Amazon has agreed to buy 100% of Souq.com, a Dubai-based online retailer, with the expectation that ecommerce will take off in the Middle East.
While financial details of the acquisition have not been disclosed as of this writing, Goldman Sachs called it “the biggest-ever technology M&A transaction in the Arab world.” Goldman also said the acquisition will fast-track the American ecommerce giant’s entry into “attractive Middle East countries with significant growth potential.” The acquisition is expected to close later this year.
Despite having a young, tech-savvy population, at present most shoppers in the Middle East still prefer brick & mortar stores, particularly shopping malls. Online retail currently accounts for less than 1% of total sales in the region, according to market researcher Euromonitor International.
Amazon sees an opportunity to get out in front of a behavioural shift among Middle East consumers, and is mobilising to meet demand. “We want to figure out how to grow the team here”, said Russ Grandinetti, Amazon’s Senior Vice President, International Consumer. “If we're going to grow the business we have to grow logistics, we have to grow technical development.”
Souq.com was founded in 2005 and offers some 8.5 million items on its website, which garners about 50 million visits per month, according to Co-Founder and Chief Executive Ronaldo Mouchawar. He said there is scope to expand the business with Amazon, and increase its workforce of about 3,000 to extend its reach. "We will continue to invest in our segment and grow our markets”, he said. Souq.com currently serves six Gulf Arab states and Egypt.
“Amazon is a great fit with us”, Mouchawar said. “We have a lot of common values and it is all about innovation, technology and the type of customer experience and thinking that Amazon has.”
According to Reuters, “Amazon’s acquisition of Souq.com is seen as significant for the Middle East's nascent tech sector.” As Fadi Ghandour, a venture capitalist and founder of Dubai-listed logistics firm Aramex put it, “This is effectively a vote of confidence in the region. You have a major American company going into a digital company in the region.”
The Dubai government also welcomed the Amazon deal as it increasingly focuses on the technology sector, and ramps up efforts to expand the emirate’s retail footprint throughout the region.