Future trends in the Saudi retail sector
The Saudi retail sector supplies a population that is expected to reach around 35 million by 2021. With recent economic reforms, the sector has been affected mainly by subsidy cuts that have increased utility costs, and by the new Saudization law that has increased labor costs by 15 percent. Furthermore, seeing stagnation in their real disposable incomes, consumers are increasingly cutting back on spending and looking for ways to save money.
With these reforms and changes, there are retail trends that will influence the industry’s future growth, including offering more budget goods, e-commerce, implementing omni-channel strategies and artificial intelligence (AI), among others.
Subsidy cuts and value-added tax (VAT) have eaten into household budgets, and many are making savings by switching from luxury to budget goods. Retailers have thus started reviewing their portfolios and stocking more affordable brands.
The government aims to increase the contribution of e-commerce to 80 percent of the retail sector by 2020. The success and anticipated pace of growth of the Saudi e-commerce market can be attributed to the fact that 70.49 percent of the population used the internet in 2017, and this figure is projected to grow to 73.45 percent in 2022. According to the Saudi Communications and Information Technology Commission (CITC), by 2020 the e-commerce market in the Kingdom is expected to grow to $8.35 billion.
Saudi Arabia is poised to become a global omni-channel powerhouse. One of the region’s leading retail and hospitality conglomerates has already launched e-commerce sites and apps in the Kingdom for six of its biggest brands.
The retailer launched a “click and collect” feature in 2017 to offer its customers the complete omni-channel experience. The initiative was so popular that within six months of its launch, it accounted for 30 percent of total orders for some of the group’s key brands.
In the retail sector, AI has the ability to get the groundwork done for an enhanced digital customer experience. AI can power customer experiences with customizations, and enable retailers to cross-sell in store and online. Many brands are turning to it as a way to stay ahead of the competition and appeal to their customer base.
To survive, staying stagnant in the retail sector is no longer an option. The future is bright for retailers in the Saudi market that base their processes on their customers’ future needs and expectations. The merchants who will find success in 2019 and beyond are those that can evolve with these future trends.
Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.