Wednesday, 07 October 2015  -  23 Dhul-Hijjah 1436 H
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Opportunities abound in Saudi retail market

JEDDAH – Despite the many same issues impacting the retail sector at the global and regional levels, Saudi Arabia’s retail market “is characterized by a number of unique challenges” which makes the Kingdom’s market a fast growing sector market with a lot of opportunities, Jones Lang LaSalle said Saturday in its report titled “Saudi Arabian Retail Landscape - Undoubted Opportunities: Unique Challenges”.
The report highlighted the considerable market potential resulting from favorable demographics and domestic demand but outlines how this opportunity is constrained by a number of unique challenges including seasonal aspect of religious tourism, market concentration, recruitment issues, supply chain constraints as well as cultural limitations.
The report noted that “while retail spending continues to grow rapidly, new retail space is being developed to the point that there is retail saturation in some areas which is leading to a growing polarization of the winners and losers.”
Saudi Arabia is the largest and one of the fastest growing retail markets in the MENA region and continues to attract strong interest from retail brands from across a range of categories as they respond to the many opportunities available, principally driven by the Kingdom’s relatively youthful population.
A number of global brands as well as “up and coming” retailers from the UAE, Lebanon, Turkey and Asia are currently looking to increase their presence in the country. Responding to this strong demand, the amount of retail floor space in Saudi Arabia has increased rapidly, with the area of mall based retail space increasing by almost 80 percent in Jeddah and 65 percent in Riyadh since 2005.
The rapid development has created challenges as well as opportunities as parts of the market are increasingly reaching saturation point. As the sector continues to mature some of the older malls are now starting to lose market share to more modern centers that offer international shopping environments in terms of brand mix facilities, and amenities along with complementary leisure components. This means that some centers are starting to struggle and now require repositioning or possibly even conversion to alternative uses.
David Macadam, Head of Jones Lang LaSalle’s retail team in MENA, said: “Despite its unique challenges, Saudi Arabia remains an exciting retailing opportunity. Retailers across the spectrum are looking to enter this market to cater to a large and growing domestic demand, driven by its sizeable young population. Those retailers and retail centers that can create a uniquely Saudi experience will be the ultimate winner as they will be able to fully capitalize on the market potential and increasing levels of spending power available to the Kingdom’s consumers.”
“We also see tremendous opportunities for retail asset managers in Saudi Arabia,” he added.
However, the report urged retailers and mall operators to work more closely together to create environments that provide an enjoyable experience rather than just a shopping trip. With the market becoming more competitive, consumers and retailers have a greater choice and centers must continue to evolve to match consumer demand or face becoming obsolete.
“We also see the opportunity for more mixed use projects that combine retail with offices and hotels such as the Jabal Omar project in Makkah and the King Abdullah Financial District in Riyadh.”
A number of key characteristics contributes to the unique nature of the Saudi Arabian retail market, each of which will have implications on both existing and proposed projects. These characteristics include:
Cultural considerations: Visiting malls has developed into a favorite Saudi pastime as there is a limited range of entertainment venues and public spaces in the Kingdom. The attraction of indoor air-conditioned malls is further enhanced by the harsh summer weather conditions. “Although these factors represent an opportunity for the growth of the shopping and indoor leisure/recreation sector, the retail market is constrained by cultural factors,” it said. – SG
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