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Saudi Arabia’s retail sector prepares for a positive future

Government initiatives, more women in the workforce, a growing digital-savvy generation and omnichannel retail strategies have boosted the retail sector.

The retail industry in Saudi Arabia is likely to grow to from $106 billion to $119 billion by 2023: Euromonitor study Saudi Arabia is witnessing increasing women in the workplace, which is resulting in a new set of retail consumers Government initiatives such as Saudization and the development of major retail destinations have spurred revenues

After slumping in 2016 and 2017, Saudi Arabia's retail sector bounced back in 2018 and is now poised for incredible growth. A number of positive government initiatives such as economic diversification and a robust budget, as well as increased women in the workforce, higher disposable incomes, a growing digital-savvy younger generation and a push toward omnichannel retail strategies have given the sector a much-needed impetus to growth.

A number of key hurdles that challenged the kingdom's retail sector in 2018 are now fading into past. Conversations are moving away from value-added tax (VAT) and the increase in dependent fees for expatriates, which slowed purchases and resulted in lower-than-expected retail revenues. In fact, the retail industry in Saudi Arabia is likely to grow to from $106 billion to $119 billion by 2023, a recent Euromonitor study indicates.

"Saudi Arabia has a new bunch of customers. Women are working everywhere. The key is that, in Saudi Arabia, most of the household expenses are still being covered by men. Therefore, most of this 'new' income from new customers turns into spending money, which is a big boost for retail, premium luxury and fashion. Now, these new customers may not buy as often as the affluent, but there are millions of them spending occasionally. This adds a lot to the market," said Cyrille Fabre, Partner and Head of Consumer Products & Retail Middle East, Bain & Co.

The Saudi retail landscape has also benefitted from increased tourism. Government initiatives to boost the kingdom's infrastructure, pump investments into entertainment, and focus on attracting international investments are paying off. In line with its "Vision 2030", Saudi Arabia has set aside about $64 billion to invest in leisure, entertainment, culture, and boost its tourism appeal. In a single year, the kingdom created 20,000 jobs, sprouted 500 entertainment companies and conducted 3,200 events with more than 19 million visitors, the governor of the Saudi Arabian General Investment Authority (SAGIA) Ibrahim Al-Omar confirmed at the World Economic Forum earlier this year. 

Despite the rising costs in labor, utilities, and logistics, government initiatives such as Saudization and the development of major retail destinations have boosted retail revenues. The Saudi workforce in the retail and wholesale sectors grew 25 percent to 440,000 in the first quarter of 2019. Riyadh and Jeddah have become top-notch retail destinations, with the overall retail space in the nation's capital projected to reach 2.7 million square meters by 2021, according to KPMG Al Fozan & Partners.

The government is also looking to fill specialty retail gaps. While Saudi Arabia develops into a regional e-commerce hub, brick-and-mortar stores still hold a position of importance. In-store consumer engagements have been enhanced with the opening of more experiential stories and the emergence of super regional malls. New technologies such as augmented reality, virtual and mixed reality as well as the incorporation of narrow AI solutions have boosted retail. The payments ecosystem in Saudi Arabia has also boosted retail spending through the implementation of cashless systems such as Apple Pay and Mada Atheer services.

"We are seeing a significant improvement in Saudi Arabia's retail market, and that makes me particularly hopeful because this is, by far, the market with the biggest potential in the region," Cyrille Fabre concluded.