Business

UAE retailers rejoice as Saudis embrace shopping

The Saudi retail market grew by 13 per cent last year and it is estimated to offer 14 per cent compound-annual growth by 2020, according to the consultants Euromonitor International.

Andrew Scott
Andrew Scott
Dubai

April 12, 2016

The embrace of shopping as entertainment in Saudi Arabia is allowing the UAE’s largest retailers to expand rapidly in the kingdom and chase growth even as their home market slows.

The country delivered exponential sales growth for retailers in 2015, as the government relaxed regulations and looked to spread economic growth and diversity.

The Saudi retail market grew by 13 per cent last year and it is estimated to offer 14 per cent compound-annual growth by 2020, according to the consultants Euromonitor International.

The region’s biggest retailers, including Majid Al Futtaim (Maf), the Al Futtaim Group and GMG, are all planning to invest this year.

“We saw 30 per cent of our sales volumes come from Saudi Arabia in 2015,” said Rajiv Suri, the chief executive of Maf – Fashion. “We expect 15 to 20 per cent growth in 2016 and we will be opening a further 25 stores throughout the kingdom. The second half of 2015 was tough for retailers across the region, but we believe when a market is slowing it is a good time to invest.”

Souq.com, the region’s biggest online market platform, still believes the country is its biggest market, with steady month-on-month growth and 7 million to 8 million unique visitors every month.

“Saudi Arabia is a challenging market, but we have adapted and changed to offer what the customers want,” said Ronaldo Mouchawar, the chief executive and founder of Souq.com. “To avoid men delivering to women we now have centres where you can order online and go and pick the items up. Saudi is a huge opportunity for all retailers, but you have to adapt to the special conditions of the country.”

While some retailers reported a cooling of sales in the first quarter for 2016, as the low oil price hits market sentiment, the overriding retail picture was of growth and stability in the kingdom.

“We have opened 15 to 20 stores every year for the past three years,” said Amin El Maghraby, the chief executive of Magrabi Retail.

“We now have 125 stores in the country so we have nearly doubled our footprint in the expansion. I think 2016 and 2017 will be challenging as market sentiment has changed slightly. In like-for-like sales, we are probably 10 per cent down in Q1 2016 versus 2015 as we [have had] smaller basket sizes, but in the medium term the kingdom will bounce back as, the previously unimaginable, reforms take hold in 2018.”

Meanwhile, Majed Saif Al Ghurair, the chairman of Dubai Chamber of Commerce and Industry, told the World Retail Congress in Dubai yesterday that last year was challenging for retail in the UAE. However, he did not elaborate.

He forecast retail revenues of US$52 billion in 2016 against $35bn in 2015, with projected revenues of $70bn for 2020.

ascott@thenational.ae

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

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BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

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