Despite the hurdles created by the Covid-19 pandemic, Saudi Arabia’s ecommerce market sales increased by more than 30 percent annually in recent years, according to Boston Consulting Group (BCG) and Meta.
A report titled “The SAR50 billion ($13.32 billion) Ecommerce Opportunity in Saudi Arabia” found that the market value of e-commerce climbed from $1.6 billion in 2016 to $3.2 billion in 2019.
During the Covid-19 epidemic, however, the market nearly doubled in value between 2020 and 2021 to now stand at almost $6.7 billion.
‘Ripe for ecommerce explosion’
Pablo Martinez, Managing Director and Senior Partner at BCG, told TRENDS that pre-Covid, Saudis spent $26 billion abroad annually on tourism, including retail, primarily because they found service and offerings of overseas merchants superior.
In 2020, however, smartphones already exceeded 50 percent of global website traffic in the kingdom.
Besides, mobile broadband internet subscriptions in Saudi Arabia are higher than most developed markets and it ranks 10 globally in terms of internet speed.
These factors, combined with the move toward an increasingly mobile ecommerce offering, created a fertile environment for an ecommerce explosion, according to Martinez.
Moreover, 80 percent of Saudis say they would continue shopping online after the pandemic.
Despite its rapid expansion and potentially for high growth, Saudi Arabian e-commerce is still in its infancy, Martinez said.
In 2020, it accounted for only 6 percent of overall retail sales, while major e-commerce markets contributed 18 percent.
And long-term growth and global competitiveness can be achieved only through continuous innovation.
Ecommerce Trends
Electronics and appliances, media products, computers, fashion accessories, women’s apparel, cosmetics, and perfumes account for the most of ecommerce sales in Saudi Arabia, according to Martinez.
“Other major regional purchases include travel-related expenses for cabs, airline tickets and hotels. As post-pandemic recoveries accelerate, ecommerce in Saudi Arabia has snowballed as the kingdom steadily realizes Vision 2030,” he added.
Challenges and competitors
In Saudi Arabia, only a small set of online retailers in influential cities offers same-day delivery, a standard in developed markets elsewhere, which Martinez considered a challenge.
“The current lack of infrastructure to support new Saudi players is a critical limiting factor for developing innovative solutions. Another potential hypothesis is the lack of consumer protection mechanisms, such as insufficient authenticity and tight return and refund policies, which drive high cross-border transactions,” he said.
Effects of inflation
The average expenditure per ecommerce user in Saudi Arabia has increased more than 50 percent during the past three years.
When it comes to available retail space per capita, the traditional brick-and-mortar offering in Saudi Arabia generally scores lower or average than regional and global players, despite recent growth, explains Martinez.
Developing ecommerce and overall enhancement of digital infrastructure are critical national strategic priorities included in the transformative Vision 2030.
Ecommerce will also help drive economic growth. The domestic online market is expected to double to $2 billion by 2025, catalyzed by high Internet penetration (96 percent) and smartphone penetration (84 percent).
Martinez added that high inflation rates typically impact households’ purchasing power and willingness to spend.
A competitive market
While Saudi ecommerce market is racing ahead, the UAE is the ecommerce leader among GCC countries.
The market jumped by 53 percent in 2020 with $3.9 billion in ecommerce sales, which constituted 10 percent of total retail sales.
In 2020, the UAE was forecasted to have the GCC’s second-largest ecommerce market.