High rental rates in the top-tier malls are deterring the growth of Saudi Arabia’s retail market, a report said, noting that the kingdom is currently facing a great challenge due to scarcity of human resources owing to high attrition rates.

Availability of substitute products and expensive e-commerce transactions due to high bank rate are some of the other deterrents faced by the retail sector in Saudi Arabia, added the study released by Frost & Sullivan, a growth partnership company.

Saudi Arabia is the second largest retail market in the GCC after the UAE with estimated sales of $98 billion in 2011. The major factors fuelling the growth of the retail industry in the kingdom are the increasing consumers’ disposable income, high marginal propensity to consume, increasing growth rate of the GDP, and government spending. In addition, the KSA’s favourable demographic attributes make it one of the youngest and fastest expanding consumer groups in the world.

Ranked 16th in the global retail market, the retail industry in Saudi Arabia is predominantly run by family-owned businesses, which occupy exclusive franchising rights from international suppliers and brands to organise retail outlets in malls and shopping centres. Riyadh and Jeddah are the two largest cities in the country and house about 60 malls constituting a bulk of the retail sector.

The retail industry segments are broadly classified into non-food and food sales. A large young population with a strong female consumer base is driving the market for non-food products including apparel, cosmetics, and consumer electronics amongst the highest selling ones.

Although, the kingdom has a large retail industry, the market demand for consumer goods in the country is still around 50 per cent lesser than the UAE retail market and the market was valued at around $31.1 billion in 2011 and is growing continuously over the last couple of years.

“Saudi Arabia has witnessed a steep GDP growth even during the global financial crisis and this growth has positively impacted the unemployment rate in the country, consequently increasing average disposable incomes for the people,” said Deepa Doraiswamy, associate director, Innovation & Knowledge Center, Frost & Sullivan.

“This factor, along with the increase in the number of new shopping malls being constructed and the expanding expat population, is augmenting the growth of the retail industry in Saudi Arabia.”

Other factors boosting the retail industry include the steadily expanding population base of brand-conscious consumers, the increasing per capita income, expansion of organised retail formats, and a strong non-grocery growth due to higher consumer incomes.

“A few other critical factors challenging the retail industry are food manufacturers’ high dependency on import due to various shortcomings of the agriculture sector in the country, the price-conscious Saudi consumers compared to their counterparts in the UAE, Kuwait or Qatar, and the private sectors’ dependency on the expatriate labour force,” concluded Doraiswamy.

The retail industry in the Saudi Arabia is very competitive with the strong presence of some major retail giants like Carrefour Saudi Arabia or Saudi Hypermarket Company, Panda Supermarket, Domino’s Pizza, Starbucks, etc. dominating the food segment and Alhokair Fashion Retail, Landmark Group, Jarir Marketing Company, etc. leading the non-food segments.

Mergers and Acquisitions (M&A), limited yet sustaining growth of online retail and the preference for Big-box format are the key market trends of the retail market in Saudi Arabia. Although online retail is at a very nascent stage, it is still an upcoming trend in the Saudi retail sector.

Thus, the retail sector in the KSA is believed to be a high-potential market for domestic as well as for foreign participants. More than 12 million pilgrims visit the sacred Makkah and Madinah every year, further driving the retail market of the country. – TradeArabia News Service