Frost & Sullivan assesses factors fuelling retail growth in Saudi Arabia

Dubai, July 1 (ANI): Saudi Arabia is the second largest retail market in the Gulf Cooperation Council (GCC) after the United Arab Emirates (UAE) with estimated sales of USD 98 billion in 2011. The major factors fuelling the growth of the retail industry in the Islamic kingdom are the increasing consumers’ disposable income, high marginal propensity to consume, increasing growth rate of the GDP, and Government spending. In addition, the country’s favourable demographic attributes make it one of the youngest and fastest expanding consumer groups in the world.

Ranked 16th in the global retail market, the retail industry in Saudi Arabia is predominantly run by family-owned businesses, which occupy exclusive franchising rights from international suppliers and brands to organise retail outlets in malls and shopping centres. Riyadh and Jeddah are the two largest cities in the country and house about 60 malls constituting a bulk of the retail sector.

The retail industry segments are broadly classified into non-food and food sales. A large young population with a strong female consumer base is driving the market for non-food products including apparel, cosmetics, and consumer electronics amongst the highest selling ones.

Although, Saudi Arabia has a large retail industry, the market demand for consumer goods in the country is still around 50 per cent lesser than the UAE retail market and the market was valued at around USD 31.1 billion in 2011 and is growing continuously over the last couple of years.

Saudi Arabia has witnessed a steep GDP growth even during the global financial crisis and this growth has positively impacted the unemployment rate in the country, consequently increasing average disposable incomes for the people,” said Deepa Doraiswamy, Associate Director, Innovation and Knowledge Center, Frost & Sullivan. “This factor, along with the increase in the number of new shopping malls being constructed and the expanding expat population, is augmenting the growth of the retail industry in Saudi Arabia.”

A few other factors boosting the retail industry are the steadily expanding population base of brand-conscious consumers, the increasing per capita income, expansion of organised retail formats, and a strong non-grocery growth due to higher consumer incomes.

Currently, Saudi Arabia is facing a great challenge due to scarcity of human resources owing to high attrition rates. In addition, high rental rates in the top-tier malls deter the growth of the retail market. Availability of substitute products and expensive e-commerce transactions due to high bank rate are some of the other deterrents faced by the retail sector in the country.

“A few other critical factors challenging the retail industry are food manufacturers’ high dependency on import due to various shortcomings of the agriculture sector in the country, the price-conscious Saudi consumers compared to their counterparts in the UAE, Kuwait or Qatar, and the private sectors’ dependency on the expatriate labour force,” concluded Ms. Doraiswamy.

Thus, the retail sector in Saudi Arabia is believed to be a high-potential market for domestic as well as for foreign participants. More than 12 million pilgrims visit the sacred Makkah and Madinah every year, further driving the retail market of the country. (ANI)

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