JEDDAH — 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 economical alternatives; Job positions in the marketing, software, commercial, innovation areas can appeal Saudi employees and support the development of a sustainable skill set.
What is your assessment of the e-commerce market in the Kingdom compared to other countries of the world?
Looking at global trends, e-Commerce is rapidly taking market share from traditional players. Today it accounts for up to 13.8 percent of total retail sales in China followed by United Kingdom with 13.4 percent and United States with 9.2 percent. What is more it is expected to keep growing fast, reaching between 15 and 22 percent of retail sales by 2020.
Almost one third of e-Commerce sales are recorded by international players with no physical presence in the Kingdom. This says a lot about the magnitude of the e-Commerce opportunity. Saudi consumer indeed is willing to pay a higher delivery fee and endure a longer waiting time in order to access the large assortment and high quality services provided by international players. It is clear that if local players will provide a similar offer they will capture not only the 30 percent of sales today taken by internal players but most likely they will significantly grow consumer demand considering the cheaper and faster delivery enabled by the local presence.
What are the main obstacles and challenges that hinder the spread of e-commerce in the Kingdom of Saudi Arabia?
Indeed local players still show significant limitations – Souq.com, a market leader in the GCC features an assortment of about 1 million SKUs (stock keeping units), when compared with global market leaders such as Amazon with 132 million or n11.com, an online market place in Turkey, with 25 million, the potential of the marketplace becomes even more evident. Furthermore, in the region delivery speed and options are also limited with the fastest delivery option being next day, when international players often offer same day delivery and delivery within few hours.
For the e-Commerce market to further proliferate in the region, it is vital to create a suitable business environment. While the development of e-Commerce has been predominantly driven by private initiatives, the government has a significant role to play in the process by ensuring that all the required enablers are in place.
What are the appropriate solutions that would entice the growth of e-commerce in the Kingdom?
There are strong indications that consumers will adopt e-Commerce as part of their purchasing practices; however, their willingness to purchase local offerings is very limited – 30 percent of sales come from players with no local presence at all. Government intervention is crucial to create a business context favorable to the e-Commerce. In particular government regulation should incentivize the development of a competitive last mile logistic sector, the adoption of secure and advanced ePayment solutions and the streamlining of custom processes for the import and experts of retail products.
Five key enablers that can significantly improve the business environment for the development of e-Commerce have been identified. These include last mile logistics – including the provision of fast speed delivery and high quality service at competitive pricing; providing a regulatory framework to favor the adoption of ePayment technologies; rationalization of custom procedures for fast and convenient product import and export; development of incubators to provide a platform for innovation and entrepreneurship; improvement in internet connectivity by upgrading legacy infrastructure.
In your opinion, what are the most important steps taken by the Kingdom of Saudi Arabia to develop and growth e-commerce?
The Saudi government has already taken the first steps to minimize these limitations and introduce regulatory frameworks that address and alleviate pain points. While there is still a long way to go to developing a business environment conducive to a robust e-Commerce ecosystem, Saudi Arabia and the GCC definitely have the right environment for it. Digital savvy GCC youth and ability of e-Commerce to scale up quickly give the Kingdom a unique opportunity to leap frog the development of the e-Commerce sector and generate significant social and economic impact for the country. — SG
