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Asharq Al-Awsat
06-02-2025
- Business
- Asharq Al-Awsat
Infrastructure, Digital Trends Drive Evolution of Saudi Retail Market
Saudi Arabia is emerging as one of the region's most attractive investment markets, with significant growth potential in the retail sector projected through 2035. The Kingdom is undergoing major transformations in infrastructure and digital consumer behavior, driving economic expansion and reshaping market dynamics, according to Abdellah Iftahy, senior partner at McKinsey & Company in the Middle East region. In an interview with Asharq Al-Awsat about the sector's future, Iftahy asserted that growth in Saudi Arabia's retail market is inevitable, primarily driven by the country's youth and expanding middle class. These demographics form the backbone of consumer spending, possess strong digital skills, and are increasingly seeking omnichannel shopping experiences. Speaking on the sidelines of the Global Retail Leaders Forum 2025 in Riyadh, Iftahy emphasized the need for retailers to adopt a strategic approach to digital channels. He highlighted the rapid expansion of e-commerce and social commerce, both of which are playing a crucial role in the evolution of the local market. Additionally, Iftahy pointed to a noticeable resurgence in cross-border trade, driven by rising consumer demand for global products and services. As these channels continue to expand, he stressed the importance of retailers establishing a strong presence in these emerging areas and adapting to evolving consumer trends. 'Consumption growth in Saudi Arabia is closely tied to population dynamics—whether among citizens, expatriates, or tourists,' Iftahy stated. He noted that the Kingdom's substantial investments in attracting visitors and residents are further boosting economic activity and stimulating the retail sector. Despite the sector's promising outlook, Iftahy acknowledged global structural challenges, including inflation, supply chain disruptions, and geopolitical tensions. While these factors pose risks, they also create opportunities for companies that can navigate the shifting landscape and enhance efficiency in their core markets. He also underscored the growing role of digitalization, stating that Saudi consumers are increasingly proficient in digital technologies. 'This presents a key opportunity for retailers to leverage big data and artificial intelligence to enhance customer experiences, personalize offerings, and create added value for long-term, sustainable growth,' he remarked.
Arab News
05-02-2025
- Business
- Arab News
Saudi Arabia's retail market driven by youth, digital growth: experts say
RIYADH: Saudi Arabia's retail sector is undergoing a significant transformation, driven by a digitally savvy young population, increasing consumer confidence, and shifting spending habits, according to a senior executive. In an interview with Arab News at Retail Leaders Circle in Riyadh, Abdellah Iftahy, senior partner at McKinsey and Co., said that 75 percent of retail spending will come from Saudi youth by 2035. 'The consumer of tomorrow is not the one that we see today, and that will actually quite dramatically shape and shake the retail industry,' Iftahy said. He continued: 'Brands not relevant to today's youth may struggle to compete. A key consumer trend is the rising importance of value for money, driven by a growing middle class in Saudi Arabia. This will shape the retail industry with a focus on mass-market, value-for-money offerings.' Iftahy noted that Saudi Arabia's e-commerce market is expected to grow significantly, with one in four retail transactions happening online by 2035. This growth will be driven by increasing digital adoption, rising disposable income, and evolving consumer preferences within the Kingdom. 'Consumers are digitally savvy, and the young population actually transacts much more, both in terms of brand discovery but also in terms of clothing, if you will, to purchase online. E-commerce will continue to become a fast-growing channel going forward,' Iftahy said. He mentioned that food service would be another growing channel, with significant investments expected in entertainment, hotels, hospitality, and restaurants. This, he added, would ultimately boost the food service sector for distributors supplying these outlets. Echoing these sentiments, Karl Nader, partner and managing director at AlixPartners, pointed out that while consumer sentiment in the US and Europe is expected to decline in 2025, the Kingdom remains an exception. 'This is coming from a few areas. We're increasing spend in grocery. But actually, within grocery, we expect Saudi consumers, what the data is telling us, is that there is a shift toward more value-added products, value-driven products, more discounters, private labels, and so on,' Nader said. As a result, consumers are adjusting their financial habits to rebalance their budgets. Nader also stated that the increase in Saudi consumer spending on dining out and entertainment reflects strong consumer confidence, or short-term factors like post-pandemic recovery and government stimulus. One reason for this increased spending is the greater availability of entertainment options, driven by government and Public Investment Fund-backed projects that are expanding the sector. Luxury and e-commerce While budget-conscious spending is increasing, the luxury retail sector is also set for expansion, with international brands looking to establish a stronger presence in Saudi Arabia. 'Fundamentally, retail is about demand, and if demand grows with population and expats coming, we see all of the subsectors benefiting from that,' Iftahy said. He added: 'I think some of the subsectors that may grow faster would be luxury, because what we see today is there is a lot of spend from Saudis outside of Saudi. So, if supply comes in, we expect this to grow at a higher rate than the rest of the industry.' Iftahy went on to say that everything related to entertainment and hospitality is growing because people have been spending more time outside of their homes, and that trend is expected to continue. The evolution of Saudi Arabia's retail industry is also changing the role of traditional retail spaces. Challenges vs. opportunities Despite the opportunities, retailers in Saudi Arabia face key challenges, including rising operational costs, workforce productivity gaps, and the need for digital transformation. 'The productivity levels in Saudi retail are lower than global standards,' Iftahy noted. 'Retailers must improve efficiency, leverage consumer data, and explore adjacent market opportunities.' Additionally, the changing role of women in the workforce is influencing consumer behavior. 'With more Saudi women working and managing careers, retailers need to rethink their engagement strategies,' Nader said. Sustainability and ethical consumerism are also gaining traction among younger Saudi shoppers. 'Brands that demonstrate a commitment to sustainability — through eco-friendly packaging, ethical sourcing, and corporate responsibility — will have an edge in building long-term customer loyalty,' Iftahy added. Retail growth Despite economic uncertainties in global markets, both Nader and Iftahy agree that Saudi Arabia's retail sector is poised for continued growth. 'I think the Saudi market across the different sectors is still growing, and there are a lot of opportunities for growth that can be captured by local or international players,' said Iftahy. 'I would say the international players that have a value proposition and products that are differentiated and bring additional value to consumers have higher chances of winning.' He highlighted that Saudi Arabia offered growth opportunities across consumer and retail segments, with the greatest potential for international brands offering unique products or value propositions. As Vision 2030 continues to drive economic transformation, experts believe that businesses that embrace e-commerce, data-driven strategies, and experiential retail will thrive, while those that fail to adapt will struggle in an increasingly competitive market.
