Strong consumer base attracts retailers in Kingdom

Saudi Arabia has significant potential for growth in the burgeoning global retail sector, ranking in the top 20 for the second consecutive year in the 2014 A.T. Kearney Global Retail Development Index (GRDI). The Kingdom remains fundamentally attractive to retailers looking to expand due to a strong consumer base and growing retail needs.
Saudi Arabia has the largest economy in the Gulf region and as the Kingdom is largely untapped by modern retail, it presents a lot of potential to become a dynamic market. A growth in consumer spending per capita has also created an environment, which has enabled well-known brands, hypermarket chains and large shopping centers to expand in the Kingdom.
However, unique market conditions provide retailers and developers in Saudi Arabia with the opportunity to deliver increasingly creative formats and entertainment to meet the needs of consumers. For example it could be unique offerings like women-only malls, and create alternative new leisure options in the market.
The report found a key driver for expansion of the Saudi retail market is a change in attitudes from young consumers in urban locations toward favoring healthier diets, which has led to growing demand for healthy, fresh food. This, combined with grocery being the largest retail sector in Saudi Arabia, is encouraging larger international and regional brands to enter into the market.
Commenting on the index findings, Martin Fabel, partner and head of consumer industry and retail practice at A.T. Kearney Middle East, said: “The GCC retail sector continues to be considered among the leading markets globally. As a large and currently unsaturated market, Saudi Arabia has a lot of potential, especially considering changing consumer demands and habits, particularly in urban areas. The market poses some challenges to international retail formats, but retailers are increasingly looking to meet these with creative offerings.”
He added: “One challenge that is almost absent however is e-commerce. It currently is not a threat to bricks-and-mortar retail due to lack of trust in online payment, general low public awareness and minimal regulation. This boosts the opportunity for offline retail brands in a market where shopping is a very popular leisure activity,” added Fabel.
Reflecting the opportunities available, Saudi Arabia has been earmarked as a key market for expansion of regional businesses. The Landmark Group’s Centrepoint outlet has unveiled aggressive expansion plans with Saudi Arabia at the top of the expansion list, and the UAE-based Gulf Marketing Group plans to open 14 new stores in the Kingdom for its flagship Sun & Sand Sports brand and six new Sun & Sand Sports KIDS outlets. International brands have also focused on Saudi Arabia-British household name Marks & Spencer established its first lingerie and beauty store in the Kingdom in early 2014.
Saudi Arabian brands are also looking to expand outside the Kingdom in other GCC countries. Jarir Marketing plans to invest $300 million over the next five years in stores in Kuwait and the UAE, and Saudi fashion brand Citymax will be investing in four stores in the Kingdom, alongside Fawaz Alhokair Group’s proposed 250 new outlets in Saudi and abroad.
In addition to Saudi Arabia’s ranking, the wider GCC also performed strongly in the 2014 GRDI, with the UAE climbing one spot to rank in 4th position in this year’s index. Kuwait too demonstrated sustained growth thanks to the luxury retail sector strength, moving one place to 8th spot and Oman, underpinned by strong growth in the grocery sector in particular, ranked 17th in the 2014 index.
The report suggests there are four stages markets pass through as part of retail development — opening, peaking, declining and closing — as they evolve from emerging to mature markets, a process that typically spans five to 10 years. The underlying theory is the retail ‘window of opportunity’ opens when the population becomes wealthier, when logistics start improving, when ownership regulations become more friendly to international firms, and when the country’s economic, political and social risks settle to acceptable levels.
Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide. The index, in its fourteenth year, analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities. These variables fall under four main ingredients, which are evaluated in determining where a country comes in the GRDI. These are market attractiveness, country risk, market saturation and time pressure. The score for each segment contributes to the overall GRDI score, determining the ranking.