The new trends facing Saudi Arabia’s retail sector

Changing labour market trends, in part a result of efforts to boost the number of domestic citizens in the workforce, are shifting Saudi Arabia’s economy and the retail sector in particular.

More than 264,000 expatriates left the Saudi labour market in the third quarter of last year, according to data released by the General Organisation for Social Insurance on March 3, taking the total number of foreign workers in the Kingdom to 7.2m, down from the 7.4m the previous quarter.

The fall follows the implementation of Saudiisation regulations aimed at limiting the expat component of the workforce and reducing the unemployment rate among Saudi nationals from 12.9% in January to 9% by the end of next year.

The push to comply with the new regulations is also expected to boost wage growth, as employers seek to attract or retain qualified staff from a smaller pool of workers.

Indeed in its annual salary survey, recruitment firm Robert Walters reported that wages grew 2% across all fields in 2018, in part a result of higher demand for staff.

See also: The Report – Saudi Arabia 2018

Sector trends to provide challenges and opportunities

These changes in the employment market are set to have a particular impact on the retail sector.

While the reduction in foreign workers is expected to contribute to a fall in retail customers, the growth in both domestic employment and purchasing power can in turn be expected to positively affect retail sales.

Meanwhile, part of this rise in labour market activity is set to come from the increasing number of women entering the workforce, supported by increased mobility, with women having been granted the right to drive as of June last year.

Under reforms that began coming into force in 2016, an increasing number of sectors of the economy are being opened up to allow female employment, including retail.  

According to the most recent available figures from the General Authority for Statistics (GaStat), Saudi nationals make up 48.4% of the retail workforce, with just under half of these employees, some 125,000, being women.

This strong representation in the retail workforce helped take the overall Saudi female economic participation rate to 19.7% as of the end of September, up from 19.6% in June, according to GaStat data published in January.

Seeing off the online challenge

Faced with the rising challenge of online shopping, the brick-and-mortar retail segment has sought to diversify its offering to secure its customer base, providing an increased range of leisure and entertainment facilities.

The reintroduction of cinemas to the Kingdom in April last year following a 35-year hiatus, coupled with other forms of public entertainment, is expected to increase retail footfall.

Rising consumer awareness

Nevertheless, lower growth in the broader economy has placed downward pressure on the domestic retail market in recent years.

The general dynamics in the fast-moving consumer goods (FMCG) market have changed over the past few years: the cost of doing business is on the rise, the population is growing and getting younger, and discretionary income is falling due to the fall in oil revenues.

According to industry figures, one outcome of the decline in discretionary spending is that Saudi consumers have become more price-conscious, switching to similar goods when prices of the original rise.

This shift in the retail sector was underscored by the findings of the latest consumer trends survey conducted by research firm Nielsen.

While the survey, released at the end of December, showed consumer sentiment was still positive in the third quarter of last year – with the index standing at 106 points, the same as Germany and Switzerland – this was one point down on the previous report measuring the second quarter.

Factors weighing on the FMCG segment included increased taxes on sugar content in products, introduced in mid-2017, the introduction of value-added tax at the beginning of 2018 and the growing number of expat workers leaving the Kingdom.

The survey noted that 80% of Saudi consumers said they were more conscious of grocery prices, with 30% of respondents saying they changed brands in response to promotions.

Faced with these changing market dynamics, retailers and advertisers will likely need to respond with a greater offering geared towards women and Saudi nationals, along with a broader offering of discount goods.

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