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KSA’s e-Commerce market still in nascent phase despite growth

Saudi Arabia, August 8, 2017

As a region where more than 28 percent of the total population is aged between 15 and 29, e-Commerce is rapidly growing in the Middle East, Pablo Martinez, Partner and Managing Director, The Boston Consulting Group - Middle East, said in an interview.

According to The Boston Consulting Group's (BCG) report, Unlocking e-Commerce Opportunity in the Kingdom of Saudi Arabia, the growth of e-Commerce largely outpaces the growth of traditional retail—a trend that is expected to further accelerate in the coming years, he added.

However, Marinez said “despite its rapid growth, today, Saudi Arabia’s e-Commerce market is still in a nascent phase. Last year, online sales accounted for approximately 0.8 percent of total retail sales, a figure much lower than that of leading e-Commerce markets and other relevant regional markets such UAE where e-Commerce penetration stands at about 1.5 percent.”

Moreover, he said “Saudi-based companies are not getting their share of the market – yet – as the largest chunk of the market is held by internationally based companies. In fact, last year, Amazon alone recorded a Saudi e-Commerce market share of 15.2 percent despite not having any local operation in the GCC.”

He explained that in this region, e-Commerce is rapidly gaining prominence. In the Kingdom of Saudi Arabia e-Commerce sales have increased by more than 30 percent on average every year. “This growth is predominantly driven by apparel and electronics & appliances. In the Kingdom, digital sales present a major opportunity as an accelerator of retail sector development due to a much lower CAPEX and OPEX requirement compared to the brink & mortar stores. In addition, e-Commerce promises a faster period to market with the potential to achieve significant impact within a short timeframe. In fact, the development of the e-Commerce sector in Saudi Arabia will bring about multiple economic and social benefits.”

Excerpts of the interview follow: In your point of view, what are the most important factors that contribute to the development of e-commerce in the Kingdom of Saudi Arabia?

There is massive potential for e-Commerce to develop in Saudi Arabia. At 0.8 percent the current penetration levels are limited; the key is unlocking this potential by creating business conditions that will favor the development of e-Commerce players localized in the country and hence capturing a part of the retail spend currently conducted abroad. A positive effect of this is that the skills and technologies required for e-Commerce are equally well-suited to support the development of other digital sectors while the e-Commerce delivery services can be leveraged towards boosting Saudi Arabia as a regional logistics hub, a key priority outlined in the Saudi Vision 2030.

What is the role of e-commerce in creating new job opportunities for Saudi youth?

A thriving e-Commerce sector creates many employment opportunities for various skill levels ranging from managerial to operational. Moreover, a thriving sector can also support entrepreneurship as it has low barriers to entry for niche businesses and provides efficient market access to new consumer products. According to the report, establishing a large e-Commerce industry will spur the development of a variegated landscape of technological service providers needed to develop technological solutions on payment platforms, website design, optimization software, and the like.

What are e-commerce’s social effects on the society in the Kingdom?

Beyond economic outcomes, e-Commerce can generate significant social impact. It can achieve a higher geographical reach in rural areas because a centralized fulfillment center can deliver products through logistics in an economically viable way. Moreover, consumers will have more freedom to choose as price transparency enables them to become much more informed about more economic