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E-commerce struggles to take off - High shipping costs holding back online sales

Despite these problems, local Web sites expect to benefit from a growing international market

In the late 1990s, it was said that e-commerce would revolutionize the way people shop. A handful of local Web sites were launched that hoped to take advantage of what promised to be a rapidly increasing global marketplace. To position themselves in the highly competitive internet arena, practically all of them speculated on the same niche market: Lebanon's estimated 13-million strong diaspora.

It proved to be a prudent choice. Demand for local items has come mainly from countries with large Lebanese communities. Despite the demand, local Web sites report that online sales are being held back for reasons that didn't figure in their initial business plans - namely, high shipping costs, slow internet connection speeds and problems related to credit card usage.

"Sales have not been as expected," said Naji Tueni, general manager of Adabwafan.com, which specializes in Arabic books and multi-media items. The Web site, launched in July 2002, boasts an impressive collection of merchandise. It offers around 90,000 books, 7,000 CDs, 3,000 videos and DVDs, and 900 CD-ROMs. This extensive selection has succeeded in generating a lot of interest. "We get more than 6,000 visits a day," Tueni said. However, the site receives only about 500 orders a month, "which is not enough to cover our expenses," Tueni said. He added that the break-even point is 1,000 orders per month.

Tueni reckons that high shipping costs are the main reason people have been reluctant to buy. This is of particular concern when the items on offer are inexpensive. He said that an Arabic book costs $7 to $10 on average, while the shipping cost was about the same.

"This is the main barrier keeping us from growing," said Tony Assi, managing partner of Aldoukan.com, a three-year-old Web site that sells all types of Lebanese products. "We charge $6 per kilo for shipping. So, if a customer buys one kilo of bread for $1, it would cost $7 to reach the States," he said. "This is a real disadvantage, but nothing can be done about it. The courier companies already give us the best prices available."

Everyone who was interviewed said that another major problem affecting business was the payment gateway, NetCommerce, the only company in the country that provides credit card processing over the internet. "They do not accept all kinds of credit cards," Assi said. "Plus, about 10 percent of the time payments are blocked by the credit card companies because they think that, since we are based in Lebanon while the credit card holders are in the States, the card is stolen." Assi said that he ends up having to call the customers to ask them to unblock their credit cards - and that this discourages them from ordering again.

Nizar Zahreddine, technical administrator at NetCommerce, confirmed that for the moment the company only accepts VISA and MasterCard. On the issue of credit cards being blocked, Zahreddine said that a lot of credit cards issue charge-backs and so "we block the cards at the request of the merchants." But, he added that more than 80 percent of the time it is the bank issuer that makes the request.

Another problem is the slow internet connection speed in Lebanon. Assi said that he had a dial-up connection that costs just over $300 per month because small companies like his cannot afford a leased line as it would cost $1,500 every month. "The slow connection makes it impossible for us to improve our Web site frequently. We aren't able to add new products and this indirectly affects sales."

"It's not a business that gives a direct return on investment," Assi said. About $300,000 was invested in the company, most of which went into advertising on popular Web sites like CNN and Al-Jazeera. With the plethora of Web sites contending for online sales, marketing becomes imperative, according to Tueni. He said that over 20 percent of the $300,000 so far invested in Adabwafan went into advertising, "but it is not enough."

Ironically, the best exposure often comes free of charge from the international press. One local Web site that generated a lot of interest after being featured in the New York Times is Hallab.com, which was launched in 1996 by the long-established sweets manufacturer Rafaat Hallab & Sons. "We got a lot of orders after that article," said manager Rafaat Hallab. The Tripoli-based company generates about 5 percent of revenues from its Web site. It receives about 20 orders a day and up to 100 during religious holidays.

Despite the various setbacks, most anticipate better times - especially when internet shopping becomes more prevalent. "It's a business for the future," Tueni said, adding, "There are two factors encouraging us not to give up. First, the products that we sell are not available outside of Lebanon. Second, people will use the internet to purchase these products - because there is a demand and it is increasing."

Beirut,04 13 2004
Natasha Tohme
The Daily Star
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