Saudi Arabia is the new opportunity for UAE retailers

The recent softening in the UAE’s retail climate has given rise to retailers looking for new frontiers with Saudi Arabia very much top of mind.

People shop during the "Extra Mega Sale" in Riyadh October 14, 2012. Increased government spending is filling Saudi wallets through an expanding public payroll, unemployment benefits and the stimulus Show more

The recent softening in the UAE’s retail climate has given rise to retailers looking for new frontiers. The Emirates may be the retailing king of the Mena region, with Dubai second only to London as the globe’s most brand-penetrated city, but Saudi Arabia is the new opportunity for many companies. With a population of more than 27 million and rising levels of disposable income, the opportunity for rapid growth is turning many retailing groups towards the kingdom.

“KSA has been our focus for the past three years and it will remain so for the foreseeable future,” said Miquel Pancorbo, president of the sports division for GMG, the parent of Sun & Sand Sports. “We will be opening 40 stores outside of the UAE and most of those will be in Saudi Arabia. Our growth in the UAE has definitely softened and we want to target domestic consumption, which we see is abundant in Saudi Arabia. The population of the KSA is behind our drive there, rather than the want for sports goods or an increase in sports facilities.”

Al Futtaim Group, which operates Ikea and Marks & Spencer outlets in the region, also recently announced a quadrupling of its outlets from 70 to 300 in Saudi Arabia over the next five years.

Although the kingdom has a large retail sector, market demand for consumer goods in the country is still about 50 per cent of that in the UAE. The Saudi market was valued at about US$31.1 billion in 2011, according to the consulting firm Frost & Sullivan, and has been growing continuously during the past couple of years. This has also helped industries supporting retailers such as the advertising sector.

“We saw most of our digital advertisers from the UAE but second was Saudi,” said Jamie Atherton, managing director of Adzouk, a digital advertiser. “While there is local competition we are growing 50 per cent year-on-year and we are opening an office in Jeddah very soon and two in Riyadh shortly – 80 per cent of our adverts are in Arabic and with the massive video consumption, the highest in the world, in the country we can offer our advertisers targeted opportunities.”

Convenience stores in each neighbourhood have grown by 23 per cent since last year, according to Euromonitor International. As more women begin working, such stores have expanded and consumer electronics and appliances has experienced 17 per cent year-on-year growth.

“With the oil price drop, the government has focused tremendously on investing in other projects trying to increase foreign direct investment,” said Fatemah Sherif, a research analyst with Euromonitor International. “This maintains opportunities for retailers in the country as well as encouraging more businesses to enter the market. Hence, in the past two years, opportunities in the retail landscape have been flourishing in the kingdom, and this is expected to maintain the growing retail landscape in Saudi Arabia as the government focuses on non-oil projects.”

Internet retailing has had the highest growth, 36 per cent this year, thanks to rising internet and smartphone penetration.

“To ensure a better service in KSA we have been working all year round,” said Ronaldo Mouchawar, the chief executive and founder of Souq.com. “We have doubled our fulfilment network in 40 cities with our own delivery teams in addition to 200 new pick-up locations in the kingdom of Saudi Arabia.”