PANDEMIC PUTS SAUDI RETAIL’S RESILIENCE TO THE TEST

Saudi Arabia’s retail sector is emerging as a major source of job creation.

The burgeoning retail sector now employs more than 2 million people, as it expands on the back of strong fundamentals and investment opportunities.

“The kingdom currently employs more than 2 million males and females in the retail sector, and they constitute more than 25% of the total workforce in the private sector in Saudi Arabia,” Saudi minister of labor and social development Ahmad Al-Rajhi said in February during the Retail Leaders Circle (RLC) MENA Summit.

“This number of workers has been increasing due to the country’s strong purchasing power and growing consumption rate.”

The sector also showcased its strength and importance during the COVID-19 crisis as Saudis relied on the sector’s strong supply chain and robust processes to ensure the availability of food, essential supplies, and other goods.

Majority of the grocery stores remained open with strict precautionary health measures in place. While consumer consumption may remain subdued as the economy absorbs the impact of the COVID-19 crisis for some time, the country’s economic fundamentals continue to suggest growing opportunities in the retail sector.

Going into the crisis, retail and food companies were registering strong growth. Savola Group said its net profit jumped 6.3% in the first quarter compared to the same period last year.

Al Marai Group, one of the region’s largest food companies, said its net income rose 14% during the quarter. The company implemented bio security across its farms and factories, ensured safety of employees and customers and assisted customers with credit terms.

It allowed non-critical staff to work from home and modified its operations to ensure continuity of supply of essential items, the company said in its first quarter earnings presentation.

“We will continue to invest behind our brands, ensuring we are strongly positioned for the expected recovery in consumer demand,” the company said in its report. “We have a resilient business with a strong balance sheet and substantial cash generation and liquidity to withstand the current weakness.”

Still, the lockdown impacted shopping malls and restaurants and other non-essential stores.

AbdulMohsen Al Hokair Group said the company will see revenues affected by the temporary suspension of Umrah and visit visas, cancellation of international and domestic trips, and closure of commercial and entertainment centres inside and outside malls, health clubs, suspension of events and weddings, and reduction of restaurants activities.

The government has rolled out a number reforms, including the allowance of 100% FDI in the retail sector, lifting the ban on cinemas, and the implementation of the government’s Saudisation policies.

Despite the short-term challenges, the retail sector remains a strong candidate for foreign and private sector investment and a source of new jobs, given the long-term opportunities available in the country.

AMC Cinemas, one of the world’s biggest cinema operators, plans to open 30 to 40 cinemas in approximately 15 cities in Saudi Arabia over the next five years, and a total of 50 to 100 cinemas in approximately 25 Saudi cities by 2030. All of these developments will have a strong retail component that will expand the sector and promote new competition.

Saudi Arabia’s Vision 2030 programme envisages household spending on domestic entertainment will increase from 2.9% of total expenditure in 2015 to 6% by 2030.

With a population of more than 34 million and huge annual tourist flows, Saudi Arabia is the Gulf region’s largest retail market.

“More relevant than the overall size of the population is the relatively young age demographic with 53% between the ages of 15 and 44. This age group has a higher propensity to spend on F&B, and is more open and exposed to the changing consumer trends being experienced globally,” according to real estate consultant Jones Lang La Salle.

The sector will continue to evolve as customers embrace ecommerce channels and expand their taste and lifestyle preferences.

“In markets such as Saudi Arabia, which has some of the world’s most affluent consumers, brands are starting to implement omnichannel strategies, and investing heavily in outlet modernisation,” according to Euromonitor.

“In coming years, many more brands are expected to implement omnichannel strategies as it become increasingly important for companies to craft a user experience that cuts across online shopping, social media, mobile apps and conventional bricks-and-mortar stores.”