Booming Saudi e-commerce market shifting to homegrown players

07 August 2023 Consultancy-me.com 4 min. read

Saudi Arabia’s e-commerce market has largely depended on international marketplaces to fulfil the needs of its consumers. But as the Kingdom pushes ahead with its economic diversification plans, a new report suggests homegrown players will come to the fore in the booming market.

Over the last two decades, e-commerce has taken up a growing portion of the global retail sector. Running from select warehouses has seen many digital outlets enjoy lower operating costs, enabling them to sell products at dropped prices – while improvements in technology have enabled easier and more extensive browsing of their goods.

And of course, convenience has played a big role – with customers able to secure quick delivery of products they might have had to travel for extended distances for previously.

Booming Saudi e-commerce market shifting to homegrown players

In particular, this last point super-charged e-commerce growth in the last three years, with operators able to supply customers at a time when bricks-and-mortar stores were forced to close to the public.

The Middle East has been no exception to these shifts – with its own unique trends adding further fuel to the transition. Growing demand for beauty products, electronics and home appliances have seen the Saudi Arabian market flourish in particular, with some studies suggesting its e-commerce market could hit a value of SAR 50 billion by 2025. This growth is providing key opportunities for local suppliers, too.

Traditionally, like many other countries, the Saudi e-commerce market has been dominated by players from the US, China and Europe, who invested heavily and early in developing transnational e-commerce structures – and left domestic operators battling on regaining market share.

This looks set to change though. According to a new report from management consulting firms Kearney and Mukatafa, the Saudi e-commerce scene is currently worth SAR 19.3 billion – 5.9% of the overall SAR 347.2 billion market. By 2026, this is anticipated to grow to $34.7 billion – or 7.6% of the market. As it rises, however, the amount of cross-border trade is likely to diminish from 59% of all e-commerce revenue, to 49% by 2026.

Booming Saudi e-commerce market shifting to homegrown players

For the longest time, cross-border commerce has been seen as the better option for e-commerce, due to a number of factors. A 72% majority of consumers told the researchers that such operators offered cheaper prices, while 47% added they had a wider selection of goods. But 59% also suggested higher shipping costs were putting them off, while 55% said longer delivery times and 51% said potential scams meant local providers might be preferable when possible.

According to the Kearney and Mukatafa report, as local homegrown players are increasingly muscling into the market, these factors will count in their favour. But they will need help if they are to push for greater market-share in the years to come.

Commenting on the findings, Prince Waleed Bin Nasir Bin Fahad Al Saud, first-cousin of Crown Prince Mohammad bin Salman, and CEO of Mukatafa said, “It is a strong sign that local e-commerce businesses are gaining more traction in the market. We must make sure that these businesses are supported to thrive as well as cross-border accounts.”

Like to like cost of doing business is 17-26% higher for localized ecommerce players than cross-border

According to the authors, there are several ways which Saudi law-makers can support local players. These include thresholds on import quantities, and local quality standards could be mandated for cross-border players. At the same time, they contended that current regulations need to be revised.

According to the Mukatafa boss, regulations currently “favour cross-border players”, who are only subject to customs duty on shipments valued over SAR 1,000, and are not subject to VAT or corporate taxes. In contrast, local players have a 17% to 26% higher like-to-like cost of servicing customers by comparison – and “until that changes cross-border sales will continue to hold a major share of the ecommerce market compared to local players.”

Should that change occur, though, it could be a major boost to Saudi Arabia’s Vision 2030 campaign. Kearny partner Mohammed Dhedhi said, “The growth of the local and hybrid ecommerce players will contribute to protecting consumer interest and promoting local investments with strong potential for job creation.”