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E-Commerce in Saudi Arabia: Driving the evolution, adaption and growth of e-commerce in the retail industry

Report by Sacha Orloff Consulting Group

Author: Alexandra de Kerros Boudkov Orloff

Full report download: E_Commerce in Saudi Arabia_Driving_The_Evolution_Adaptation_and_Growth_of_ecommerce_in_the_Retail_Industry_SOCG_2012June

Should Saudi Arabia build on the impetus that has been created through the adoption of e-government, a domino effect would trickle down into the private sector and consumer behaviour, with a wide spread of e-commerce penetration. This would create new economic opportunities and enhance the technological innovation capabilities of businesses providing enhanced competitiveness in domestic and international markets.

The Report “E-Commerce in Saudi Arabia: Driving the evolution, adaption and growth of e-commerce in the retail industry” highlights the steps which need to be taken to support the adoption and diffusion of the e-commerce model in Saudi Arabia. Key findings demonstrate that the current spread of e-commerce has been hampered by specific socio-cultural business traits which inhibit the risk-taking characteristics of enterprises. These traits are characterized by a need to implement proven business models;   reduce the risk of failure and an aversion to adopt a business model which may not be suitable to current consumer habits. Moreover, the sluggish uptake of e-commerce technologies by major competitors continues to prove detrimental to the spread of e-commerce.

Saudi Arabia needs to take the lead in driving its retail and e-retail growth, consequently to enforce its position as a key retail business hub in the region with national and foreign direct investment, and technical expertise to drive growth, innovation and positive business confidence.

Opportunities are emerging for private sector firms in Saudi Arabia to address numerous pressing challenges to the adoption of e-commerce solutions. A clear focus on change management processes, innovation, and bridging the talent-gap must be prioritized to ensure the widespread growth of these new channels.

1.     Introduction
2.     Saudi Retail Sector Overview
3.     ICT adoption and penetration in KSA
4.     Emergence and growth of e-government and e-commerce
5.     Challenges and barriers to e-government
6.     Enablers to e-government
7.     Challenges and barriers to e-commerce
8.     Enablers to e-commerce
9.     Online Customer behaviour and intention in Saudi Arabia
10.   Case study – eXtra iconic retailer but non e-conic success story
11.    Conclusion

©Sacha Orloff Consulting Group – all right reserved – June 2012

Also in Arab News – June 21, 2012 – Despite challenges, KSA ripe for e-commerce in retail industry http://www.arabnews.com/despite-challenges-ksa-ripe-e-commerce-retail-industry

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Who is the Chinese Consumer of 2020

Image courtesy of influx_studio

By 2020, Chinese consumers will join the ranks of the world’s choosiest and most sophisticated consumers

By Yuval Atsmon, Max Magni, Lihua Li, Wenkan Liao – Published by McKinsey Quarterly

Most large consumer-facing companies realize that they will need China to power their growth in the next decade. But to keep pace, these companies will also need to understand the economic, societal, and demographic changes shaping the profiles of consumers and the way they spend. This is no easy task not only because of the fast pace of growth and subsequent changes in the Chinese way of life but also because of the vast economic and demographic differences across the country.

These differences are set to become more marked, with significant implications for companies that fail to grasp them. Since 2005, McKinsey has conducted annual consumer surveys in China, interviewing a total of more than 60,000 people in upward of 60 cities.1 Our surveys have tracked the growth of incomes, shifting patterns of expenditure, rising expectations—sometimes in line with those of the respondents’ Western counterparts and sometimes not—and the development of many different consumer segments. Those surveys now provide insights to help us focus on the future. We cannot, of course, predict it with certainty, and external shocks might confound any forecast. But our understanding of consumer trends to date, coupled with an analysis of the economic and demographic factors that will further shape them in the next decade, serve as a useful lens for contemplating the profile of the Chinese consumer in 2020.

Changing demographics

Many of the changes taking place in China are common features of rapid industrialization: rising incomes, urban living, better education, postponed life stages, and greater mobility. Japan saw similar changes in the 1950s and 1960s, as did South Korea and Taiwan in the 1980s.

But some unique factors are also at work, such as the government’s one-child policy and the marked economic imbalances among regions. Our analysis reveals important insights into the likely demographic and socio-demographic profiles of Chinese consumers at the end of this decade.2

Changes in economic profiles have been and will continue to be the most important trend shaping the consumer landscape. The Chinese are certainly getting richer fast: the per-household disposable income3 of urban consumers will double between 2010 and 2020, from about $4,000 to about $8,000.4 That will be close to South Korea’s current standard of living but still a long way from its level in some developed countries, such as the United States (about $35,000) and Japan (about $26,000).

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Saudi Arabia – Retail Prospects and Outlook for 2012 – Report

By Alexandra de Kerros Boudkov Orloff

Download full report: Saudi Arabian Retail Prospects – Sacha Orloff 2012

Published in MECSC – Middle East Council of Shopping Centres: http://www.mecsc.org/newsletter/nledt_view.php?id=345

Immense opportunities in the fast growing retail market in Saudi Arabia – its constraints and challenges.

The Middle East Retail Sector forecast for 2013 has identified Saudi Arabia and the UAE as the markets with the most potential and dynamic retail sectors in the region. These two markets have sustained their dominance within the retail landscape for more than a decade and will continue to do so in coming years. The presence of a large expatriate population and the majority of region’s retail investment being centred in these countries have helped to maintain the growth momentum.

The GCC retail industry is poised for a healthy growth and known to be one of the fastest growing sectors in the Middle East. It is the second largest sector in the oil-rich GCC region, and is considered to be the most favoured means of endorsing diversification and continual economic development in the area.

In general the Saudi retail sector is spread across malls that have mainly replaced the old markets and souks all over the Kingdom. Malls attract consumers to purchase in a more modern and stylish environment; enabling to build a consumer experience with both a social and entertainment purpose.

1.0        The Kingdom of Saudi Arabia economic landscape.
1.1          Total retail spending in KSA 2011
1.2         Total retail spending in UAE 2011.
1.3         Total retail spending at Dubai Duty Free.
1.4         Global GDP growth.

2.0        Global Trends.
2.1          Key Trends in the MENA retail market.
2.2         Trends in the Saudi real estate and retail market.
2.3         Riyadh, the future capital of the retail sector.

3.0        Key impacts on the retail market in KSA.
3.1          Cultural differentiations:
3.2         Religious tourism.
3.3         Saudi Retail Market Concentration.
3.4         Recruitment and customer service.

4.0        E-Commerce in KSA is the next growing trend.

5.0        Conclusion.

5.1        Input and outcome analysis of KSA retail

Download full report: Saudi Arabian Retail Prospects – Sacha Orloff 2012

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Saudi Arabia – Largest retail market in the Gulf

 

The GCC retail industry is poised for a healthy growth. “The retail industry has been one of the fastest growing sectors in the Middle East for the last few years. It is the second largest sector in the oil-rich GCC region, and is considered to be the most preferred means of promoting diversification and sustained economic development in the region”, said Sameena Ahmad, Managing Director of Alpen Capital.

 
The forecast retail sales in the GCC to grow at a CAGR of 8.3 percent between 2010-2015, reaching $240.3 billion by the end of the forecast period. Growing per capita GDP and disposable income, expanding population base and consistent inflow of tourists will boost the region’s retail sector going forward. Retail sales of supermarkets and hypermarkets in the GCC are estimated to expand at a CAGR of 10.7 percent between 2010 and 2015, thus outpacing the broader retail industry.

 
Given a larger size of the population base, Saudi Arabia will continue to account for the largest slice of the GCC retail industry.
Based on projections, Saudi Arabia is forecast to grow at a CAGR of 9.4 percent and increase its share in the total GCC retail sales from approximately 42 percent in 2010 to 44 percent by 2015. UAE and Qatar are expected to show a robust growth at 7.9 percent and 7.7 percent respectively CAGR between 2010-2015.

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In the Luxury Market, the Middle Class Is the Game Changer

Tikka Shatrujit Singh, chief representative in Asia for French multinational LVMH (Moet Hennessy-Louis Vuitton) and advisor to the chairman of Louis Vuitton, has spearheaded the development of Louis Vuitton’s business in India. The high-end leather goods and fashion house currently has four stores in the country.

According to Singh, affluent customers in India are very similar to, and have the same needs and wants as, wealthy customers worldwide. The real game changer in the luxury market in India, he said, is the aspiring middle class. “We have to be careful that the brand is always positioned at a level they are aspiring to reach,” Singh told India Knowledge@Wharton. He added that India is very strong in the premium hospitality sector and that there is a huge opportunity for players to make a mark in this space.

 

India Knowledge@Wharton:You have a very interesting career trajectory. Could you share some of that with us?

Tikka Shatrujit Singh: Well, my career path wasn’t planned. My parents never looked at my report card so everything happened by accident, which is perhaps a very romantic way of going about things But I don’t recommend it to many people. I graduated from Doon School and went to Delhi University and was then hired by a bank in New York. I spent about 10 years banking across the world. I was picked up by the LVMH group to look at India when India was a closed market. I joined them in 1994 and advised various companies within the group. In 1998, the chairman of Louis Vuitton said, “Hey, I want you full-time with me. And we will decide who else you can advise.”

It has been a fascinating journey because [Louis Vuitton] chairman Yves Carcelle is the real pioneer in the luxury business. He’s a legend. He has created Louis Vuitton. And [he is] passionate about India and the development of business in India. I consider myself privileged and honored to have been associated with him, professionally and personally, for such a long time.

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Luxury-goods makers are racing into China

September 2011 – The Hong Kong Institute of Certified Accountant has published a relevant article on Chinese Luxury Business. This article is for a broader audience of professionals; especially for valuers and investors looking to assign a number to a luxury brand’s name.  Sacha Orloff is quoted in the following article, and would like to add other significant points, which we believe to be relevant below:

By Alexandra Orloff

The Chinese purchasers of luxury brands differs from those elsewhere

The Chinese purchaser differs from any other consumers due to its history of luxury consumption in China. This factor remains profoundly rooted into China’s cultural and sociological landscape. If one goes back few decades ago, during the Cultural Revolution there was a void in the luxury culture, however the same generation would purchase products, nevertheless their taste would be less than subtle and would be a mimic of the western signs of richness and power.

Now that social classes have reappeared, the strong desire of the Chinese constumer is to pursue his dreams of certain grandeur through the embedded tastes of their western counterpart; these principles influence strongly their purchases, thinking that their value system can be
leveled to the Western one. However, these scaled values have to compromise between their own traditional Chinese values, the socialist values and the western values regarded as the trend to follow in order to be seen as modern achievers, successful in their own society and worldly travelled. They still have to find peace and equilibrium between their own society and their personal display of wealth and status recognition inside China.

There are particular difficulties in measuring the value of luxury brands in China , after all, brands that do not command a premium in the West, such as Marks & Spencer, Wrangler and Buick, are considered chic in China

It has been demonstrated that 13 million households in China’s upper middle class offer the biggest new growth opportunity, thus accounting for approximately 12 percent of the market. For the western luxury brands, this new customer segmentation has a higher quality of life. The upper middle class population is capable to acquire luxury products.  It might be a mistake on luxury brands to try mould and refined the Chinese customer to their own standard of taste; a great effort should be put in understanding the Chinese mentality to gain their loyalty. One important point also, is that the Chinese consumer is relatively young compare on average of their counterpart in Europe, Japan and other old economies.

All depends of the perception of luxury; in my views, the Chinese consumer enjoys the thought of buying and acquiring luxury brand products, they are prepared and willing to show off their purchasing power, but they lack the know-how to leverage brands to create a sophisticates lifestyle. Now in the Chinese luxury market, with its rapidly increasing incomes, and a great access to internet, there is a wide display, choice and information on available luxury products.  I believe than a larger number of Chinese consumers feel comfortable buying all sorts of products which in their eyes are consider as being luxury. A certain refinement has to be acquired by this new upper middle class; only time will tell if the West should not drastically change their own perception to be lined up for the Chinese market.

There is something  unusual about the way Chinese consumers approach brands, compared with the West

With a high number of luxury stores, fashion magazines, websites and other use of social media, the Chinese consumer is extensively familiar with a larger number of brands and becomes more aware of the world of luxury goods and brands. In this process of time vs. awareness, the Chinese consumer becomes savvier about the relationship between quality and price. It is a matter of time before their knowledge of refinement will be intensified to the same level of their counterparts in the old Europe.

 

 

 

 

George W. Russell reports

Luxury-goods makers are racing into China, but the intangible nature of brands – especially on the mainland – spells trouble for valuers and investors looking to assign a number to a name

When Italian luxury-goods company Prada made its initial public offering in Hong Kong in June, it was an unabashed bid to court Asian, and especially Chinese, investors. “An IPO’s location represents the market where we’re heading,” Prada’s chief executive, Patrizio Bertelli, said before the listing.

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