SAUDI RETAIL SECTOR CONTINUES TO SHINE DURING PANDEMIC

Saudi Arabia’s retail and food sector is expected to rebound, as the economy returns to normal and business and consumer spending picks up.

MarketResearch said it expects household spending in the kingdom to return to growth in 2021 at 2.7% year on year, after the COVID-19 pandemic led to an estimated contraction in consumer spending in 2020 of -3.3%.

“Improving economic growth in 2021, recovering oil prices and government stimulus measures will support disposable incomes in Saudi Arabia. As such, we forecast the average annual disposable income in Saudi Arabia to nominally grow by 6.4% year on year, up from a decrease of -12.8% in 2020,” the research house said.

The development of mega-projects such as the Al-Qiddiya Entertainment Centre, The Line at NEOM and The Red Sea Touristic Development project will expand the food and retail services sector even further.

According to the Middle East and North Africa Leisure Attractions Council (MENALAC), the leisure and tourism sector investment in the kingdom exceeds USD 810 billion. As some of these developments come online, they would stimulate more consumption and provide more choices to consumers.

The Riyadh market is already mature with established players offering quality retail space, which would likely lead to robust competition in the retail sector in the medium-term.

“Developers and investors continue to deliver quality retail incorporating complementary elements, such as entertainment and leisure in order to capture demand from residents and the growing numbers of tourists, supported by the entrance of international operators,” according to real estate consultant CB Richard Ellis.

Invest Saudi expects investors in the retail sector to benefit from a slew of fundamental strengths in the economy. These include a robust forecast such as growing population of 39.5 million, disposable income reaching USD 15,600 by that time, and around 30 million Umrah visitors by 2030.

The kingdom also boasts a strong logistics network, including a number of seaports and airports, strong road infrastructure, and a fast-growing intercity and railway links.

The confidence in the Saudi retail sector has not been shaken due to COVID-19. Last year, grocery retail operator BinDawood Holding listed on the public market at the height of the pandemic crisis, and its share prices have held up.

The company opened a fifth Danube grocery store last year, taking its portfolio to 74 stores overall. 

“We have seen a healthy uptick in demand for more modern formats in grocery retailing and we anticipate this trend to continue at a faster pace in the coming period, led by changing consumer habits and preferences,” said Ahmad BinDawood, CEO of BinDawood Holding, at the opening of the store in December. “Our latest Danube store has been built and designed in line with current industry and macro trends with the view to effectively meet our customers’ expectations now and in the years to come.”

Jarir Marketing Co., a stationary and electronics retailer in Saudi Arabia, also sees opportunity to open more stores and increase its market share despite the coronavirus pandemic.

As the virus recedes, a surge in economic activity and renewal of economic activity is expected, which would also boost consumption.

Saudi Central Bank data shows consumer loans for renovations and home improvement rose 0.74% in the third quarter of 2020 compared to the previous quarter. Loans for travel also rose 3.68% and for vehicle and private transport by 2% compared to the previous quarter in a sign of retail rebound.

Cashless mobile and card transactions have also surged, as customers and retail outlets adhere to COVID-19 protocols and reduce exchange of cash.

Point-of-sales (POS) transactions rose 32.6% in November compared to the same period last year, Saudi Central Bank data shows. 

There has also been rapid improvement in POS purchases and number of transactions in hotels, restaurants and cafés, and in sales of beverages and goods, as well as clothing and footwear, furniture, recreation and culture, and miscellaneous goods and services, suggesting an all-round recovery. In many cases, the sales figures are near or have exceeded pre-COVID-19 levels.

Analysts expect the retail sector to evolve as customers embrace e-commerce and move transactions online. This will further accelerate as the country pursues its National Industrial Development and Logistics Program (NIDLP) that is focused on digital solutions.

“A paradigm shift in commercial property is occurring, with the traditional bricks-and-mortar retail sector being displaced in parts by a growing industrial sector driven by the emergence of e-commerce in Saudi Arabia,” according to Knight Frank, a real estate consultancy.