Lebanon e-retail revolution underway
The online commerce market in Lebanon is still woefully underdeveloped compared to other countries in the region, most notably the Gulf, but all that might be about to change.
Saudi Arabia’s third most popular e-commerce website, online fashion retailer Namshi.com, announced it had received a $13 million investment from growth equity firm Summit Partners last Monday, and told The Daily Star it was planning to launch a Lebanese website in July.
Following hot on its footsteps, ShopGo, an e-commerce platform that helps retailers set up online stores, is opening a Lebanon office this month to respond to increased local demand.
The linchpin for all of this is the announcement that the ubiquitous online payment gateway PayPal is finally preparing to launch in Lebanon sometime this year.
Many of the pioneering Lebanese retailers who have attempted to peddle their wares on the information superhighway have been forced to fold, introduce Cash On Delivery payments for local customers, or shift their focus to regional markets with more malleable consumer habits.
Namshi’s decision, however, demonstrates that the country’s e-commerce market remains an untapped and attractive market for regional companies and investors – albeit one that has yet to live up to the hype in comparison to Gulf countries.
While 46 percent of Internet users in the UAE shop online – compared to 35 percent in Kuwait and 35 percent in Saudi Arabia – this figure drops to 9 percent in Lebanon.
Online retailer Lebelik launched a website selling Lebanese designer labels two years ago. Though co-founder Louise Doumet initially envisioned personal shopping as the core of the Lebelik’s business, gifts – mainly from international customers buying for family and friends in Lebanon – emerged as the website’s strongest sales segment.
“Women have time to go to the mall to go shopping during the day,” Doumet explained. “One problem we see a lot is that a lot of time people see things on our website and call the designer directly and say, ‘Can I send my driver to buy it?’ Even though we have a good return policy, we deliver to your door, we offer Cash On Delivery.”
Lebelik uses Bank Audi’s payment gateway – which is one of two available in the country for local credit card holders – and began offering COD payments to Lebanese customers about a year ago. Since then, local sales have increased, Doumet said, and are currently split evenly between local and international customers.
Though the business has so far has been relatively impervious to the drop in local consumer spending, the fear of credit card fraud among Lebanese consumers persists, especially when buying from new online retailers.
“There are trust issues on every level,” she said. “They are used to online retailers with big names. They’d buy from Gucci or Net-a-Porter much faster than they would from Lebelik.”
“The biggest competition for us comes from local mentalities, not from other fashion retailers.”
Many in the e-commerce industry attribute the sluggish growth of the market in Lebanon to the persistent skepticism about online credit-card payments, which Doumet and many other Lebanese online retailers put down to the relatively low level of Internet penetration in the country and slow connection speeds.
According to a 2013 IPSOS poll on e-commerce in the Middle East and North Africa region, there are just over 1.7 million Internet users in Lebanon, giving the country a penetration rate of 56 percent. This is below most Gulf states – where rates range from a high of 75 percent in the UAE to between 60 and 64 percent in Saudi Arabia, Kuwait and Qatar – but far above other countries in the Levant and Maghreb.
ShopGo’s CEO, Moe Ghashim, admitted Lebanon’s e-retail market had grown at a slower pace than those of Gulf countries. But he believed this was due to the lack of local brands that sell online as much as a mistrust of online payment systems.
“The reason the market is underdeveloped is because there are not a lot of e-commerce sites in Lebanon,” he said. “But we started to see more demand from local merchants who want to open online stores in the beginning of the year and that’s why we decided to start an office here.”
Though ShopGo’s two existing Lebanese clients have seen an uptick in the number of customers paying by credit card lately, Ghashim said that at the moment online retailers had no choice but to offer local customers the option of COD.
Although ShopGo works with Aramex and Bank Audi, Ghashim said the sector’s single biggest obstacle to growth was the PayPal block.
ShopGo recently finalized a partnership with PayPal, and Ghashim said the payment gateway website would announce its Lebanon launch in “the coming weeks,” meaning local online retailers who use one of ShopGo’s web templates may soon have a PayPal link that can be used at both ends of a transaction.
“[PayPal] are going to announce it. They just unblocked [it] in Egypt and are definitely planning to launch here in 2013,” he said. “There are some legal issues [here] with the [Lebanese] Central Bank.”
PayPal’s Middle East PR representative, Tom Watterson, would not comment on anything related to negotiations with the Central Bank. However, he told The Daily Star by email: “MENA has a high strategic importance for PayPal’s global geographic expansion and they aim to offer its service across the entire region in the coming future. We can’t give an exact timeline on Lebanon, but watch this space!”
Retailers who want to sell online to Lebanese credit-card holders have the choice of using a Bank Audi or Credit Libanais payment gateway. Randa Bdeir, group head of Electronic Banking and Cards Services at Bank Audi, said there were currently 400 online merchants using their online payment gateway, giving it between 50 and 60 percent of the market share.
Since launching in 2005, the number of merchants who’ve adopted the system has grown steadily. However, a better indicator of the potential of Lebanon’s e-commerce market is the volume of transactions, which rose 55 percent between 2010 and 2012. Most of the transactions are from electronics retailers, travel agencies and sites selling movie tickets and prepaid mobile credit.
Merchants pay a setup cost ranging from $350 to $500, and depending on the volume of transactions, a monthly fee of between $30 to $50 and a rate of 3 percent to 3.5 percent per transaction, Bdeir said. When the volume of online payments increases, the charges are reduced.
Bdeir said the best incentive to encourage Lebanese merchants to branch into e-retail was an economic one: “This past year, since so many Arabs have stopped coming to Lebanon, the best incentive we can offer merchants is to say, ‘Let’s go to them,’” she said. “Since international tourists aren’t using their credit cards here, let’s push into the GCC markets.”
Mohammad Bakhash, project manager at Mira-cle, a business consultancy that builds websites for retailers, said the arrival of PayPal in Lebanon would do a huge amount to stimulate the e-commerce market here because of the cost and difficulty of implementing the existing payment gateways.
He pointed to the recent experience of one Mira-cle client, World of Toys, which initially opted to use an international payment gateway when it launched last year because these generally offer lower transaction fees than local banks of between 1.5 percent to 2 percent. But the firm encountered trouble transferring money from the U.S. to Lebanon, and had to re-introduce COD payments for local customers a few weeks ago, Bakhash said.
“Lebanese retailers are definitely missing out because e-commerce, even [in] countries like Saudi Arabia, relies on online payments and we don’t, because something is missing, and basically it’s the complication of e-commerce payment gateways,” he said.