Retail Sector in Saudi Arabia
The Retail Sector in the Kingdom of Saudi Arabia is the sector resulting from the direct sale of products to consumers through various sales outlets. The Ministry of Commerce in Saudi Arabia has set, among its strategic objectives to achieve a prosperous trade, the goal of elevating the retail sector and enhancing sound commercial practices in it.
Role of the Ministry of Commerce in the retail sector in Saudi Arabia
The Ministry of Commerce works to encourage qualified entrepreneurs to enter the retail sector by establishing retail stores and expanding within the activities of this sector, in order to achieve the strategic goal (developing the retail sector) within Saudi Vision 2030, by increasing the level of store environments and the abundance of supplied products, and applying new sale technologies and customer outreach methods.
Types of retail trade in Saudi Arabia
Retail trade in Saudi Arabia is divided into two types. The first is in-store retail trade, which includes stores that sell food products, household cleaning supplies, and other consumer goods; stores specialized in selling home furnishings, kitchenware, clothing, footwear, and electronics, stores that sell various types of goods simultaneously without specialization in a specific category, stores specialized in selling luxury goods such as perfumes, jewelry, antiques, and gifts, and stores that sell goods at discounted or unified low price.
The second type is out-of-store retail trade, which includes e-commerce, purchasing various goods remotely through store applications and websites; direct selling, which involves the direct supply of materials and products to consumers at their workplaces or homes; and home shopping, which refers to trade types that are primarily focused on selling goods and products through television channels specialized in advertising and marketing. Products are inspected and tested at home after being requested for supply. Lastly, there is automated selling, which involves sales operations conducted through self-service vending machines installed in numerous private and public locations across Saudi Arabia.
Sales and exhibitions of the retail sector in Saudi Arabia
The market value of retail sales in Saudi Arabia has evolved over the past years. After reaching a record high in 2017 at SAR391.18 billion, the value of these sales dropped to SAR323.32 billion in 2020. It then rebounded following the return of retail sector activity to pre-COVID-19 levels, reaching SAR338.11 billion in 2021, with an increase of 4.6 percent compared to 2020. The retail sector is estimated at approximately SAR460 billion at the end of 2024.
In 2021, the number of exhibitions or stores dedicated to retail trade in Saudi Arabia exceeded 114,000 stores, 35.9 percent of which were various types of grocery stores, 62.5 percent were specialized stores excluding groceries, and the rest consisted of mixed retail exhibitions, luxury retail, and discount retail.
E-retail trade in Saudi Arabia
With the development of telecommunications and electronic payment infrastructure, the increased penetration of the internet, and the growing use of smart applications, the value of e-retail sales, both from within and outside Saudi Arabia, has increased. In 2021, the volume of e-commerce purchases from outside Saudi Arabia amounted to SAR12 billion, and from within Saudi Arabia SAR8 billion. Approximately half of these e-commerce sales were completed via electronic payment methods using the various applications available on smartphones.
Development of the retail sector in Saudi Arabia
Several initiatives and programs seek to enhance the performance of the retail sector in Saudi Arabia and increase its contribution to the gross domestic product (GDP). The eighth objective of the National Transformation Program, one of Saudi Vision 2030 programs, highlighted the development of the retail sector to generate further macroeconomic benefits in the long term.
The development of the retail sector is underway through a dedicated initiative aimed at enabling Saudi nationals to enter the market, providing specialized training and qualification in the sector, equipping them with technical and electronic payment solutions, improving stores, and raising the service level.
Store development is in progress by creating opportunities for foreign investors to enter the retail sector through franchising or launching global agencies in the Saudi market, in line with the commercial targets of Saudi Vision 2030 and the development of retail outlets to offer distinguished services. This ensures more providing more opportunities for competition and customer acquisition and encourages local stores to meet these specifications.
The store development initiative also supports Saudi national employment by offering financial solutions through government financing funds with no interest or through commercial banks with affordable interest rates that ensure continuity.
Many entities in Saudi Arabia are also contributing to the retail sector development and maximizing its role and return in GDP. As part of efforts to strengthen the sector’s role in the economy, the Jeddah Chamber launched the World Retail Award in Jeddah in April 2019, marking its first appearance at Saudi Arabia's level. The award aims to encourage initiatives and competition to boost and develop the retail industry and support this sector in alignment with Saudi Vision 2030.
Growth of the retail sector in Saudi Arabia
With the development of the national economic fundamentals and the rise in consumer purchasing power, the retail sector in Saudi Arabia has flourished and become one of the major contributors to the non-oil GDP. Retail trade includes approximately eighty-four sub-activities in wholesale trade and around 111 sub-activities in retail trade, in addition to the activities of vehicle repair and the hospitality sector, including restaurants and hotels.
The total number of active commercial licenses in the retail sector from 2019 until the end of 2023 exceeded four hundred thousand licenses. The efforts to stimulate the sector have resulted in the issuance of no less than seventy thousand licenses annually, with a steady growth rate of approximately 6 percent. The average occupancy rate of the retail sector in Riyadh City and Jeddah reached 88 percent during 2023.
The growth of the sector’s operations and the expansion in sales volume contributed to employing approximately 1.8 million workers, representing 22.2 percent of the total number of workers in all economic activities, according to the labor market statistics. The data also showed that Saudi nationals accounted for 25.4 percent of the total number of workers in the wholesale and retail trade and vehicle repair sector by the end of the third quarter of 2021, including 186,161 Saudi women and 273,973 Saudi men.
The retail sector has absorbed and expanded the use of technological advancements in its operations, enhancing quality and performance efficiency, particularly with the growth and expansion of the e-commerce ecosystem in Saudi Arabia. Until 2020, the Saudi market had over SAR80 billion in services and product-related e-commerce, and 45,000 online stores and platforms.
Saudi Arabia's market has contributed to the development and growth of the retail sector. According to the 2019 Global Retail Development Index, Saudi Arabia ranked seventh globally in retail trade. This index ranks the top thirty emerging markets for retail sector investment worldwide and is based on an analysis of twenty-five macroeconomic and retail-specific variables.
Retail sector contributions to Saudi Arabia’s GDP
The Saudi retail sector has proven its vitality and significant role in GDP. According to 2020 statistics, more than two million men and women were employed in the sector in various occupations, accounting for more than 25 percent of the total workforce in Saudi Arabia’s private sector, with the number increasing due to the large size of the sector in Saudi Arabia.
It is expected that the retail sector in Saudi Arabia will reach SAR1.2 trillion by 2030, enhancing its contribution to Saudi Arabia's GDP.
With continued economic development and prosperity, the importance of the retail sector continues to grow. It is the link between the manufacturing of consumer goods and the end consumers. It is also a key component in the cycle of economic activity, with its total contribution to the non-oil GDP amounting to approximately 23 percent.
E-payment methods in the retail sector in Saudi Arabia
E-payment methods have been installed across all retail sector activities in Saudi Arabia to facilitate commercial operations in the sector and to keep pace with the advancement of sales technologies at points of sale. This measure is a response to the mandate requiring all such activities to provide electronic payment methods starting from August 2020.
This step came as part of efforts to promote electronic payments and reduce cash transactions, complementing the efforts of the Saudi Central Bank to activate the use of digital channels through the implementation of the Integrated Digital Payments Strategy Program aimed at enhancing the level of e-services.
In the interest of consumers and to protect their rights, the National Anti-Commercial Concealment Program, in cooperation with the Saudi Central Bank, the Ministry of Municipalities and Housing, and the Ministry of Commerce, obligated all retail sector activities in Saudi Arabia to provide electronic payment methods. This enables the delivery of modern services that reduce cash usage and ensure the highest levels of security in consumer purchasing transactions.
Driven by the growth in purchasing power, rising consumption rates, and continued expansion in the establishment of shopping centers and retail stores that are witnessing further growth and prosperity, the expansion of electronic services in the retail sector in Saudi Arabia has emerged. In 2021, data from the Saudi Central Bank indicated a record number of electronic payment transactions, reaching seven billion transactions, compared to 2.6 billion transactions conducted in 2020 across various provinces.
The records indicate a significant expansion in electronic payments within the retail sector through point-of-sale (POS) transactions in 2021, where the total purchase value of these transactions reached SAR473 billion, while the number of POS devices exceeded one million across various retail segments in Saudi Arabia.
With the advancement in adopting electronic payment methods, the share of electronic payments in the retail sector reached 70 percent of the total number of payment transactions carried out by individuals in Saudi Arabia in 2023, compared to 62 percent in 2022. This coincides with the continued growth in Saudi Arabia’s payment systems during 2023, with the number of non-cash transactions reaching approximately 10.8 billion transactions, compared to around 8.7 billion transactions in 2022. The Saudi Central Bank continues to work on enhancing the adoption of various electronic payment methods by further developing the infrastructure of the national payment systems.