E-commerce in Saudi Arabia will move more than $9 billion a year. This is twice as much as in 2014 and its growth projections have already attracted eCommerce giants like Amazon to participate in the region.
Nothing unusual, considering that the per capita income in Saudi Arabia exceeds 25 thousand dollars per year (almost double of Chile) and makes it an attractive market for B2C.
In this sense, the so-called boom of eCommerce in the middle east has interesting lessons for emerging markets like Mexico, Peru and Chile.
5 Key factors for Saudi Arabia eCommerce Boom
With 20% of the known oil reserves, Saudi Arabia is one of the richest countries in the world. However, strong government restrictions on access to the internet remained almost stopped the development of eCommerce, as in the United Arab Emirates and other countries of the region.
However, the openness of recent years has given way to accelerated growth in the combined 5 key factors:
01. The Millennials
Almost 20 percent of Saudi Arabia’s current population is between the ages of 25 and 34. Of the 14 million online consumers in Saudi Arabia today, 36% are within this age range. And it is precisely these 5 million millennials that drive the growth of e-commerce most strongly.
It is a generation that embodies the openness and paradigm shift in the region. And they are targeted by the major players in the Arab world’s eCommerce.
A few years back, Noon.com it has announced an investment in the expansion of its operation in Saudi Arabia and the United Arab Emirates. While Amazon has just invested about $700 million in Souq.com his main competitor.
02. Connectivity and use of mobile devices
In Saudi Arabia, 9 out of 10 adults own a smartphone and most use mobile devices to connect. Moreover, of the 14 million online buyers, more than half have already made purchases through their cell phones. This is surprising for a market where internet access was very restricted until a few years ago.
We realized that no one in Arabia has a formal address, but everyone has a smartphone connected to the hip. – Joy Ajlouny
Jay Ajlowny knows the importance of this feature because he is a co-founder of Fetchr, an application that identifies the location by using GPS and phone antennas to facilitate the delivery of online shopping.
03. The delivery system
A critical factor for eCommerce’s success is the ability to deliver orders on time, and that has been one of the special challenges that online commerce in the region had to face.
Courier companies in Saudi Arabia have to regularly request reference points instead of addresses in order to complete deliveries, where the buyer is located.
Although Saudi Arabia ranked 52nd in the World Bank’s logistics ranking (Chile ranked 46th, Mexico ranked 54th and Peru ranked 69th), this ranking considers large territories with very low population density.
But in cities where 83% of the population lives, the efficiency of their logistics industry is significantly higher.
Indeed, e-commerce now accounts for more than 40% of DHL’s parcel business in Saudi Arabia, and its general manager in Saudi Arabia, Faysal El Hajjami predicts that it will continue to grow at rates of about 20%.
04. Forms of payment
Another great challenge for the companies of e-commerce in Arab lands is how to offer more payment options because less than half of the population has access to credit cards.
Part of the success of e-commerce so far has to do with the facilities offered to its users by various forms of payment.
However, more than half of the current purchases are paid in cash at the time of delivery.
There is a wide culture that supports this way of payment, but it is expected that the online payment increase in the extent to which the experience of the user, the transaction security and the guarantees of satisfaction exceeds the supply of the physical stores of traditional trade, as in other parts of the world.
05. Social networks
The use of social networks has also experienced enormous growth in recent years. Instagram Facebook and Twitter are already among the 10 Most Visited sites in the country.
Young people make the most of the liberalization of access to the internet by making use of Instagram, Facebook and Twitter.
In addition, these platforms are being leveraged by online retailers, who are quick to promote their social media offerings to reach the public who make more online purchases.
The penetration of eCommerce in Saudi Arabia seems to have skipped intermediate stages of development, which we find difficult to leave behind. Even eCommerce in Kuwait, United Arab Emirates and all other middle east countries is growing day by day.
Taking advantage of opportunities in logistics or in means of payment is definitely a differentiating advantage in our markets.