Economists remain positive about Saudi retail sector

Updated 09 November 2016

Economists remain positive about Saudi retail sector

JEDDAH: Economists remains positive on the organized retail sector in Saudi Arabia, which benefited from market share gains in the past, according to a report.
This trend is likely to continue due to their better positioning in terms of economies of scale, better supplier terms and balance sheet strength, Al-Rajhi Capital’s research team said in its latest report.
Al-Rajhi Capital, the investment banking subsidiary of Saudi Arabia’s Al-Rajhi Bank, has published a strategy report analyzing consumer spending patterns in the Kingdom, titled “What happens to consumer spending now?”.
The report analyzes the past changes in the Saudi household spending patterns and based on that, draws important conclusions as to how the future spending patterns could shape up, in the backdrop of recent austerity measures.
Conclusions based on the past data analysis also disputes some of the widespread beliefs, as it highlights how inflation has consumed two thirds of the increase in household spending, mainly related to food and housing .
This also implies that the growth in real terms was mostly flat during this period. ARC’s analysis shows that the discretionary and non-discretionary spending patterns should be evaluated based on the level of household expenditure, whereas broader conclusions based only on the nature of segments could be misleading as the analysis shows that the line is blurred between these terms.
Some of the key conclusions from the report are:
l Majority of the increase in household spending consumed by inflation: During 2007-2013, average Saudi household spending increased by 35 percent (from SR13,250 in 2007 to SR17,903 in 2013) as per CDSI data. However, ARC analysis shows that 65 percent of the increase in spending was consumed by inflation.
l Housing and food expenses witnessed higher inflation: Housing and food together comprise 1/3rd of the monthly household expense, but account for 2/3rd of the total inflation.
l Real spending maintained, but growth was weak: About 80 percent of the aggregate increase in household spending during 2007-2013 can be accounted by inflation (65 percent) and rise in the number of households (15 percent). Consequently, only 20 percent of the increase in household spending was due to growth in real spending. Real spending per household grew by only 6.7 percent in absolute terms, implying a weak 1.1 percent CAGR during this period.
l Thin line between ‘discretionary’ and ‘non-discretionary’: ARC analysis suggests that the line between discretionary and non-discretionary spending was blurred based on past spending patterns. For example segments such as fabric and apparel, and furniture (considered discretionary) witnessed lower real spending growth at just 11 percent, implying a 1.8 percent CAGR over this period. This goes against the popular belief that the discretionary spending should have grown at a faster pace during periods of income growth as was the case during 2007 to 2013 due to higher oil prices.
Based on the past trends, the report said that ARC Research believes that consumers will prefer down-trading (choosing lower priced alternatives) rather than cutting back on quantity in in the current environment given that the real growth in the past was weak. Similarly, retailers are likely to favor discounting to maintain volumes.
There have been evidence of these trends also taking shape in the last few quarters.
The impact of decline in consumer spending is likely to be witnessed more in segments such as transport, recreation, restaurants and hotels as these sectors have seen the highest increase in real spending in the past and hence, making it easy for consumers to pare back their spending.
Other segments such as fabric and apparel, furniture may not be impacted as much, as these segments did not witness material increase in real spending in the first place.
The ARC Research team remains positive on the organized retail sector, which benefited from market share gains in the past, and it believes that this this trend will continue due to their better positioning in terms of economies of scale, better supplier terms and balance sheet strength.


Iran rial slides to new low as coronavirus, sanctions weigh

Updated 8 min 8 sec ago

Iran rial slides to new low as coronavirus, sanctions weigh

  • The dollar was offered for as much as 215,500 rials, softening from 208,200 on Friday
  • The rial lost about 70% of its value in the months after May 2018 as Iranians snapped up dollars

DUBAI: The Iranian rial fell to a new low against the US dollar on the unofficial market on Saturday, as the economy comes under pressure from the coronavirus pandemic and US sanctions.
The dollar was offered for as much as 215,500 rials, softening from 208,200 on Friday, according to foreign exchange site Bonbast.com. The economic daily Donya-e-Eqtesad’s website gave the dollar rate as 215,250, compared with 207,500 on Friday.
In May 2018, President Donald Trump withdrew the United States from a multilateral deal aimed at curbing Iran’s nuclear program and reimposed sanctions that have since battered the economy.
A drop in oil prices and a slump in the global economy have deepened the economic crisis in the country, which also has the highest death toll in the Middle East from the pandemic.
The rial’s decline has continued despite assurances from Iranian Central Bank Governor Abdolnaser Hemmati last week that the bank had injected hundreds of millions of dollars to stabilize the currency market.
The rial lost about 70% of its value in the months after May 2018 as Iranians snapped up dollars, fearing Washington’s withdrawal from the nuclear deal and sanctions could shrink vital oil exports and severely impact the economy.
The official exchange rate is 42,000 rials per dollar and is used mostly for imports of state-subsidised food and medicine.