Saudi Arabia’s e-commerce market, which grew amid last year’s Covid-19 pandemic, is expected to reach $ 13.3 billion by 2025, according to a study by the Boston Consulting Group.
Online sales grew 60% on an annual basis across all categories, according to the report, produced in conjunction with Meta Platforms.
However, the limited number of product assortments and same-day delivery services could prove to be a challenge.
“From an economic standpoint, the increase in retail spending nationwide is expected to be among the most significant, a trend that is almost certain given the increasing number of products becoming available to a wide audience and of captured foreign retail spending. Together, these factors will generate many of the positive results, which will materialize in due course, ”said Pablo Martinez, CEO and Senior Partner of BCG, in the report.
The Covid-19 pandemic has increased e-commerce adoption as more consumers shop online.
About 77% of consumers in Saudi Arabia shop online more frequently than they were before the pandemic, according to a survey by Mastercard. The percentage of online shoppers in the kingdom has exceeded the average of 73% for the Middle East and Africa region, Mastercard said in its recent ecommerce survey.
Despite its rapid expansion, the segment is still in its infancy. Saudi online sales made up just 8% of total retail sales compared to the global average of 18% and the 30-40% posted by major global e-commerce markets, according to the report.
But the “huge” potential is already apparent despite its infancy, and advancing a robust e-commerce ecosystem in the years to come will have many economic and social benefits.
Consulting firm AT Kearney has estimated that GCC’s e-commerce revenues have almost quintupled from $ 5 billion in 2015 to $ 24 billion last year, predicting that they will prosper further thanks to a permanent shift in business. consumer behavior.
Despite this, Saudi Arabia and the wider Middle East and North Africa region still lag behind in terms of e-commerce market share, with penetration levels of just 5.9%. and 2.7%, respectively, in 2020 – far behind mature markets and the global average of 18 percent.
However. the region has the foundation to develop e-commerce, with Saudi Arabia uniquely positioned to become the regional power, BCG said.
Leveraging social commerce – using platforms like social media and messaging platforms to reach more consumers – helps retailers gain a competitive advantage. This, in turn, has made convenience the top priority for Saudi consumers, with 90% of them looking for ways to simplify their experience and save time.
“The kingdom is now more connected to the rest of the world than ever before and Saudi consumers are also demanding a new kind of relationship with brands. We’re seeing users across the realm engaging with each other in creative ways, ”said Suha Haddad, Director of Agencies and Ecosystem Development for Mena at Meta Platforms.
Retailers in Saudi Arabia recognize that establishing a strong local e-commerce presence with in-country product inventory, efficient last mile logistics, cheaper and faster delivery, and product returns could potentially affect them. help quickly seize market share of global operators, according to the study.
But despite the growth, e-commerce players in Saudi Arabia and the GCC still face challenges, including the limited size of the product assortment. Regional e-commerce player Noon.com has inventory management units – numbers assigned to products to track stock levels – of over 5 million, while apparel leader Namshi has around 100,000. However, those are pale compared to Amazon’s 350 million in the US and Rakuten’s 250 million in Japan.
GCC regional e-commerce operators are also limited when it comes to speed and delivery options. In Saudi Arabia, only a small number of online retailers in major cities offer same-day delivery, which is standard in advanced markets elsewhere in the world.
There are also tangible economic benefits, including job creation and opportunities for entrepreneurship. The growth of Saudi Arabia’s e-commerce industry will generate a significant number of jobs requiring varying skill levels, including skilled positions in managerial and technical work functions. E-commerce can also foster entrepreneurship by providing efficient market access for new consumer products.
“To be successful in this direction, a sustainable business environment is essential, as are the main catalysts that will significantly improve the business environment for e-commerce, namely last mile logistics, cross-border training, e-payment adoption, incubators and the Internet, ”said Chris Biggs, Managing Director and Senior Partner, and global retail industry leader at BCG.
Earlier this year, accounting and consulting firm Deloitte set up a program to improve the digital skills of young Saudis and help them learn about the latest trends in e-commerce as part of the kingdom’s drive to expand its non-oil sector and create jobs for nationals.
Update: December 9, 2021, 5:30 a.m.