Saudi Arabia: Retail spending to rise to $ 100 billion

The retail sector in Saudi Arabia appears set for solid medium-term growth, with sales and turnover expected to rise steadily in the coming years as the public begins benefitting from a greater range of product lines and more shopping centres, Global Arab Network reports according to OBG.

The Kingdom’s economy is forecast to expand by between 3% and 4% in 2011, with GDP expected to grow by a similar rate until at least the middle of the decade. Increased disposable income, along with higher consumer confidence, should flow directly into the sector, with analysts predicting the total retail spend in Saudi Arabia will rise to around $100bn by 2013, well up on the $75bn in outlays in 2008.

To help cater to this increased spend, most of Saudi Arabia’s major cities are expected to see a strong increase in retail space in the coming years, with the capital, Riyadh, alone expecting an additional 600,000 sq metres or more on top of the existing 2.3m sq metres of leasable area by 2014. Much of this space will come through developments in the suburban areas of the city, reflecting the focus on decentralised living and the government’s efforts to improve residential stock, trends that are being mirrored in some of the Kingdom’s other large urban centres.

Saudi retailers have benefitted from the increasing urbanisation of society, with some 90% of the nation’s population now living in cities, meaning that large-scale sales outlets, like malls, typically have a sizeable customer pool within their catchment area. Moreover, shopping malls and their associated food courts and recreational facilities play a larger role in the Kingdom than that of simply commercial outlets – they are also focal points for social activity.

The findings of a recent study by the UN is also of significance for local retailers, with the report showing that some 65% of the Saudi population will be economically active by 2015, with around 46% of them in the key 20-to-44 age bracket, the peak spending demographic.

Another study, issued in late February by the UK-based market research consultancy ICD Research, said that the Saudi shopping sector was still dominated by specialist retailers, which accounted for a 62.6% share of sales, with general retailers representing 28.1%.

According to an end-2010 report by property consultant Colliers International on the retail sector in the Middle East and North Africa, regional retailers were “more concerned about ensuring that each brand is perfectly matched to their mall location and are questioning issues such as market positioning, shopper profile, store location, footfall and centre management”. The report stated that Saudi Arabia’s retailers had taken these concerns into account, with Colliers predicting a strong performance from local retailers, as the country’s shopping malls become more competitive and better serve the internal market. It also said that a shift towards community or neighbourhood developments was expected to occur, which would help boost different retail formats.

According to the ICD study, the retail market in Saudi Arabia is dominated by the food and grocery segment, which represented 47.2% of total sales, while clothing, accessories and luxury goods are next in the shopping queue.

These findings illustrate that unlike some of its neighbours in the Gulf, the Saudi retail sector is geared towards meeting the needs of a domestic clientele, rather than foreign visitors. Instead of the “build it and they will come” philosophy that seems to have been the norm in some states in the region, resulting in a massive oversupply of floor space, Saudi developers have adopted a market-driven approach that aims to keep just ahead of demand while preparing for the sector’s future requirements.

As of the end of 2010, consumer confidence in Saudi Arabia was at a three-year high, with the MasterCard Worldwide Index of Consumer Confidence in the Middle East and Africa putting it at 95.1 points, by far the highest in the region.

Global Arab Network

This article is published in partnership with Oxford Business Group

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