How is Saudi Arabia’s Ecommerce Market for Startups?

ECommerce in Saudi Arabia

The growth of eCommerce has been impressive in the last 2-3 years. Once the world emerged from the economic slowdown caused by the Covid-19 pandemic, eCommerce quickly got back to where it left off. Saudi Arabia was a promising eCommerce market before 2020 and it will continue to be. In this blog, we will examine why this is true. But in a nutshell, Saudi Arabia is well-poised to take advantage of its growing and robust eCommerce market. After the UAE, the country could very well become the next eCommerce powerhouse in the MENA and GCC regions.

However, the question remains how entrepreneurs and business persons should assess the practical potential of the country’s eCommerce market. In this blog, we will discuss some of the important considerations and parameters to answer that question.

Overall Scenario of ECommerce in Saudi Arabia

ECommerce penetration in Saudi Arabia is lagging far behind the global average. However, the fundamentals supporting eCommerce growth are strong in the country. It is the largest country in the GCC both in terms of geography and population. So, despite the low penetration levels of eCommerce, given the geography and demographics, the eCommerce channel looks in good shape.

Here are some relevant statistics for reference:

·         Active eCommerce penetration rate in Saudi Arabia: 77.4%

·         Number of online stores and platforms in Saudi Arabia: 36,447

·         ECommerce Market Revenue Prediction (2023): USD 12 billion approximately

·         ECommerce Market Revenue CAGR 2023-2027: About 14%

·         Projected market volume by 2027: USD 21 billion approximately

Source 1

Source 2

Well-Performing Categories (Online Shopping):

·         Grocery

·         Cosmetics

·         Fashion

·         Electronics

·         Personal Care

·         Toys

·         Hobby, DIY

·         Furniture

·         Appliances

Supporting Elements for ECommerce in Saudi Arabia

The smartphone penetration rate is one of the world’s highest in Saudi Arabia. There has been a massive shift in user-consumer behaviour in terms of shifting from computers to smartphones for online shopping purposes. This is a vital consideration because there is something organic about the combination of eCommerce and smartphones like rice and curry.

Another supporting technological advantage in Saudi Arabia is its internet speeds. KSA has one of the fastest internet speeds in the world. Faster internet makes shopping journeys smoother for customers. User experience is also better over stable and reliable internet connections. The shopping apps could be loaded with more advanced features.

The penetration of banking access is also high in Saudi Arabia. Having a bank account does not automatically contribute to eCommerce but it prepares the stage. When a bank account is digitally linked and becomes digitally operative, then it becomes a ready-to-eat staple for eCommerce. And in Saudi Arabia, both internet and smartphone penetration are at excellent levels.

KSA stands in the 62nd position among 190 countries in the ease of doing business rankings. This is as per World Bank’s Doing Business 2020 study. Among many reforms, the country has focused on starting a business and getting construction permits. The objective is to diversify the country’s economy by reducing its dependence on oil exports, promoting growth in private sector growth, and attracting foreign investment. In January 2020, Saudi Arabia’s Ministry of Commerce and Investment adopted the new ECommerce Law. The new regulatory framework seeks to boost the confidence of the stakeholders involved in eCommerce transactions. Another important objective is to shield parties involved from fraud. Building a regulatory framework for the conduct of business is a prominent step showcasing the intent of a country to bolster and manage the growth of an industry.

Wherever in the world eCommerce has flourished, certain particular demographic features have played a very important role in that growth story. A big population need not necessarily convert into eCommerce growth. Other complementary factors are also important like income, age, education, digital literacy, online shopping, digital payments, online businesses, etc. Each of these factors must stand at the required levels to make eCommerce flourish. For example, Saudi Arabia has a large population of younger people. And universally, young people are the biggest users of the internet and social media. They are more open to online shopping and digital payments. Then there is also a reinforcing effect on other demographic groups attached to these younger groups.

Starting an eCommerce business in Saudi Arabia

As retail and eCommerce consultants for the Middle East region, we always emphasise that despite the opportunities and challenges of a given market it is very important to stick to the business basics. Here are some of the important considerations to keep in mind before finalising any eCommerce business plan in Saudi Arabia.

Know the law

Saudi Arabia has recently implemented a new eCommerce regulatory framework. This is in addition to other laws that are still applicable to businesses in general. Neither could be undermined for it may carry an impact on business. In starting a business and following the law of the land, there is no universal SOP.  Decisions and judgements have to be made as to what the process is going to be and how it will be carried out.

ECommerce Market Research

Various challenges faced by potential startups in market research are understanding what institutes ‘value’ for customers, recognizing and defining the target segments, measuring the intensity of competition, embracing the right competitive stand, figuring out the market statistics, demand forecasting, and reading pricing strategies and margins. For new entrepreneurs and businessmen, the lack of particular expertise and experience in market research planning and execution emerges as a constraint.

Uniqueness of Offerings and Brand Positioning

Saudi Arabia is a growing market for eCommerce. Competition is already in heightened states. It is not just going there and to start selling. Customers know their options. The Internet and information are freely spreading. Big, global brands are making inroads. The competition is equally fierce from domestic and regional businesses. So, no new startup could afford to misread Saudi Arabia’s eCommerce market as an easy one. And the way out is to understand the requirements of each market, targeted segments, and consumer behaviour and come up with unique products and services that give a unique brand positioning at least in one significant manner.

Financial & Commercial Planning

Whether it is retail or eCommerce, financial and commercial planning is a necessity for all organisations irrespective of the country or region in which the targeted market is located. Technically, financial and commercial assessments are elements of business planning or a business plan. It encompasses the evaluation of various financial and commercial aspects involved in starting a business. It helps to showcase to potential investors the lucrativeness of investing in startup projects. These evaluations and projections also serve as a reference map for financial and commercial decision-making in the future. The important areas of assessment that must be covered in financial and commercial planning for eCommerce startups are: 

·                      CAPEX and OPEX projections

·                      Inventory procurement plan (6 months to 1 year)

·                      Sales and revenue estimates (at least 5 years)

·                      Estimated P/L Statements (at least 5 years)

·                      ROI and ROC Analysis

·                      Break Even Analysis

Supply Chain

Mapping the supply chain is necessary to better know and manage the supply chain operations. The level of mapping has to be more precise if an international market is involved. But before a supply chain could be mapped, a supply chain strategy is necessary. Framing a supply chain strategy involves the orientation of processes, technologies, and relations that a business enterprise intends to utilise for procurement, production, distribution, and delivery of final products and services. Thus, all three stretches of delivery – first-mile, mid-mile and last-mile in the value chain get considered in supply chain strategizing and mapping. A few important deliberations in developing a supply chain strategy and mapping a supply chain are:

·              Current competencies and leads in the supply chain

·              Value Chain necessities

·              Understanding the impact on customers and value

·              Product lifespan, delivery of services

·              Prevailing industry standards and practices

·              Competencies of suppliers

·              Logistical network and infrastructure

·              Automation and digitisation

·              QA and QC (Quality Assurance, Quality Control)

·              Regulatory framework

Developing the ECommerce Shopping Website and Mobile Application

The importance of online storefronts for eCommerce brands needs no separate explanation. Today, the availability of many online service providers (e.g. Shopify Saudi Arabia or any other service brand) in the areas of website and application development for eCommerce has made things much easier for startups. Some of the important considerations not to be missed while planning for eCommerce web/app development are:

·         Model buyer personas

·         Demographic considerations (e.g. most-used languages)

·         Location of potential customers or the ideal buyers

·         Favourite/most-used devices and technologies

·         Internet speeds

·         Openness to digital payments, Popular payment platforms

·         Prevalent industry standards and practices

·         Cyber security, data privacy concerns and  practices

·         Laws and regulations Saudi Arabia is a growing market for eCommerce. This growth has been impressive in the last 2-3 years. However, the question is how entrepreneurs and business persons evaluate their individual business cases in the backdrop of the country’s market realities. While on the one hand, Saudi Arabia has several supporting ingredients to take eCommerce off the roof and at the same time, the opportunities are visible to all which already makes it a competitive market. The right approach is a planned approach. This includes an assessment of the market in terms of specific business goals and objectives. Compliance with the laws of the land must stand as a high-priority task. Finding a strong value proposition that customers would love, easily find, evaluate, and buy should also be accompanied by a smooth shopping track cutting across channels and touchpoints.