Last week Amazon confirmed its acquisition of Souq.com, an e-commerce marketplace supplying the Middle East. The acquisition is reportedly worth around US$650 million, although Amazon did not disclose the price in its press release announcing the deal. Emirati retail group Majid al Futtaim, UAE retail tycoon Mohammed Alabbar and eBay are also rumoured to have been interested in acquiring the e-commerce platform.
Founded in 2005, Souq.com has often been described as ‘the Amazon of the Middle East’ and sells to customers in the Gulf States, UAE, Egypt and Saudi Arabia. It claims to benefit from 50 million visits a month and offers over 8.4 million products across 31 different categories of goods.
With only 2% of all present retail spend in the Middle East being made online and a potential 50 million consumers to serve, the region represents a virtually untapped market for Amazon.
This strategic venture marks the retail giant’s first move into the Middle East, and it is worth noting it has opted to acquire an established business rather than build from the ground up. This represents a general shift in Amazon’s strategy to date of organically building its operations from scratch in new outposts; India being a key example.
Amazon will have to stave off challenges in the region from other e-commerce companies, including Wadi and Rocket Internet backed Namshi. However, Souq.com’s established regional presence combined with Amazon’s commercial nous and resources will be tough to compete with.
It sounds like Amazon has got a good deal, as Souq.com was recently valued at US$1 billion. Further, Souq.com reportedly rejected a late bid in the region of US$800 million from Emaar Malls PJSC. Sources close to the deal suggest Souq.com would have had to break an exclusivity agreement with Amazon to accept the offer.
With global online retail sales expected to reach 8.8% of total global retail spending in 2018 compared to 5.9% in 2014, it will be interesting to see which countries online retail giants will target next to increase their market share and revenue.