Saudi e-commerce sales to average $11.3 bln from 2017-21

E-commerce sales in Saudi Arabia are expected to average $11.3 billion from 2017-2021, recording an average growth rate of 13.7 percent during the period, according to a recent report by BMI Research. 

Meanwhile, the United Arab Emirates (UAE) leads the way for e-commerce in the Middle East, with e-commerce sales projected to reach $23.3 billion by 2021, posting an average annual growth rate of over 30 percent. 

The country is already the largest e-commerce market in the region, with sales forecast at $9.7 billion this year.

Many factors are behind the UAE being a frontrunner, including high internet penetration and a significant number of Western expats used to ordering online. The country is also a major global transshipment hub and has one of the world’s busiest airports, giving it the logistics infrastructure necessary for e-commerce trade.

As a result, many of the Middle East’s top e-commerce players have chosen to operate out of the UAE, and the country has seen many key investments in the sector in recent months.

Last November, Emaar Properties chairman Mohamed Alabbar and Saudi Arabia’s Public Investment Fund (PIF) announced the launch of Noon.com, a $1 billion e-commerce platform. Noon.com will leverage Emaar's existing investments in logistics (Aramex) and shopping malls (Emaar Malls) to challenge Souq.com, one of the region’s most popular online retailers.

Meanwhile, Souq.com was acquired by American tech giant Amazon in March this year for $580 million. Dubai-listed Emaar Malls had bid up to $800 million to take over Souq.com, but lost out to Amazon in the deal.

Emaar Malls later agreed to acquire a 51 percent stake in e-commerce fashion platform Namshi for $151 million.

“We believe there is ample room for several major online platforms to thrive in the region and that, although rivalry between Amazon/Souq and Noon.com will be intense, both will attract large and loyal user bases,” BMI Research said.

The Middle East overall holds “tremendous growth potential” for e-commerce, with sales more than doubling to $48.8 billion by 2021, the report said.

The main driver for growth is the high proportion of young adults in the consumer base, the primary audience for retailers and e-commerce players

However, several challenges remain hindering the growth of the sector in the region, such as the high reliance on cash payments.

“In Saudi Arabia, for example, about half of the population is unbanked, and payment card penetration is only about 40 per cent, according to the World Bank,” analysts at BMI Research said.

“Cash on delivery is costly for retailers because they must bear the risk upfront, which can negatively affect cash flow,” they added.

Another issue is that the Middle East has a pervasive mall culture, with consumers who strongly prefer bricks-and-mortar over online shopping.

As a result, e-commerce players will need time to build trust and brand loyalty, while physical store retailers are reluctant to invest large sums into e-commerce platforms during a period of slower economic growth.

Developing an e-commerce offering that bridges the gap between the online and offline, such as through click-and-collect points in major shopping malls, is a good way to overcome this, and will be a key long-term growth driver for retailers, the report concluded.