Showdown looms in Saudi Arabia's e-commerce market

Saudi Arabia's online retail market has remained largely untapped, with only one major company operating within the Kingdom. Now Amazon and will be competing for online customers. 

Fahad Shadeed/Reuters/File
Saudi women shop at the Al-Hayatt mall in Riyadh on Feb. 15, 2012. Most shopping in Saudi Arabia is done in malls but now two companies are vying for control of the e-commerce market despite technical challenges.

In Saudi Arabia, a kingdom where postal codes are rarely used, most people pay in cash, and shopping is done in giant air-conditioned malls, building an online retail business is no easy task.

But two powerfully backed companies are trying to do just that, betting a young, tech-savvy population will eventually deliver up a large slice of the Arab world's largest consumer market.

After months of delays, launched in the United Arab Emirates (UAE) on Oct. 1 and said it would enter the Saudi market "within the coming weeks."

That will start a race for dominance in a largely untapped market against Dubai-based, which is already present in Saudi Arabia and poised for expansion after its acquisition this year by Amazon.

Both companies are well armed for the fight.

Investors in, including Dubai billionaire Mohamed Alabbar and Saudi Arabia's sovereign wealth fund, have put $1 billion into the project. The business also plans to leverage existing assets from Alabbar's Emaar Malls, Aramex delivery service, and Namshi and JadoPado online marketplaces. was known as the "Amazon of the Middle East" even before its purchase by the world's biggest online retailer, having built up a following and brand relationships since its launch in 2005.

"Amazon and will benefit from early-mover advantage in our view," said Josh Holmes, a consumer analyst at market researcher BMI.

But with online sales in Saudi Arabia expected to surge to $13.9 billion by 2021 from a projected $8.7 billion this year, he said there would be plenty for to play for.

"While the rivalry between Amazon/Souq and will be intense, we believe there is more than enough room for both players to thrive in Saudi Arabia and the wider region," Mr. Holmes said.

Sea change for commerce

Shifting retail online would be a sea change for commerce in the Middle East, where internet sales now represent less than 2 percent of total retail, 12 times less than in the United Kingdom, according to a Boston Consulting Group report.

In Saudi Arabia, which has lagged behind regional leader the UAE, it is only 0.8 percent of the total, and both and will have to adapt to the particular challenges of the market to prosper.

One is getting deliveries right. Currently, delivery companies in Saudi Arabia regularly ask for landmarks rather than addresses, with drivers often requesting WhatsApped locations.

Then there is payment. With less than half the population owning credit cards, e-commerce businesses often have to offer cash on delivery options, increasing their risks.

There are other dangers, too. High unemployment among the kingdom's Millennials could cap spending power in the long term.

Yet analysts point to the young population, high rate of technology adoption and high-quality transport networks as reasons for optimism. Some companies are already thriving.

E-commerce now represents more than 40 percent of logistics provider DHL's inbound parcel business into Saudi Arabia, said country general manager Faysal ElHajjami, forecasting this would continue to grow.

Start-ups are also developing ways to accommodate the kingdom's last-mile delivery quirks.

Dubai-based Fetchr, for example, operates an app that allows users to identify their location by using GPS, like Uber.

"We realized nobody in Saudi really has a formal address, but everybody has a smart phone attached to their hip," said co-founder Joy Ajlouny, speaking with partner Idriss Al Rifai.

Over the last year, Fetchr has grown its presence in the kingdom from three to 84 cities, with plans to tackle another 25 by the end of the year, and now employs about 1,000 people.

Ajlouny and Rifai estimate market growth of 20 to 30 percent per year over the next five years, but caution that a 5 percent value added tax, planned for introduction next year across the Gulf, could check that forecast.

As planned, the tax would be applied each time a product crosses a border, they said, which could be a 15 percent total by the time a customer receives the parcel and 20 percent if he or she decided to return it.

"It would be a huge hindrance," said Ajlouny. "Everybody is talking about the growth of e-commerce, but this would completely cripple that growth." 

This story was reported by Reuters.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Showdown looms in Saudi Arabia's e-commerce market
Read this article in
QR Code to Subscription page
Start your subscription today