KSA Retail Market Outlook to 2028

KSA Retail Market Overview

• The KSA Retail Market is valued at SAR 590 billion, based on a five-year historical analysis. The market is driven by factors such as an expanding middle class, increased disposable income, and government initiatives under Saudi Vision 2030, which aim to diversify the economy and boost consumer spending. The rise in online shopping and omnichannel retail strategies has further contributed to the growth. Hypermarkets, supermarkets, and e-commerce platforms are key drivers of retail sales in the country.
• Riyadh and Jeddah are the dominant cities in the KSA retail market. Riyadh, being the capital, holds a notable share due to its large population and high consumer spending. Jeddah, as the commercial hub, benefits from high tourist inflows, large expatriate populations, and well-established retail infrastructure. Both cities serve as key distribution hubs for major international and domestic retail brands.
• Saudi Arabia has liberalized foreign direct investment (FDI) laws in the retail sector, allowing 100% foreign ownership for certain retail operations. This move is designed to attract more international brands and investors into the market, contributing to the development of the retail infrastructure. In 2023, FDI inflows into the retail sector surpassed $10 billion, reflecting the growing interest from global companies in establishing a presence in Saudi Arabia.

KSA Retail Market Segmentation

• By Retail Format: The market is segmented by retail format into hypermarkets, supermarkets, specialty stores, and online retail. Recently, hypermarkets have dominated the market, driven by their wide variety of products and the convenience they offer consumers. Hypermarkets like Carrefour and Lulu provide a one-stop shopping experience, with a strong presence in urban areas. Additionally, their ability to offer competitive prices due to bulk purchasing powers has made them a preferred shopping destination for Saudi consumers.

• By Product Type: The market is segmented by product type into food and beverages, apparel and footwear, electronics and appliances, and health and beauty products. Food and beverages dominate the market, driven by the growing population and the increase in disposable income. Consumers are increasingly seeking premium food products and healthier alternatives, contributing to higher spending on food and beverages. Supermarkets and hypermarkets remain the key distribution channels for these products, while the demand for online grocery shopping is also on the rise.

KSA Retail Market Competitive Landscape

The KSA retail market is dominated by major local and international players who have established market influence. Large retail groups such as Majid Al Futtaim and Al Othaim Group lead the hypermarket sector, while global brands like Carrefour and IKEA hold prominent positions. The competitive landscape is further shaped by ongoing innovations in digital retail and investment in omnichannel retailing, which are rapidly transforming consumer experiences in the KSA.

KSA Retail Market Analysis

KSA Retail Market Growth Drivers

• Expanding Urbanization: Urbanization in Saudi Arabia has been steadily increasing, with the urban population reaching over 31.6 million in 2022, constituting approximately 83% of the total population. The rapid pace of urbanization has fueled the development of large retail hubs, shopping malls, and commercial spaces. Riyadh and Jeddah remain the largest urban centers, driving the retail sector's growth. With an additional influx of rural-to-urban migration, Saudi Arabia's urban population is expected to continue expanding, supporting the growth of retail infrastructure and consumer demand in urban areas, reflecting its role in shaping the retail market.
• Rising Disposable Income: Saudi Arabia's GDP per capita reached $23,586 in 2022, a considerable increase over previous years, driven by stronger economic performance in oil exports. This rise in disposable income has translated into heightened consumer spending, with household expenditures reaching $212 billion in 2022. The growing middle class, paired with increasing purchasing power, has bolstered retail sales across various categories, including luxury, fashion, and electronics, as consumers opt for higher-end and more diverse product offerings. This robust consumer spending is a primary driver of the retail sector's growth.
• Growth in E-commerce: E-commerce in Saudi Arabia has seen tremendous growth, with online sales accounting for approximately 19% of total retail sales in 2023. Digital transformation and consumer preferences for convenience have propelled this growth, with more consumers turning to mobile shopping apps and online platforms. In addition, internet penetration has exceeded 97%, facilitating the rise in e-commerce activity. This trend is further supported by advancements in logistics infrastructure, online payment solutions, and consumer trust in digital platforms, making e-commerce a component of the retail landscape.

KSA Retail Market Challenges

• High Operational Costs: Retailers in Saudi Arabia face high operational costs, particularly in urban centres like Riyadh and Jeddah, where commercial rent for retail spaces can exceed $2,500 per square meter annually. Labour costs have also risen due to Saudization policies that require a certain percentage of the workforce to be Saudi nationals, leading to higher wages. Additionally, energy consumption in retail operations, especially in large malls and hypermarkets, adds to the operational burden. Retailers must find ways to mitigate these costs to remain competitive in the market.
• Supply Chain Disruptions: Supply chain inefficiencies continue to challenge Saudi Arabia's retail sector, with 50% of consumer goods being imported. Dependency on imports, combined with global logistics challenges and port delays, affects inventory availability and increases costs for retailers. Domestic logistics infrastructure is being developed, but the reliance on external suppliers makes the retail market vulnerable to disruptions in global trade routes, increasing costs and time for product delivery to consumers.

KSA Retail Market Future Outlook

Over the next five years, the KSA Retail Market is expected to witness growth driven by various factors such as government support under Saudi Vision 2030, the rapid adoption of e-commerce, and increased consumer demand for convenience. Investments in retail infrastructure, particularly the development of new shopping malls, and the expansion of international brands into the region will also play key roles. Additionally, the growing interest in luxury goods and health-conscious products is expected to drive future demand in the retail market.

KSA Retail Market Opportunities

• Expansion of Omnichannel Retail: The integration of digital and physical retail channels has become a key opportunity for retailers in Saudi Arabia. In 2023, omnichannel sales accounted for approximately 14% of total retail sales. Retailers who invest in digital integration, such as click-and-collect services, online inventory management, and seamless customer experiences across online and physical stores, are well-positioned to capture a larger share of the market. The increasing reliance on mobile apps and digital touchpoints by consumers offers growth potential for businesses that adapt to this shift.
• Growth in Luxury Retail: Luxury retail in Saudi Arabia has seen growth, with consumer spending on high-end products reaching $14 billion in 2023. The affluent population, particularly in cities like Riyadh and Jeddah, has shown a shift towards premium brands and exclusive products, driving demand for luxury fashion, accessories, and automobiles. Retailers in the luxury segment can capitalize on this trend by offering unique, personalized shopping experiences and expanding their premium product lines.