With a high percentage of young, urban, and digitally-driven population, rising disposable incomes, and an above-global-average smartphone market penetration of 98.2 percent and internet penetration of 97.9 percent, the transformative shift in Saudi Arabia’s dynamic retail ecosystem has seen the Kingdom climb nine places to third in the latest Global Retail Development Index.
Driven by the expansion of e-commerce and the demand for luxury retail, the retail industry in Saudi Arabia, which contributes approximately 23 percent to the Kingdom’s non-oil GDP, is expected to grow to $159 billion this year.
Strategic development
The region’s upward trajectory and planning for global retail development align with the nation’s economic diversification agenda outlined in its ambitious Vision 2030, as promising government policies foster retail innovation and growth.
Moving away from their traditional brick-and-mortar models, retailers in KSA are exploring ways to introduce agile, customer-centric strategies in response to evolving shopping patterns, preferences, and habits.
Younger, affluent customers are inclined toward experiential retail — be it in F&B, entertainment, or shopping. Businesses in the Kingdom are discovering new ways to thrive by prospecting with distinctive in-store elements to invigorate the shopping experience. For instance, customers can virtually try on products or see furniture placed directly in their homes through apps that bridge the gap between online and in-store shopping.
Saudi Arabia’s growing prominence in the global arena has also set the stage for the rise of homegrown brands and concepts that further boost the regional appeal of the Kingdom’s retail economy.
Fashion labels and beauty brands that celebrate local craftsmanship, use traditional ingredients, and showcase the Kingdom’s distinctive culture and creativity have been embraced and championed by women and Gen Z consumers — the two crucial luxury consumer groups in the Kingdom.
Instrumental in this shift is the ‘Saudi 100 Brands’ program, which supports the Kingdom’s strong creative and entrepreneurial roots and gives these brands much-needed visibility and credibility on the international stage in Milan, New York, and Paris.
The impetus given to developing and promoting homegrown brands also supports the growth of allied businesses such as creatives, textiles and materials suppliers, design houses, and more.
Trends in the market
As the interest in Made in Saudi brands grows, so does the prioritization of sustainability in purchasing decisions among Gen Z and millennials. Reflecting a growing trend toward conscious consumerism, 52 percent of KSA consumers try to buy only from companies that are socially and environmentally responsible.
The growing global trend of health and wellness and the pivot toward a health-centric lifestyle, especially among Saudi women and youth, also influence market dynamics. Forty-three percent of young Saudis aged 18-24 today rank health as their top concern, leading to a more robust demand for products and services essential for a health-conscious generation.
Valued at $1.02 billion in 2023, Saudi Arabia’s Health & Fitness Service Market is expected to grow at a compound annual growth rate (CAGR) of 8.5 percent from 2024 to 2030.
With heightened competition, retailers in Saudi Arabia are keen to offer more than just everyday products or services.
Specialty concepts are now emerging across the retail spectrum — from stores exclusively focused on fitness mats and equipment or clothing to shops devoted to wellness products and services or food stores for organic and healthy food choices. Moreover, the concept is fundamentally reshaping the F&B sector as a rise in spending on specialty coffee houses, healthy and sustainable or vegan dining options, specialty burgers, and more is seen.
Demographic dynamics
Alongside increased urbanization and changing social norms and lifestyles, Saudi Arabia’s relatively young population — 63 percent are under 30 — has accelerated the ongoing shift in consumer behavior and preferences.
The Kingdom is thriving to cement its position within the luxury retail scene, with the sector’s value reaching a staggering $24.61 billion in Q1 2024. Increased female empowerment, growth in the professional female workforce, and the willingness of both Generation Z (13 percent) and Generation X (11 percent) to pay more for luxury brands when purchasing apparel or footwear are positioning the retail fashion industry in Saudi Arabia for significant expansion.
Moving away from global precedents, KSA’s unique approach to tourism with major attractions across multiple megacities also focuses on integrating differentiated retail components in multiple cities across the Kingdom. This is in stark contrast to the global model where one city generally dominates as a hub of fashion and luxury, for instance.
With Vision 2030’s commitment to developing a vibrant, diversified economy, promoting homegrown brands, and enhancing consumer spending, there is a compelling growth opportunity in Saudi Arabia’s retail market. As megaprojects redefine the retail experience, and world-class shopping malls, retail outlets, and logistics facilities drive the expansion of the retail landscape in Saudi Arabia, the sector is expected to continue its upward trajectory in the coming years.
Joelle Elias is the director of Retail Consulting for MENA at JLL.
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