General vs niche e-commerce: Who is winning?
E-commerce is a booming market in the Middle East and North Africa, with an increasing share of consumers shifting from retail purchases to their online equivalent. Some of the first players active in this space, such as Souq.com – now Amazon – and Noon, have grown significantly in the last decade along with this increase in demand.
These e-commerce stores, which have become very prominent, have a general approach to e-commerce, as they sell many different types of goods. Recently, however, there has been an increase in niche e-commerce marketplaces as well, with many start-ups and established players entering the market. For example, the luxury fashion space has grown considerably with players such as The Luxury Closet and Namshi gaining significant market share, the latter of which was acquired by Emaar, the company that is also behind Noon.
However, does such a niche approach have merit? Is it truly a long-term sustainable business model, or is it just the flavour of the year? That is incredibly difficult to determine, especially with the overall e-commerce market growing as it is.
According to a study by Google and Bain & Company, “In 2017, the MENA e-commerce market reached $8.3 billion. With an average annual growth rate of 25%, e-commerce in the region has been growing slightly ahead of the global average. The GCC and Egypt account for 80% of the e-commerce market, and they have been growing at a 30% annual rate, more than twice as fast as the rest of MENA.”
Within this market, there are usually one or two large players that emerge victorious; for example, Amazon in the United States and Alibaba in China, both of which are enormous markets. That is not for a lack of trying by more niche propositions, of course. The user experience and the optionality that consumers have on general platforms outperform the better tailoring of the niche platforms, especially if a niche is very narrow.
The top two e-commerce players [in MENA capture] between 25% and 40% of the market. This is in contrast to most other e-commerce markets, where the share of the top two players is typically more than 50%.”A study by Google and Bain & Company
Hence, if other, more developed markets are any indication, the generalist players — such as Amazon and Noon — will gain market share at the expense of other players. This does not mean, however, that niche platforms cannot maintain a successful position in the long term, as certain niches – like fashion and beauty – lend themselves well to e-commerce and allow certain businesses to sustain themselves.
With that in mind, we at SME10X believe that SMEs and startups in the e-commerce sphere should think about the market that they are targeting, and whether it is large enough to sustain the pressure of the general e-commerce players. If it is, it might be very lucrative.
The other aspect, if the business strategy is well implemented, is that niche e-commerce helps brands be known for their line of business. This is key to gaining quality, repeat and loyal customers.
For example, mothers, in many cases prefer to buy baby products from well-reputed sources that offer a larger variety in the niche, than a general e-commerce platform. Their reputability and range of choice make them preferred platforms while the generalised ones do better as a go-to option for everyday items, winning on volume.
To draw on that comparison, here’s a final thought cited from another online expert blog: “But overall, we see much greater returns and better ROI from our single niche stores over our general stores. Even though general stores might make a smaller percentage back to us, this works out in our favour nicely because of how I use general stores to find my winning niches to focus in on with a single store. So even breaking even or losing with a general store ends up producing huge turn around by “showing me the light” on lucrative niches.”