Click to Checkout: Namshi.com Sets the Trend for Online Fashion Retail in the Middle EastPublished October 31, 2012 in Arabic Knowledge@Wharton
Ranked among the world's biggest spenders on fashion, Middle East shoppers are spoiled for choice, particularly in the oil-rich Gulf countries. In Dubai, for instance, the ruler recently decreed that its mammoth malls would stay open 24 hours during the Eid holidays. But despite such options and buying power -- retail accounts for 30% of Dubai's GDP -- the region was without an online retailer targeting the market.
That was the opportunity that Wharton alumni Muhammed Mekki and Faraz Khalid hoped to exploit with the idea for Namshi.com, a Dubai-based online fashion retailer for the Arab world. "We looked at fashion e-commerce and noticed that no one was doing in season, in stock fashion e-commerce, the way that Zappos does in the United States," Mekki says. "So we decided to fill that gap."
In about a year since launching, the startup has grown from a small core team to over 140 employees, offering 500 fashion brands and 12,000 styles. That momentum was enough to attract US$20 million in funding from J.P. Morgan and Blakeney Management this past September, an achievement that Mekki notes is the largest round of funding an e-commerce site in the region has ever received.
Traditionally, most regional shoppers have preferred to visit malls instead of buying through online retail sites. But Namshi has found footing at a moment in the region when e-commerce is finally finding a willing local customer base. According to Google's office for the region, Middle East shoppers register 40 million clicks on retail sites daily. Improved shipping options and better online security for transactions have partly contributed to the trend.
Despite the website's novelty, capturing customers requires some critical business strategy, says Wharton marketing expert Jonah Berger. Namshi offers free shipping and returns for the items it sells, which Berger says is key to overcoming regional mistrust of online retail. "Flexibility in return has helped many online retailers, like Zappos, break into a business where consumers would have others been scared to order online," Berger says.
There are lessons from online retail in the West that Namshi can follow to build its brand, Berger adds. "Meet and exceed expectations. Create guarantees, demonstrate your effectiveness, and encourage satisfied consumers to tell their friends." Namshi enjoys an advantage by targeting fashion-conscious consumers, Berger notes. "Luxury consumers may be more educated, or willing to trust an online retailer."
Mekki and Khalid met with Arabic Knowledge@Wharton at their offices inside Dubai's Gold and Diamond Park. Despite being nestled inside an area devoted to one of the city's longtime trades, the Namshi offices very much adhere to startup tech culture -- a spartan layout of grouped desks with no partitions is the only separation of the company's departments, from IT to merchandise buying. Young people tap away at laptops, or pace while speaking into smartphones. The most dominant installation in the office is a giant aquarium, featuring colorful fish and sunken columns.
Mekki is a former executive at McKinsey & Co., while Khalid helmed a previous online startup and worked for Microsoft. Representing half of the site's founding team, the two Wharton alumni speak about the challenges overcome in quickly growing Namshi from an idea to a thriving e-commerce business. Critical to their success, both say, has been a strategic decision to concentrate on building strong teams, comprised of professionals they feel best embody the values they want in their office.
"We've been able to attract people to the Namshi brand who can fix problems and surmount challenges," Khalid says. "I think that, more than anything else, is important; having the mental capacity, the firepower, to be able to solve the myriad challenges that you face."
An edited transcript of the conversation follows.
Arabic Knowledge@Wharton: What is different about online retail in the Middle East?
Muhammad Mekki: The unique factor of this market is that the range of opportunity is so much greater than most developing markets. The infrastructure is in place, and the consumers are ready to buy online. The set of options out there are limited. That was the premise when we first started. We looked at fashion e-commerce and noticed that no one was doing in season, in stock fashion e-commerce, the way that Zappos does in the United States. So we decided to fill that gap. We started with the seed funding of Rocket Internet out of Germany. It got us started and the team running, and then based on the growth of orders and the setup we developed, we were able to go out and raise the largest ever round of funding for e-commerce in the Middle East. It was necessary because of the business model -- we need to buy stock ahead of time, and we have marketing expenses.
There's an entire set of business models that are waiting to be developed. Now, the region is catching up in infrastructure. So whether it's the availability of payment types, like credit cards or delivery, or Internet penetration, all these aspects have finally reached a point where online businesses can be viable. Also, if you look around our offices, you will see the sheer diversity and talent that we are able to bring together -- Dubai is a very unique city in that regard. We have teams comprised of Europeans with Asians and Arabs, even South Americans. It is even different than the U.S., because they are not hyphenated nationalities. To see the interactions between them, and seeing them gel around this concept, is something that inspires us.
Arabic Knowledge@Wharton: And what are some of the unique challenges?
Mekki: There is a reason why there aren't 15 e-commerce players in the market already. It is a challenging market, because the [e-commerce] trend has not been set, and the expectations of customers are wildly disparate. We have a responsibility as Namshi to set that trend.
One is educating the consumer. Part of that is marketing. We're the first of these companies to go very wide scale with a television commercial in Arabic. We try to target a very wide range of customers, and try to educate them with the benefits and the ease of buying online. Part of that is instilling trust. We work hard to show people that this is a legitimate business, and we sell real product -- we exist, and when you order products, we will send it to you. So that's a challenge we have. But doing something like launching a TV campaign helps legitimize us.
We still have challenges in fulfillment, specifically in Saudi Arabia and other GCC countries. The operations here in the UAE are very smooth. If you place and order today, you'll get a phone call from our logistics partner Aramex by the late afternoon, scheduling your delivery for the next day -- which is a wow experience that nobody else in this market provides. For Saudi Arabia and other remote regions, we can ship it out quickly, but then following up with the customer, getting it to them and closing the deal can be challenging.
When we first started, we had cash, and we were trying to buy products from brands, pre-paid, and they refused to sell to us. You would assume it wouldn't be an issue for a funded business. But they didn't trust the region, they didn't trust what our website would look like; we were an unknown commodity. We started from pleading with brands to buy from them, to now refusing to deal with any brand that does not give us credit terms. We went though this entire cycle, and now we're getting more aggressive on credit terms.
Arabic Knowledge@Wharton: Logistical challenges are everywhere. Can you compare what they are here, versus those in the West?
Mekki: One difference between this market and the U.S. market is the prevalence of cash on delivery, which is an expectation at this point from e-commerce customers. So that adds a layer of difficulty onto fulfillment of customers. When the customer hasn't committed any money to the order, it makes it more difficult to connect the package to the customer. So there's a responsibility on our side with orders coming in and orders in the pipeline, following up with customers, as with our couriers, to ensure they connect with the customer. So that's something we track on a daily basis and we work on. The majority of customers buy COD, and the COD cases are the more challenging ones from a delivery standpoint.
Arabic Knowledge@Wharton: How do you deal with customer satisfaction when you have expectations built up from the regular retail environment that exists here?
Mekki: It's a huge opportunity for us to show that shopping online can be such a better experience than shopping in a brick and mortar store. So we take all the potential issues that a customer would have online -- the size doesn't fit, I don't like it, I want a broad selection -- and we solve for all these issues. We offer free delivery, and you can try it on at home, and if it doesn't fit, you can send it back for free. We offer you a wide selection of brands that are easily navigable on our site. You know you want black loafers in size 39; you can filter your search and find this Brazilian brand that is not even available at Dubai Mall. You can get your standard Polo and Lacoste, and put them side-by-side, whereas at a mall, you have to go boutique by boutique.
Arabic Knowledge@Wharton: Obviously this wasn't something you were trained in. How do you prepare and ramp up then to work in a different part of the world?
Mekki: The important thing to remember is that you're never alone, even if you are one of the pioneers in a particular space, you'd be surprised how open others are, whether they are competitors or peers in other markets, to discussing problems and working through them.
I'd also like to discuss customer service. For e-commerce, it is paramount. Some companies get this, like Zappos and Amazon. You really have to deliver an amazing customer experience. The challenge in this market is that if you bring a group of people together and ask them, when was the last time you had an amazing customer experience, they'll struggle to remember. So the standard is quite low; it's an opportunity to differentiate us, but also a challenge for recruitment.
I like to talk about how we brought on board our customer experience manager, which was the hardest position that I had to recruit for. It was a months long process. The key to finding her was to think outside the standard customer service world, and to think about where in this market was outstanding customer service. So we looked into hospitality, and brought on board our manager from the Armani hotel. She was the lifestyle manager for guests at the hotel. That's the caliber of talent that we had been looking for, and had been looking in the wrong place for.
Faraz Khalid: It is one of the only greenfield e-commerce opportunities in the world, but there are barriers -- that's probably why Amazon is not here. But we have a really smart team that is super driven. We've been able to attract these people to the Namshi brand who can fix these problems and surmount challenges. I think that, more than anything else, is important; having the mental capacity, the firepower, to be able to solve the myriad challenges that you face. For instance, logistics is a nightmare here: you're operating across several countries, with one central warehouse, and a marketing strategy for 14 different customer types.
Arabic Knowledge@Wharton: You both are trained somewhere else, and are working somewhere else. How do you take that knowledge from one place, bring it to a new place, and how do you utilize that knowledge to actually succeed?
Khalid: I've had experience in e-commerce before, in a different setting. The core mechanics stay the same. An online shopper is an online shopper. There is still a process to attract someone to your site. There's a cart experience and then a post-sales process. What has been an eye opening experience for me is how similar the online audience has been. The mechanics are the same -- conversion rates, for example, are very similar to the developed world; the rate of customers calling us, and the rate of customers returning to us are similar. We're in a unique position to leverage some of our unique relationships that we made in school, and from our past lives. Sometimes I find myself picking up the phone and calling an old classmate, asking him how to solve stuff. So some of it is reactive, sometimes the knowledge is within the team, but it's also the resources we can leverage as well. One example was that we were looking to bring a brand of shoes online. We were trying to find the right connection, and it was hard to get to the right person in that company. So we just looked up our alumni database and found three people in that company whom we could reach out to.
Arabic Knowledge@Wharton: How do you customize the experience for customers coming from the different countries in the region?
Mekki: Just to build on what Faraz said -- even though we come with different experiences, we really have to have our finger on the pulse on this market, and we have to know our limitations. For instance, we have an entire buying team, which has direct experience buying for some of the biggest names in the GCC. They know what works in a retail environment. In each of our departments we have people with deep experience in the region, and we rely on that to a large extent.
As far as customization, we are a very analytics-based organization. So marketing here isn't about printing flyers, it's very targeted, based on geography, based on demographic profiles. We have a lot of information about our customers and the experience you have on our website has everything to do with where you come from and what we anticipate your needs to be. We continually test, and we track and we continually optimize that on a daily basis to ensure that we are targeting you with what you want to see, not products that aren't relevant to you.
Arabic Knowledge@Wharton: Your company managed to get a large investment from outside the region. How did you manage that? And what lessons can others learn from your experience?
Mekki: The venture capital ecosystem here is quite new. The appetite to invest in very large-scale businesses like ours is not there yet. We did communicate with investors here in the region, and we'd love to have more regional support for what we are doing, but in the end the investors that were wiling to fund us to the extent we needed to scale this business came from European and American markets. That trend we expect to change, but that change will only be accomplished after investors see success stories, and on that point we have a huge responsibility. We feel the responsibility to be good stewards of this investment; that we can show the market here is ready and growing, and is an exciting place, and is profitable. Once we, and others like us, are able to show that, we believe the local investment market and their appetite for regional investments will grow substantially.
Khalid: The market is maturing enough that consumers are just getting online. And we've been blessed with a phenomenal team. When you see buyers from some of the largest retail companies in the region, and some of the marketing people are from Google and the largest marketing firms in the region, that gives investors a lot of confidence.
Mekki: We strongly believe in people development, and building the next wave of entrepreneurs. That's a mission for each one of us as founding members.
Arabic Knowledge@Wharton: Both of you have mentioned how critical it is to have the right team. How did you go about doing this?
Mekki: It's something we are passionate about. Finding the right people, and empowering them, supporting them to make this company what it is. That's probably the most critical part of our jobs. It all starts with recruiting -- finding very qualified people, but who really exhibit the Namshi culture, of energy, thinking big, non-bureaucratic, we do more with less. There are key components of our culture that we look for specifically. No matter how sharp somebody is, we will not hire them if they do not meet these requirements. In fact, we will let people go if they do not display these over time, because it becomes a drag on the organization. That's a strategic decision we made from the very beginning, which has served us quite well.