Online retail sales in Saudi Arabia to double, report says

Liubomyr Vorona/Alamy via Reuters Connect

• VC funding of e-commerce at $428m
• Second-highest VC funded sector
• Ecommerce to top $13bn by 2025

Ecommerce in Saudi Arabia’s retail sector is likely to double between 2020 and 2025, with annual compound growth of 15 percent a year, a government report has revealed. 

“As the second-highest venture capital-funded sector in Saudi Arabia, ecommerce is booming,” the report by the Small and Medium Enterprises Authority said. 

Venture capital funding in ecommerce startups totalled $428 million in 2023, the report said. 

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“Saudi Arabia is working hard to remove barriers to ecommerce by stimulating fintech and payment solutions, improving IT, and enabling the overall logistics sector,” it said.

The Saudi central bank said in April that the share of electronic payments in the retail sector rose to 70 percent in 2023 from 62 percent the year before, as the government tries to boost online banking and the fintech sector. 

With encouragement from the Saudi E-Commerce Council, the ecommerce sector is expected to exceed $13.2 billion by 2025. 

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Analysts say digital platforms have revolutionised the sector. 

There are several online payment platforms open to new businesses, including social media platforms; consumer sites such as Amazon, Noon, eBay, Namshi, AliExpress and Farfetch, where third-party SMEs can sell goods; Shopify, Salla and Zid that host online stores; and direct-to-consumer mobile apps. 

Yvonne Biesinger of Creation Business Consultants, based in Riyadh and Dubai, said: “The ecommerce boom in Saudi Arabia is not only driving significant cultural shifts but reshaping the economy. 

“New business models are emerging, and social media is playing a pivotal role, putting pressure on businesses to adapt traditional practices,” she said. 

Amazon Saudi doubled its storage capacity in 2023 with the launch of a 2.7 million cubic foot fulfilment centre in Riyadh that can house more than 9 million products. 

The growth in ecommerce is aligned with government efforts to attract venture capital and promote small businesses, part of the broader strategy of expanding the non-oil economy, which the government says reached 50 percent of GDP for the first time in 2023. 

The Small and Medium Enterprises Authority report said: “SMEs stand to gain disproportionately from the growth and expansion of ecommerce. From fewer distribution channel obstacles and reduced operating costs to reaching a far greater customer base, SMEs are among the first to capitalise.” 

The government has offered $888 million in startup and venture capital for companies in the digital payments, gaming and artificial intelligence fields. 

Norah Alzahrani of the Saudi firm TASC Outsourcing said AI technologies, including augmented reality, are being quickly integrated into ecommerce too. 

Augmented reality

“Augmented reality can be used for virtual try-ons, so that customers see how clothing, accessories or cosmetics will look on them without physical trials. Brands like Ikea and Sephora already use AR for virtual product trials,” Alzahrani said. 

Ecommerce platforms are doing well throughout the Gulf region, but with the largest population – over 32 million – Saudi Arabia is the most important market. 

Remo Giovanni Abbondandolo, regional manager of the British fintech company Checkout.com, said in a report issued in May: “The number of shoppers across the region who now report shopping online at least once per day has grown by 80 percent since 2020.  

“In Saudi Arabia the number of consumers shopping daily over the past 48 months has seen a staggering 90 percent growth. This means an estimated 2.6 million Saudi shoppers now pay for things online at least once a day.”