Saudi Arabia Registers New Heights on the 2023 Global Retail Development Index

March 4, 2024 by Middle East Briefing

In the recent GRDI released by the consultancy firm Kearney, Saudi Arabia showcased unprecedented progress in the realm of global retail, earning the third position on the global ranking. This success is underpinned by a wide range of factors, including a surge in non-cash transactions, increased employment rates, and strategic economic initiatives.

By Lucia Brancaccio

In the dynamic realm of global retail, Saudi Arabia has made considerable progress, emerging as a prominent player in the 2023 Global Retail Development Index (GRDI), released by the leading consultancy firm Kearny.

Traditionally dominated by countries like China and India, this year’s report revealed the Middle East and Africa (MEA) regions as emerging “hot spots” for the global retailing sector, with Saudi Arabia taking the central stage.

In 2023 GDRI, the kingdom rose to third place, fueled by a surge in non-cash transactions and strategic economic initiatives, reflecting its commitment to diversifying away from oil dependency and fostering a conducive business environment.

MEA region growth overview

Kearney in its GRDI meticulously evaluates retail markets worldwide, offering a comprehensive analysis based on economic growth, consumer wealth, and regulatory environment assessed across 35 to 40 emerging companies.

In its assessment, the MEA region has emerged as a powerhouse in the retail landscape. A pivotal factor in this ascent is the region’s youthful demographic. In recent years, the MEA has experienced a remarkable surge in tech-savvy middle-class youth, whose ambitious shopping behavior is propelling the development and innovation of the region’s retail growth, with a particularly positive effect in Saudi Arabia.

Moreover, rapid technological advancements have contributed to the evolution of e-commerce in the region. Innovations such as quick commerce, social commerce, and hyperlocal delivery services have played a pivotal role in this transformation. Major retailers are now actively investing in omnichannel strategies to enhance convenience, and embracing initiatives like click-and-collect, while forging digital partnerships for logistical efficiency.

Despite prevailing challenges, such as inflationary pressures, major retailers have demonstrated resilience by adopting price-sensitive strategies. By offering competitive value-based deals, they effectively retain consumer interests.

Saudi Arabia’s rise on the global retail landscape

Within the MEA region, Kearney’s findings have emphasized the particularly noteworthy performance of Saudi Arabia. From its previous ranking at the 12th position, the kingdom has made a remarkable leap, advancing nine positions thereby securing the third spot in the 2023 GRDI. This incredible performance underscores the kingdom’s strategic shift towards digitalization and consumer-centric strategies.

Saudi Arabia’s position among the leading countries in the GDRI can also be seen as emblematic of its strategic economic vision. In recent years, the region has raised its effort to diversify its economy away from the oil sector, in accordance with its Vision 2030 strategy, while prioritizing the cultivation of a business-friendly environment capable of fostering innovation and growth across various sectors, including retail and tourism.

Highlight the progress made in this project is the declarations by Saudi Minister of Municipal, Rural Affairs, and Housing Majed al-Hogail, who mentioned that the retail sector currently represents 23 percent of the non-oil GDP. Moreover, with more than 5 million households, Saudi Arabia ranks as the largest consumer market among the six Gulf Cooperation Council (GCC) nations.

Contributing factors

Factors contributing to the noteworthy growth of Saudi Arabia’s retail sector are diverse.

Amidst a landscape of economic transformation, the kingdom has witnessed a notable surge in the employment of Saudi nationals in high-skilled jobs, along with the doubling of female workforce participation. The latter reached 36 percent of total human capital in 2022 – a significant leap from the 19 percent growth rate in 2016 and surpassing the Vision 2030 target of 30 percent to be reached by the end of the decade.

The surge in employment is complemented by a favorable investment climate, as evidenced by an uptick in investment deals and licenses. In 2022, these figures recorded a growth of 95 percent and 267 percent, respectively, suggesting a strong economic environment for growth and innovation.

Moreover, fueling Saudi Arabia’s rise in the retail sector is the kingdom’s commitment to pursue advancement in digital transformation. Saudi Arabia embraced innovative technologies encompassing retail stores, payment methods, and logistics, in an attempt to enhance consumers’ experience. Notably, the integration of digital and AI technologies has redefined the Saudi consumer market, ushering in a new era of mobile commerce and AI-enabled experimental retail.

Rise in non-cash transactions

The evolution of payment methods in Saudi Arabia has been marked by a rapid transition towards non-cash transactions. Digital payments have recorded a noteworthy rise, skyrocketing from 16 percent in 2016 to 62 percent in 2022, with further projected growth to reach 70 percent by 2030.

Factors that fueled the rapid shift from cash to digital transactions include:

First, the widespread adoption of mobile payments and digital wallets;
Secondly, government support has also been instrumental through the promotion of initiatives like the “Mada” card payment system. This system, by leveraging various channels, such as point-of-sale (POS) terminals, ATMs, and online platforms, is projected to enhance and facilitate electronic transactions across the country.
Finally, the increasing popularity of the “Buy Now, Pay Later” (BNPL) system has contributed to the rise in the popularity of digital transactions. This flexible short-term financing option allows customers to make purchases upfront and defer payments later, generally, without incurring interest.

The symbiotic relationship between these factors and the burgeoning e-commerce landscape has overall propelled the retail sector in Saudi Arabia.

Sector projections

When questioned about the prospects for the retail sector’s growth in Saudi Arabia over the next five years, Ali Shahid, Principal in Consumer Industries and Retail at Kearney Middle East, shared an overall optimistic outlook. He forecasts an annual growth of approximately 5 percent annually over the next 5 years, underscoring the sector’s expansion potential.

Such optimism is rooted in the growth expectation of several factors mentioned above. Specifically, Ali placed emphasis on the sustained growth of the non-oil sector propelled by ongoing investment initiatives aligned with Vision 2030-related projects. Furthermore, the region is expected to witness a doubling of income levels by 2040, driven by the increasing internet penetration in emerging markets across the region. This anticipated economic boost holds the potential to bolster consumer confidence and stimulate spending habits.

An increase in consumer spending will expand the retail sector, with forecasts indicating a doubling of its size in the coming years. As consumers increasingly embrace cashless payments, non-cash transactions are expected to grow between 8 and 10 percent over the next 3 to 4 years. These trends collectively underscore the process of modernization of Saudi Arabia’s business environment, positioning it as a key player in the retail global landscape.

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