Saudi retailing undergoes aggressive expansion

According to the last report issued by Al Hokair Group, wholesale and retail trade activities grew by a compound annual growth rate (CAGR) of 5.8% in the past decade.

The retail sector was expected to reach SR70bn, but it actually exceeded SR 90bn.

An even higher growth rate is projected for 2012 when the sector is expected to hit SR130bn.

Another report by Euromonitor said that the Saudi retail market is highly fragmented and dominated by single-outlet operations, although recent years have seen the emergence of more chain outlets.

The report named Al Othaim Commercial Group, Azizia Panda, Fawaz Al Hokair group, and MH Al Shaya Group among the most dynamic retailers in the kingdom.

Growth rates vary from one segment to another, with the household segment counting for 5.6% compared to 6.4% for the hotel industry, and 7.4% for clothes, electronics, furniture and shoes.

Brand conscious consumers

Saudis are conscious consumers who value established and well-known brands.

This is mainly due to the emergence of a large population of young people in Saudi Arabia, coupled with the fact that women represent more than 50% of consumers.

Al Hokair Group says that the size of population and its growth rate, together with its young demographic structure, makes it a lucrative market for consumer products.

In its report, the group drew a picture showing consumers as modern shoppers with sophisticated brand tastes, influenced by global media through satellite television.

In addition to consumer trends, the retail industry has also benefited from various other factors that boosted its growth and sales figures.

The Euromonitor report pointed to the improvement in legislation that allowed easier foreign investment in the sector (especially with the kingdom joining the WTO), in addition to high per capital disposable income, the real estate boom and retailers expansion operations.

Expansion plans

Al Hokair Group claimed in its report that it held 50% of the overall market share, around SR1.6bn for the financial year 2007-2008.

The group has 44 international brands in its range and is planning to open 150 new stores between 2008 and 2009, following the launch of some new brands and the opening of a number of shopping malls in Saudi Arabia, including the Mall of Arabia in Jeddah.

Overall, the group said it will be opening an average of 100 stores per year until 2014, through which they expect their revenues to grow by 12.7% annually.

To complete its expansion strategy, the group runs a mall management arm, the Arabian Centres, which operates a network of 12 comprehensive malls in prime locations across the kingdom. These house over 1,100 stores over an area of almost one million square metres and a gross leasable area in excess of 700,000 square metres, which is roughly 30% of the total mall gross leasable area in Saudi Arabia.

Four new malls are also projected for the next five years, with plans to expand into Egypt and Jordan. Existing malls include Salam Plaza, Mall of Dhahran, Khurais Plaza, Nakheel Plaza, and Aziz Plaza.

Consistent Saudi retail growth

Euromonitor expects sales to grow at above 5% per annum by 2012.

More young Saudi nationals will gain buying power by entering the workforce and more shopping malls, hypermarkets, durable goods retailers and department stores, all with large retail space, are likely to develop over the next few years, in line with the aggressive expansion plans unveiled by many leading retailers.

One of the major expansions declared recently included Saudi Arabia's Savola Group's intention to invest SR6.5bn into expansion by 2010.

This will also reflect on the jobs market as studies reveal that retailing will create more than 60,000 job opportunities in the coming five years.

See also:
Kuwait's retail supply lags behind demand
Has the Middle East's retail sector reached maturity?