow crisis until it came to an end. "After the company entered a cash flow crisis, it lengthened the settlement cycle, resulting in a run on suppliers." Yang Gongmin said. In 2021, a large number of suppliers collectively "came to collect debts", and many of them fell into difficulties in life because of the problem of managing payment collection.

Back to the Middle East

On December 14, 2021, Ajmall officially shut down, and one month later, the executive closure began to calm down the domestic attention to the Middle East market.

Founders, who were once attracted by the hot market, began to leave the market. When asked whether the founders are still doing business in the Middle East, Gao said: "A lot of people have given up on this market. Some executives took some money at first, but when they found that they couldn't do it, they returned the money to the investor and didn't do it. ”

Middle East e-commerce has formed a pattern of two giants, and with the end of the platform chaos, the domestic understanding of the Middle East e-commerce ecology has begun to become clear.

Shein became the biggest winner in that batch of cross-border e-commerce, and since 2016, Shein has been at the forefront of e-commerce platforms in the Middle East. In 2022, Shein also expanded the menswear category in the Middle East.

After Amazon and Noon entered, China's platform quickly failed, and some practitioners began to reflect that China's cross-border overseas advantage lies in the supply chain, not the platform capability. Shein, who is a deep supply chain, has a stable foothold in the Middle East.

As a representative of small and medium-sized platforms, Gao Qi of Mumshop said that at that time, the quality of goods and services provided by Chinese platforms in the Middle East was actually relatively poor. "At that time, the unit price of customers in the Middle East was relatively high, and then the logistics time was slow, and it took 10-12 pieces to ship freely. If you want to buy something, you need to make up extra orders, which is very anti-human," Gao Qi said, "and labor costs, air freight costs, and loss on the path all make users pay, resulting in too expensive commodity prices, and some of these goods are not on the right board." ”

In the barbaric growth period, long logistics timeliness, high return rate, slow sales of goods, inflated prices, and wrong goods were all common chaos at that time. At that time, the platforms had not yet established the optimal business path, and at the same time, Amazon and Noon entered the battlefield with rich e-commerce experience and huge financing and localization experience, and the Chinese platforms had no choice but to leave. Focusing on products and supply chains, Shein, with localized products and good brand reputation, has been able to gain a steady foothold in the Middle East.

Over the past few years, the basic ecology of e-commerce in the Middle East has been developed, and the popularity of the Middle East market has begun to pick up.

Taking logistics as an example, Li Mei said that in 2017, the parcel from China to the Middle East took half a month at the earliest, and now it can be delivered to customers within a week.

Although Amazon and Noon are already giants, the platform products are mainly standard products, there are few SKUs, and there is a large number of blank market space.

Since the beginning of this year, the heat in the Middle East has risen again. It is reported that TikTok will open self-operated e-commerce in the Middle East this year and has begun to attract investment; Temu will also open a Middle East site, and a new pattern is brewing.