The SAR 50 Billion

E-commerce Opportunity
in Saudi Arabia
A BCG whitepaper in collaboration with Meta

December 2021

By Pablo Martinez, Chris Biggs, Jamie Brindley,

and Monika Cernikova
By: Pablo Martinez, Chris Biggs,
Jamie Brindley, and Monika Cernikova
bcg.com
December 2021
Our whitepaper shares BCG’s perspective
on the current and potential future state of
e-commerce in the Kingdom of Saudi Arabia
(KSA):

• Current state and trends in e-commerce

globally

• Development in the Saudi e-commerce market

in recent years and current market momentum

• Illustration of the benefits of growing

e-commerce for KSA’s economy and society

• List of potential areas of focus to help the

Saudi e-commerce market ride on the current
wave of growth and flourish in the international
competitive landscape
Short Summary
E-commerce has grown at an unprecedented rate since the COVID-19
pandemic began, a trend that will likely continue once the pandemic
is over. KSA is well-positioned to take advantage of this trend by
developing a strong domestic e-commerce market and, with the right
policies, becoming an e-commerce powerhouse in the GCC region.

Summary
E-commerce: a landscape of growth and opportunity abroad (both physically and online), thus helping to
bring some Saudi foreign spending back home (only
• E-commerce has grown rapidly, with global revenue ~40% of current Saudi e-commerce spend was domestic
surpassing the projected CAGR of 15% to reach 25% in 2020)
in 2020. This surge is largely due to the effects of the
COVID-19 pandemic and further emphasizes the • Generates a significant number of jobs, many of them
inherent advantages of e-commerce over physical retail skilled technical or tech-focused

• KSA has seen an even higher rate of e-commerce • Potentially turns KSA into a regional hub for
growth, with almost 30% CAGR in the last five years, and e-commerce, both as a base for global leaders and a
a jump of nearly 60% between 2019 and 2020 (largely powerhouse of local champions
due to the pandemic), to reach an annualmarket size
of SAR ~19 billion Immediate priorities: we see a clear set of actions for
KSA
• Even with this boom, e-commerce has significant poten-
tial for more expansion in KSA. Penetration is 6%, versus • Improve speed and quality of shipping and delivery
18% worldwide. Moreover, the growth of e-commerce services, especially outside major metropolitan areas
significantly outpaces that of traditional retail
• Incentivize more competition and innovation in the
• Efficient logistics infrastructure is critical to further delivery arena
expansion, together with several other key enablers:
fulfillment centers, quick customs processing, favorable • Make use of the advanced and extensive digital
legislation and tax policies, attractive and safe consumer infrastructure with modern payment solutions, through
platforms, and integrated e-payment processes regulatory powers and changing customers’ perception

Why we should care: multiple benefits of flourishing • Ensure a smooth flow of goods across borders in line
e-commerce with KSA’s strategic priorities

• Makes a wider assortment of products available to a • Create an ecosystem that develops entrepreneurship
larger portion of the population and local talent, and nurtures domestic businesses and
local firms
• Develops transportation and shipping infrastructure,
connecting even the most remote areas to the global • Strike the right balance between incentivizing global
e-commerce market e-commerce players to localize, and promoting fair
competition to help the domestic e-commerce scene
• Provides customers with greater price comparability, develop
transparency, and product information, enabling them
to make better purchasing decisions

• Captures part of the retail spend currently conducted

Contents

01 | S
 hort Summary 11 | E
 -commerce is a Key
Growth Vector for
Retail in KSA and the
Middle East
03 | S
 audi Arabia and
The World’s
E-commerce
Explosion 15 | E
 -commerce for
Economic and Social
Development
05 | T
 echnology and
Logistics Power of
E-commerce 16 | It Takes a Suitable
Business Environment

07 | E
 -commerce:
Already a Driving 17 | L ooking at the
Force in Retail Long-term Benefits

08 | S
 audi Arabia: A 18 | A
 bout the Authors
Market with Both a
Huge Potential and
Some Challenges
19 | A
 cknowledgments
Saudi Arabia and The World’s
E-commerce Explosion
During the past two decades, e-commerce has transformed no exception in terms of e-commerce growth pace –
traditional retail worldwide. The process accelerated in global growth reached 21% in 2019 with double-digit
2020 due to the global COVID-19 pandemic, which led to growth across all regions.5
lockdowns, reduced retail operations, and store closures
– particularly those deemed non-essential. Customers More customers than ever enjoy the benefits of
shifted en masse to safer and more convenient online e-commerce (see exhibit 1):
shopping, including those who would have otherwise
remained loyal to brick-and-mortar stores. Now, e-commerce The Middle East-North Africa region, as well as KSA, lag in
customers are spending more, and doing it more frequently, the e-commerce market share, reaching penetration levels
online – and a new generation of previous non-adopters of 2.7% and 5.9% respectively in 2020 – far behind mature
has converted to the channel. The fastest-growing e-commerce e-commerce markets and the worldwide average of 18%.6
segment has been food and drink or home-related The region, however, has the fundamentals for e-commerce
products (more than a 300% increase in 2020), with all take-off and KSA is especially well-positioned to become
other segments also growing at a fast pace.1 the regional e-commerce powerhouse. Online shopping
is already present in the country and grew in importance
E-commerce addresses the inherent disadvantages of during the COVID-19 pandemic. As the country and the
brick-and-mortar retail and taps into the benefits of digital world hopefully return to a more normal existence once
commerce. In the three largest e-commerce markets (the the pandemic subsides, e-commerce should continue to
United States, United Kingdom, and China), its share of thrive. That is, if certain factors are in place to support its
overall retail now exceeds 20% in the first two countries success, specifically in the KSA context. A global perspective
and has reached an impressive 44% overall share in is of course important, so let’s first look at the factors that
China2, with a share of 63%3 in the consumer electronics have made online retail a resounding success globally and
segment. Rapid growth in China is expected to continue, how they have laid the groundwork for Saudi retailers to
making the country the first in the world to achieve more further expand online in the future.
than 50% of sales through e-commerce in 2021.4 China is

Exhibit 1

E-commerce Customer Benefits

Large product assortment Quick and secure payments

Consumers can find everything in Advanced systems provide “1-click”

large online assortments freed from CUSTOMER seamless payment
physical restrictions

Tailored product offering Fast and flexible delivery

Locating products and information Fast and flexible delivery offered at

about them is easy home or pick-up locations

Competitive and transparent pricing Social media shopping Convenient aer-sales service

Online prices can be very Convenient shopping directly Returning and servicing items
competitive with clear comparison through social platforms, engaging provided promptly and without cost
across outlets and sharing the
experience with friends

Source: BCG analysis

1.
https://www.statista.com/outlook/dmo/ecommerce/worldwide#revenue
2.
https://www.statista.com/chart/23941/e-commerce-as-share-of-all-retail-commerce-selected-countries/; https://www.digitalcommerce360.com/ arti
cle/us-ecommerce-sales
3.
https://www.statista.com/outlook/dmo/ecommerce/electronics-media/china#sales-channels
4.
https://www.emarketer.com/content/global-historic-first-ecommerce-china-will-account-more-than-50-of-retail-sales
5.
The UAE eCommerce Landscape, Visa Opinion Paper, November 2020
6.
See Exhibit 6

3 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

Access to a larger product assortment social media and messaging platforms to gain a competitive
advantage. Firstly, convenience has become one of the top
Free from the restrictions of physical space, retailers can consumer priorities, with 90% of people in Saudi Arabia
showcase their entire assortment online. Even mega-malls actively looking for ways to save time and simplify their
with hundreds of stores cannot compete with the range lives.12 Social commerce taps into the convenience trend by
and availability of online marketplaces. The largest providing a seamless experience in one place, where shops,
international malls, like The Dubai Mall, Mall of America, or for example, can use their Meta sites to show customers the
the South China Mall, with millions of items,7 are dwarfed correct product information for their country and language.
by US Amazon’s staggering 350 million SKUs. Secondly, a participation paradigm implies customers
prefer to feel directly connected to brands enabled by
A tailored and personalized product offering social media. Moreover, people are increasingly gathering
more in their online communities formed on social media
Advanced search engines and product reviews let consum- rather than in physical locations. And lastly, both consumers
ers access relevant information and find products and brands value an entrepreneurial spirit and creative
quickly, without having to sort through lots of items first. solutions offered by social platforms.
“Suggestion” algorithms offer recommendations and
highlight promotions tailored to each customer. These Quick and secure payments
algorithms use customers’ past purchase history, online
interests (based on their browsing), and behavioral Advanced payment systems let customers make seamless,
patterns of other customers with similar profiles. Data one-click purchases online with enhanced security.
analytics supports this intelligence, which has become Standard online card payments are enhanced, too, with
highly accurate. Amazon’s personal-recommendation new payment methods like e-wallets and blockchain, and
algorithm, for instance, now drives more than 35% of all all of these can be linked to a growing number of financial
purchases on its platform.8 Personalization features of social services, from customer loans to delayed-payment plans.
media make them the number-one discovery channel
nowadays, with 82% of people discovering products and The seamless experience extends to business owners as
brands across Meta’s technologies.9 Such solutions often well, with technology that enables simple and accessible
run across borders, allowing retailers to reach solutions. Global players, such as Shopify, offer an e-commerce
international customers, while those buyers still get to platform with a payment gateway option. Similar and localized
enjoy a localized customer experience. For example, solutions are emerging among Meta business partners in
Squatwolf, a UAE-based gym wear company, partnered with the Middle East, where they offer an integrated “buy” button
Meta to show ads to potential customers in new and with a payment solution on a shop’s social media site.
established markets around the world, leveraging dynamic
language optimization to allow people to see those ads in Fast and flexible delivery
their preferred language.10
Purchases reach customers faster than ever – in hours or
Competitive and transparent pricing minutes – through advanced distribution systems.
German-based grocery-delivery companies Gorillas and
Customers can easily compare prices across retailers Flink deliver orders in cities just 10 minutes after purchase
online. Price transparency leads to more competitive prices. online.13 Customers can also choose the most convenient
Plus, customers can use their mobile devices to research delivery location, whether that is their home, the
prices as they shop in a physical store, enabling e-commerce workplace, or a specific pick-up point equipped with smart
to directly compete with brick-and-mortar. lockers. European start-up Bloq uses software that allows
lockers to serve multiple purposes, from product drop-off,
Social commerce to temporary personal storage or as an exchange place.14
Market leaders like Amazon are experimenting with
Four key themes11 are underlining the need for e-commerce autonomous vehicles and drones to test delivery from
to expand more into the social commerce area, leveraging central warehouses to customers.

7.
Mall websites, BCG project experience
8.
https://towardsdatascience.com/data-analytics-in-e-commerce-retail-7ea42b561c2f
9.
“Discovery-Led Shopping Study” by GfK. Western Europe average for UK, FR & DE, 3221 people aged 18+
10.
https://www.facebook.com/business/success/squatwolf
11.
Emerging Trends Research” by Ipsos and Facebook IQ, 2020
12.
Emerging Trends Research” by Ipsos and Facebook IQ, 2020
13.
https://finance.yahoo.com/news/gorillas-demand-grocery-delivery-startup-140229235.html;
https://www.thegrocer.co.uk/online/berlin-based-10-minute-grocery-delivery-service-gorillas-lands-in-london/654011.article
14.
https://bloq.it/#about

BOSTON CONSULTING GROUP 4

Convenient after-sales services including artificial intelligence (AI), and chatbots enhances
the customer experience and reduces costs. Businesses
Hassle-free online return policies enable customers to can leverage chat platforms, daily used by millions, for
examine products and ship them back to the seller at no after-sales communication and service, and with great
additional cost if they wish. In fact, the level of after-sales success, as research shows that the vast majority of adults
service with e-commerce tends to be much higher than that (75%) appreciate communication with businesses through
of traditional retailers due to the centralization, coverage, messaging.15
and sophistication of major online players. Technology,

Technology and Logistics Power of

E-commerce
Efficient logistics is crucial for e-commerce along the whole Technology supports operational excellence and customer
supply chain, from manufacturers and wholesalers to interaction. On the operations side, AI is used for routing
fulfillment centers and the end customer (see exhibit 2). and re-routing. Live traffic navigation systems and automated
Retailers are using big data and predictive algorithms to communication with drivers have brought much greater
direct package shipment and advanced technologies, such efficiency, and newer technologies, such as drones and
as autonomous drones, for last-mile deliveries. autonomous vehicles, could take efficiency even further.
The expansion of the world’s largest drone-delivery firm,
Last-mile logistics (between the fulfillment center and Zipline, illustrates how technology originally used to
customers) is a critical part of the process, and e-commerce compensate for limited transportation infrastructure in
is at the forefront of adopting it for operations and service Africa can successfully expand in countries like the US.17
quality.16 For a seamless logistics system, the most effective
retailers combine advanced technologies with cost-effective For customer service, system integration gives shoppers the
operations and deploy a workforce of trained representatives opportunity and flexibility to book specific delivery slots,
to handle customer interactions. view available delivery options live, track their shipment in

Exhibit 2

Government Actions Can Help Improve Parts Of The Complex E-commerce Ecosystem

Reverse logistics
Retail products Producer Fulfillment Last mile
wholesalers shipping centers logistics

Consumer
Retail products Cross-border
platforms Consumer
producers processes
(web and app)

E-payment
platforms

Product procurement flow Customer purchasing flow

Technology enablers (Big Data, predictive algorithms, autonomous delivery systems etc.)

Flow of goods Flow of information Government influence

Source: BCG analysis

15.
“State of Connective Media: Business Messaging” by Ipsos. 25,000 people ages 18-64; monthly users of at least one messaging app in AU, BR, CA,
DE, FR, IN, JP, KR, UK and US, Oct-Nov 2020.
16.
Why Parcel Companies Need to Make Every Delivery Special, BCG, July 2020
17.
https://www.ft.com/content/ba5c9c73-a8a0-4799-8e8e-790ef3877b19

5 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

real-time, and give immediate feedback on quality. Smart Consumer platforms can feature millions upon millions
chatbots driven by AI can further improve the experience by of items spanning a large number of categories. As a
reducing customer wait time and driving down personnel result, effective internal search tools or engines, and a
costs. For example, Aramex (a Dubai-based logistics, comprehensive, yet intuitive, categorization system, are
transportation, and delivery company) integrated imperative for a seamless online shopping experience.
Whatsapp API to improve the last-mile delivery experience. An interactive, engaging display across platforms (PCs,
18
Customers can use the channel to keep track of their mobiles, or tablets) can make or break sellers’ relation-
orders, and the bot helps schedule deliveries to customers and ships with consumers. That is precisely why making sure
verify their identities and addresses for cash-on-delivery that factors such as site speed and real-time availability
services. With WhatsApp facilitating these customer of products and delivery options across platforms are so
exchanges, instead of traditional call centers, Aramex can important.
fulfill deliveries faster and more efficiently.
Cutting-edge consumer platforms leverage big data
Fulfillment centers are a vital node in the ecosystem. They analytics to personalize services and shopping experiences,
are the heart of dispatch operations, the largest of which not only through product suggestions but also by offering
house vast product assortments across multiple categories, tailored, profile-based promotions derived from a specific
enabling economies of scale and justifying the significant budget assigned to each customer. Smart chatbots and
technological investment required. Automation and human sales assistants can ensure full customer service
carefully designed warehouses are key to minimize the time using a range of communication platforms. For example,
required for picking and packing items and maintaining the Nissan Saudi Arabia has launched an AI-based chatbot
quality of incoming merchandise. Using drones and robots service over a verified Whatsapp Business channel to
can further increase the speed, precision, and cost-efficiency support customers 24/7, while catering to their automotive
of fulfillment and sorting centers, together with a workforce needs securely, offering always-on support and sending
trained to use supporting technology. updates in real-time.21 Social and chat platforms can also
become a channel of their own to inspire customers or even
Efficient cross-border custom processes are necessary for drive sales, as some stores have done using Whatsapp-to-
continuous, reliable e-commerce across multiple countries. wardrobe schemes.22
The speed, efficiency, and reliability of customs procedures are
paramount to import and export products cost-effectively. Integrated e-payment processes are the link between
More than 70% of customers deem delivery tracking, shoppers and financial institutions. Best-in-class payment
reasonable shipping time, and easy returns to be of utmost platforms offer seamless one-click purchasing for repeat
importance when making a purchase decision from foreign visitors based on previously saved information, or leverage
countries.19 wallet applications with pre-paid capabilities. E-commerce
transaction security is a major consumer concern, so
Attractive and safe consumer platforms are the main e-payment should address this issue convincingly,
customer interface. There is a major shift occurring from protecting against both external cyberattacks as well as
websites accessible best on laptops and PCs to mobile internal fraudulent activities. Effective anti-fraud systems
apps better serving smartphones, as well as sales driven by use information from past customer purchases to identify
social media. In 2020, smartphones already exceeded 50% suspicious or outright fraudulent online purchases and flag
of global website traffic.20 them accordingly.

18
https://www.facebook.com/business/success/aramex
19.
“Global Retail Re-emerge Study” by Ipsos. 43,474 people aged 18+ across AU, BR, CA, DE, FR, IN, JP, MX, SK, TH, UK, US, July-August 2020
20.
https://www.statista.com/statistics/277125/share-of-website-traffic-coming-from-mobile-devices/
21.
https://www.tahawultech.com/features/customer-story-nissan-saudi-arabia/
22.
https://emirateswoman.com/ingenious-way-can-use-whatsapp-shop-harvey-nichols-dubai/

BOSTON CONSULTING GROUP 6

E-commerce: Already a Driving
Force in Retail
Global e-commerce revenues were expected to grow 15% Indeed, traditional retailers have suffered significant blows
annually in 2020, but with the pandemic’s boost, they shot from the e-commerce boom in recent years and its
up 25%.23 That growth was supported in part by an array acceleration during the pandemic. To survive in the new
of innovative solutions e-commerce players adopted to post-COVID e-commerce climate, they have had to adapt
enhance the customer experience and improve the in other ways to appeal to younger, more online-savvy
attractiveness of online offerings. customers. Millennials and upcoming Generation Z
consumers are more influenced by products mentioned in
Traditional brick-and-mortar retailers have gone online as social media than by physically seeing them in stores. They
well, often experimenting with omnichannel hybrid have a stronger preference for the speedy delivery and
formats to tie online functionality to their offline presence. higher price sensitivity.24 Brick-and-mortar stores need to
A store may post QR codes near merchandise so that reach them through an online presence that complements
customers who don’t find their shirt size on the rack, for their physical stores, by collecting and utilizing customer
example, can scan a code on their phone to be redirected data, and be competitive on price. Many retailers have
to the retailer’s website, where they can order what they begun doing this with online-to-offline offerings that
want and have it delivered from another store. For combine online discovery with physical commerce for
customers with lower levels of trust in e-commerce, such customers with a preference for in-person purchases.
omnichannel hybrids can ease doubts and overcome Implementation of direct online communication with
hurdles to adoption. customers is also of high importance, with 60%25 of brands
already using instant messaging for this purpose.

23.
lE-Commerce in Saudi Arabia 2020, ecommerceDB report, Jan 2021
24.
https://www.bigcommerce.com/blog/omni-channel-retail/#where-consumers-shop-online
25.
“Making it personal: How smart communication tools drive business results” by Ipsos for Google, 2020

7 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

Saudi Arabia: A Market with Both a
Huge Potential and Some Challenges
E-commerce in KSA has grown rapidly as the Kingdom players without a local physical presence to compete,
steadily realizes Vision 2030, a comprehensive plan aimed at creating a huge opportunity for local and regional players.
transitioning the Kingdom to a knowledge-based economy.
Online sales have increased almost 60% on average A favorable environment: plenty of support for
annually across all categories, with the strongest position e-commerce already in place
of e-commerce in the media products, and apparel and
footwear, segments (see exhibit 3). Factors involving Saudi Arabia’s telecommunications,
internet, legislation, and financial services all support
At this point, e-commerce growth outpaces traditional e-commerce’s advancement. Saudi consumers’ shift from
retail and shows no signs of abating (see exhibit 4). using desktops to smartphones as their preferred device
for shopping online is an important consideration. KSA
Yet, despite exceptional growth, Saudi Arabia’s e-commerce boasts one of the highest smartphone penetration rates
is still in a nascent phase. In 2020, it accounted for just (97%28) in the world, which enabled around 60% of Saudi
6%26 of total retail sales, compared to leading e-commerce customers to discover new sellers through social networks
markets, whose global penetration reached 18%27 in 2020 in 2020.29
(see exhibit 5).
Another aspect of technology works in KSA’s favor, too.
KSA retailers that recognize the potential and the gaps Mobile broadband internet subscriptions are exceptionally
in e-commerce have two main opportunities to establish high in Saudi Arabia – higher than the majority of
an online presence: by building the business themselves advanced markets. KSA ranks 10th in the world for the
or partnering with a marketplace platform. Establishing fastest internet speed as well.
a strong, local e-commerce presence with in-country product
stock, efficient last-mile logistics, cheaper and faster Lastly, KSA has a relatively high share (72%) of the over
delivery, and product returns could help them quickly take 15-year-old population with a bank account, which enables
market share from global players. This would make it future e-commerce growth.
especially difficult for mid-size international and global

Exhibit 3

E-commerce Adoption Has Seen An Increase In Saudi Arabia

Apparel and Footwear Beauty and Personal Care Electronics

1.3% 2.4% 6.2% 0.9% 1.2% 3.4% 4.6% 9.5% 18.0%
E-commerce E-commerce E-commerce
98.7% 97.6% 93.8% Offline 99.1% 98.8% 96.6% Offline 95.4% 90.5% 82.0% Offline

2016 2018 2020 2016 2018 2020 2016 2018 2020

Consumer Health Appliances Home Care

0.4% 0.7% 7.4% 6.7% 7.6% 13.8% 0.7% 1.2% 4.6%
E-commerce E-commerce E-commerce
99.6% 99.3% 92.6% Offline 93.3% 92.4% 86.2% Offline 99.3% 98.8% 95.4% Offline

2016 2018 2020 2016 2018 2020 2016 2018 2020

E-commerce has seen an increase of % of sales compared to offline channels

Source: Euromonitor, BCG Analysis

26.
https://www.statista.com/statistics/1201953/saudi-arabia-forecasted-e-commerce-market-size-covid-19/
27.
https://www.statista.com/statistics/1095969/retail-sales-by-channel-worldwide/
28.
Global Mobile Consumer Survey 2019
29.
https://newsroom.mastercard.com/mea/press-releases/77-of-ksa-consumers-are-shopping-more-online-since-the-start-of-pandemic-reveals-master-
card-study/

BOSTON CONSULTING GROUP 8

 Exhibit 4

E-commerce In Saudi Arabia Has Seen Rapid Growth, With A Clear Covid-induced
Increase In 2020

Forecast

Market size, SAR billion

~57
+25%
~48
~40
+28% 60% ~32
~25
~19
~9 ~12
~6 ~7

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

~1% ~2% ~2% ~3% ~6% ~7% ~9% ~10% ~12% ~13%
#% E-commerce penetration

Source: Statista, Euromonitor, PRPO; BCG Analysis (data already reflects COVID-19 e-commerce boost)

Exhibit 5

Saudi Arabia Has A Huge Potential In E-commerce Landscape

E-Commerce sales as % of total retail sales, 2020

60

44.8%
40
30.9%

20 18.0%
14.2%
8.0%
2.7%
0
!KSA !UK !China !USA !Middle East !Worldwide
and Africa

Source: eMarketer, Saudi Gazette, BCG Analysis

The government is supporting commerce law,30 which social media networks based on personalized
legally defines e-payment services and creates a customer recommendation algorithms. The state’s role in its central
protection framework, is thus increasing the trustworthiness bank and subsidiaries (SAMA31, SaudiPayments, and mada,
of the technology for users across different channels and an electronic payment system) is strong. Overall, these
devices. E-commerce law provides a solid basis for discovery actions should enhance customer confidence and increase
-commerce growth, where people buy products through the rate of adoption

30.
https://globalcompliancenews.com/saudi-arabia-regulates-e-commerce/
31.
Saudi Arabia Monetary Authority, renamed Saudi Central Bank, was approved in Nov 2020

9 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

And Saudi Arabia’s population exhibits an inherent Another trend that showcases Saudi consumers’
readiness for e-commerce. Young people aged 18-34 willingness to engage in e-commerce involves the informal
comprise the largest segment of the population (43%32) sales conducted by fashion designers and other small
and display a high familiarity with the online environment businesses directly over social media. When consumers
and social media. In fact, the average time Saudis spend view a desired piece of apparel on Instagram, for example,
on social media has increased more than 20% during the they can ask whether the item is on sale. If it is, they are
last three years to more than three hours per day.33 That given details on how to transfer money to a bank account
ranks KSA among the most social-media-savvy nations, as payment. Then the item is sent to the customer. While
high above leading e-commerce markets such as the US, such informal sales are not condoned by the government
China, and the UK (see exhibit 6). Furthermore, Saudi because they present a risk for the consumer, they suggest
Arabia features a very large number of mobile broadband that Saudi shoppers are very much ready to tap into the
Internet subscriptions – higher than the vast majority of online market.
advanced markets, as well as ranking 10th in the fastest
internet speed globally. Combined with the move toward The Saudi market, with its tech-savvy customers and
an increasingly mobile e-commerce offering, this creates a strong demand for e-commerce offerings, indicates that
very fertile environment for an e-commerce explosion. the main driver of growth will be the development of a
high-quality supply side.

Exhibit 6

Time Spent On Social Media Across Countries

Daily time spent on social media

Hours per day, 2020

4 3.8

3.3 3.2
3

2.3 2.1 2.0

2 1.7

0
!Philippines !UAE !KSA !Singapore !USA !China !UK
Global highest

Source: Social Flagship Report Q3 2020, Global Web Index

Challenges remain

Despite the expansion, Saudi and GCC e-commerce market leader in apparel across the GCC, has ~100,000
players still face several challenges. One of the biggest is SKUs. In comparison, Amazon in the United States has
their product assortments’ limited size. Regional champion 350 million and Japanese market leader Rakuten has 250
Noon.com offers over 5 million SKUs, and Namshi, a million (see exhibit 7).

32.
eCommerce in Saudi Arabia 2020, ecommerceDB report, January 2021
33.
Social Flagship Report, Global Web Index, 2020

BOSTON CONSULTING GROUP 10

 Exhibit 7

Leading Players’ Product Assortment Varies Widely Across Geographies

Number of SKUs available, millions

400
350
300
250
200

100
0.1 >5
0
Namshi noon.com Amazon Rakuten

Source: Statista, Saudi Gazette, Arabnews, BCG insights

In terms of delivery speed and options, regional GCC delivers groceries in under 10 minutes in Istanbul and
e-commerce players are also rather limited. Within KSA, London,34 and dark-store Gorillas, which offers comparable
just a small set of online retailers in major cities offers fast delivery in major German cities.35
same-day delivery, which is a standard in advanced markets
elsewhere in the world. Hyperlocal e-commerce platforms Moreover, the current lack of infrastructure to support new
also offer delivery options of one hour or less in key Saudi players is a critical limiting factor for developing
metropolitan areas, including Turkish start-up Getir, which innovative solutions that could address the above challenges.

E-commerce is a Key Growth Vector

for Retail in KSA and the Middle East
At this point, establishing a competitive e-commerce offering largest projects expected to add more than 1.1 million
requires a lower initial investment and promises faster square meters of retail space by 2023.36
time to market than a traditional network of brick-and-
mortar stores. Prior to the pandemic, higher rents were However, given the pace of e-commerce, KSA may not
already limiting fast retail expansion, and with the impact ultimately need to develop as much retail area per capita
of pandemic restrictions for the domestic population and a as other countries shown in exhibit 9. In the end, this may
halt to international tourism, expansion of a physical retail benefit the Saudi retail sector because it will avoid the
network is even more complex. problems posed by excess retail space, an issue now plaguing
many Western economies as their mature retail sectors
When it comes to available retail space per capita, the readjust to e-commerce and the post-COVID world.37 The
traditional brick-and-mortar offering in Saudi Arabia scores West is seeing significant high-street closures, particularly
generally lower or average compared to regional and global in the US and UK, with notable bankruptcies by T.M.Lewin
players, despite recent growth (see exhibit 8). Traditional and Debenhams in Britain and Brooks Brothers and J. Crew
retailers are expanding in the coming years, with the six in the US.39

34.
https://www.ft.com/content/bdb43495-fadf-4217-bc33-bc52e6f0fdd4
35.
https://finance.yahoo.com/news/gorillas-demand-grocery-delivery-startup-140229235.html;
36.
Covers the following projects: University Boulvevard, Jaeharat Jeddah Mall, Mall of Saudi, City Centre Ishbiliyah, The Avenues Riyadh and The
Avenues Khobar, sourced from developers’ websites
37.
https://www.ft.com/content/44c442ff-3baf-41ae-b5b0-1916613593ee
38.
https://www.ft.com/content/05723820-cca4-49ba-acf6-dd55b7e5ad62
39.
https://www.ft.com/content/1ef59800-96bc-11ea-af4b-499244625ac4

11 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

Interestingly, domestic e-commerce can significantly shopping.41 Improving Saudi Arabia’s domestic product
influence spending abroad, whether during shopping trips offering can be achieved easier and faster through
or online through foreign e-commerce platforms. Pre- e-commerce, especially when Western sites, such as
COVID, Saudis spent USD 26 billion abroad per year on Amazon Prime (which entered KSA in January 2021), are
tourism including retail,40 citing the superior service and already whetting customer appetites for more.42
offerings of foreign retailers as the main reason for this

Exhibit 8

Saudi Arabia Is Behind The UAE And Other Commercial Hubs In Retail Space Per Capita
2.2

GLA (Gross Leasable Area) KSA

sq meters per capita 1.5 UAE
Global
1.1 1.2
0.9

0.4 0.4
0.3 KSA average
0.2 0.25

Riyadh Jeddah London Damman Abu Dhabi Singapore Dubai Hong Kong US Cities
& Al Khobar

Source: Alpen Capital, GCC Retail Industry, Apr 2019; Colliers, Redefining Real Estate in KSA, Oct 2019

KSA e-commerce could also bring back a significant portion Regarding the e-commerce environment and infrastructure,
of spend from global platforms that do not have a local KSA has made great progress, according to the 2020
alternative in KSA. Moreover, Saudi e-commerce players UNCTAD (United Nations Conference on Trade and
can strive to capture spend from a new international Development) Business-to-Consumer E-commerce Index,
customer base through cross-border advertising solutions. which ranked 152 countries on their readiness to engage
in online commerce. Countries were scored on access to
The average spend per e-commerce user in KSA increased secure internet servers, reliability of postal services and
more than 50% during the past three years and is driving infrastructure, and the portion of their population that uses
improvements in service quality and offering breadth, the internet and has an account with a financial institution
providing more reasons to shop locally. or a provider of mobile money services (see exhibit 9).

Exhibit 9

Saudi Arabia Has Made Great Progress In UNCTAD’s B2C E-commerce Index

UNCTAD B2C e-Commerce Index value

1 5 10 11 +20
37
49
56 Rank
96 94 84 92 91
83 81 83 78 73 72
52 2020
2016

Source: United Nations Conference on Trade and Development 2020 and 2016

40.
https://investsaudi.sa/en/sectors-opportunities/tourism-culture-entertainment
41.
BCG project experience
42.
https://www.arabnews.com/node/1798271/corporate-news

BOSTON CONSULTING GROUP 12

On the other hand, the index also indicated where KSA can appears to be mainly a cultural issue. KSA banks already
develop further, including the rising number of secure offer a wide range of services, and some are online-only, so
internet servers, and to a lesser extent, increasing the the barriers do not seem to be due to a lack of infrastructure.
share of individuals with accounts at financial institutions, A recent survey shows that the most common reasons why
and postal reliability (see exhibit 10). While servers and Saudis do not have a bank account are a lack of financial
postal service as infrastructure matters are already resources and relying on a family member’s account. 43
being improved, consumers’ possession of a bank account

Exhibit 10

Saudi Arabia’s Results In The UN E-commerce Index Show Areas For Development

UNCTADB2C e-Commerce Index KSA 2020 results

Share of internet Share of people with Secure internet Postal reliability

users financial account servers score

Index result:

96 72 43 78

Source: United Nations Conference on Trade and Development 2020

43.
https://kkf.org.sa/media/ipuh5olx/2-financial-inclusion-in-saudi-arabia-2018.pdf

13 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

Saudi Arabia’s population distribution is another factor that is very low, with 16 people per square kilometer (the global
gives e-commerce an advantage over conventional retail. average is 55).44Even when one considers the country’s
Though 13.9 million of the Kingdom’s total population of large, virtually uninhabited areas, effective retail coverage
34.8 million people are located in the three major cities – of the remaining population by brick-and-mortar stores
Riyadh, Jeddah, and Mecca – the overall population density remains challenging (see exhibit 11)

Exhibit 11

Saudi Arabia Has Very Uneven

Sakakah
Population Distribution With
Three Key Metropolitan Areas Tabuk
North

Persons per km2 Dammam

Medina

>1001 6-25 Riyadh

West
Central
Jeddah
Mecca
East
251-1000 1-5

26-250 0 South

Source: Elsevier, Volume 33, March 2018, Pages 98 - 105

With all of this in mind, the rapid development of e-commerce, double to USD 2 billion by 2025.45 The Kingdom is also
in parallel with the maturing traditional retail sector, will well positioned to become a regional e-commerce hub,
allow Saudi Arabia to better upscale its overall retail reaching most Middle East markets. This would provide
offering and do it in a shorter timeframe. Development Saudi firms with expansion opportunities and lead to
of e-commerce and overall enhancement of digital the creation of more jobs, foster an entrepreneurial
infrastructure are key national strategic priorities included culture, and attract the best and brightest from the
in Vision 2030. E-commerce will also help drive economic region and beyond.
growth, with the domestic online market expected to

44.
https://worldpopulationreview.com/world-cities/
45.
Statista, E-Commerce in Saudi Arabia Report, 2021

BOSTON CONSULTING GROUP 14

E-commerce for Economic and
Social Development
The additional boost in retail spending expected from – with the placement of those products on convenient
e-commerce stems mostly from two sources: making more platforms. Large players can be willing to collaborate with
products available to a larger segment of Saudi Arabia’s smaller businesses, as Noon.com’s approach shows.
population, and capturing retail spend currently conducted Setting up a new vendor profile on their platform can be
abroad. done online and takes less than a week.48 This type of
opportunity corresponds well with wider societal changes,
Developing e-commerce has another economic and social as younger Saudis seem to be more entrepreneurial.
benefit: the skills and technologies it requires are equally More than 40% of Saudi youths say they want to start their
suited to support other industries, especially logistics. The own business within five years. 49
rise of last-mile delivery players and the establishment of
advanced fulfillment centers to support e-commerce could For young entrepreneurs, e-commerce is a viable and attractive
also lead to the creation of a logistics hub in the region, option for selling their products. Small businesses usually
which is another priority outlined in Vision 2030. create connections with customers based on shared values
and good customer service. These can be communicated
And then there are the jobs that the e-commerce industry will especially through conversational commerce. It enables
generate at a variety of skill levels, including managerial and customers to get support, ask questions, get personalized
tech-enabled positions with IT competencies. The number recommendations from company representatives and
of low-skilled jobs in operations will likely be limited due to subsequently purchase the product within messaging
automation and the deployment of modern technologies. applications.

These jobs will appeal to the Saudi workforce, especially Furthermore, establishing an e-commerce industry is spurring
positions in technological, creative, and entrepreneurial development of diverse technological service providers that
areas. Overall, e-commerce jobs will present viable are needed to come up with payment platforms, website
employment for the local Saudi population. This trend is design, and optimization software, among other solutions.
already unfolding. Amazon recently announced 3,400 new Government institutions, such as mada, have provided central
jobs in Saudi Arabia, and Saudis comprise 60% of Amazon’s payment platforms that should be further developed for optimal
permanent workforce there. 46 The numbers look even connectivity and technological growth in the private sector.
more positive for local players, with Noon.com providing
jobs to approximately 8,000 people, and maintaining one of Beyond purely economic outcomes, e-commerce can also have
the highest Saudization rates in the private sector. a significant social impact in rural areas, which are currently
underserved by brick-and-mortar stores. Historically,
A thriving e-commerce sector supports entrepreneurial e-commerce has a much deeper geographical reach
activities in several ways. E-commerce has low barriers to through centralized fulfillment centers that can economically
entry for smaller players. Niche retailers could enter with deliver products to remote areas. Indeed, major e-commerce
limited investment using the newly established e-commerce players in KSA now deliver to all addresses in the Kingdom.50
ecosystem. Such start-ups could rent space in an existing In the future, last-mile logistics, coupled with autonomous
fulfillment center, for example, receive competitive services vehicles, will deliver goods in remote areas faster and
from high-quality last-mile logistics companies, and source cost-effectively. Plus, the assortment of goods offered this
technological capabilities from specialized service providers. way will be much larger than physical stores can stock in
Indeed, the Kingdom’s start-up scene, where many such areas.
entrepreneurs are in e-commerce, is enjoying such
momentum. It is heightened by a record-breaking flow of Indirectly, consumer buying power will improve as well.
venture capital funding, which grew 65% in the first half of Increased competition online results in lower prices, price
2021, as compared to the first half of the previous year.47 transparency, and consumers’ ability to compare their
options in real-time.
E-commerce also provides efficient market access for new
consumer products – potentially to millions of customers

46.
https://www.arabnews.com/node/1773031/corporate-news
47.
https://www.arabianbusiness.com/startup/466913-saudi-arabia-ranks-second-in-regions-venture-capital-market
48.
https://help.noon.partners/hc/en-us/articles/360003259293-How-to-become-a-seller-on-noon-
49.
Arab Youth Survey 2020
50.
https://www.arabnews.com/node/1798271/corporate-news

15 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

It Takes a Suitable Business
Environment
80% of Saudis say they will continue shopping online after innovation and improvements. The government has a
the pandemic ends, 51 yet long-term growth and international significant role to play in the process by ensuring that
competitiveness can be achieved only through continued these areas are supported (see exhibit 12).

Exhibit 12

Five Key Enablers Can Significantly Improve Business Environment for E-commerce

International
Last-mile logistics
1 2
shipment

Enablers

Incubators &
5 3 E-payment
domestic players
adoption

Internet connectivity

Source: BCG analysis

1. Last-mile Logistics

As discussed previously, logistics is a major enabler in service. 52 Easing the entry of new players and incentivizing
e-commerce. Even so, last-mile logistics is a critical pain existing ones to invest in new fulfillment centers and
point in Saudi Arabia. Delivery prices are high, and logistics delivery solutions through relaxed legislation and regulations
players do not offer fast delivery options with comprehensive would lead to a more effective distribution network.
geographic reach. Next-day delivery is offered by key
players such as Amazon or Noon.com in major cities, yet Communication with customers about the delivery date and
delivery takes Amazon four to six days in rural areas. time – via chatbots, for example – would create the
Moreover, customers are not satisfied with existing courier opportunity to notify them all along the delivery process
services, due to their slow process and poor customer and flexibly respond to their needs regarding delivery timing.

51.
E-commerce in Saudi Arabia, Statista Report 2021
52.
https://www.okaz.com.sa/economy/na/2026081, https://expandcart.com/en/28835-top-challenges-facing-e-commerce-in-saudi-arabia/

BOSTON CONSULTING GROUP 16

2. International shipment credibility and number of e-payment methods also drives
the revenue in the whole market, both by increasing the
Considering the overall logistics value chain, cross-border current customer spend online and by bringing in new
processes are at the core of e-commerce business models. customers.
Customs procedures have become more reliable and faster
recently, with a target of processing shipments within 24 4. Internet connectivity
hours and all paperwork consolidated in one online form.53
Custom clearance can now be completed online before a Saudi Arabia’s digital infrastructure is fairly advanced,
parcel arrives in KSA, further speeding up the process. compared to other markets with stronger e-commerce
industries, as we mentioned earlier. The country has shown
Recent changes in import taxes have affected the great progress in internet connectivity and coverage in the
cross-border flow of goods. 54 Clear and timely communi- past few years, leading the fifth-generation (5G) countries
cation of changes to regulatory and tax systems, together in network coverage and speed – and becoming the
with import taxes levied only on key segments, would help country with the fastest mobile internet connection as of
domestic retailers ease the process of bulk international January 2021.56
shipments from global manufacturers and vendors to local
retailers. Striking the right level of support for domestic 5. Incubators and domestic players
players is key to still attract international players and
their best practice while providing space for domestic and KSA’s traditional retailers have generally been slower to
regional players to fully develop and compete. embrace e-commerce, due mostly to order fulfillment
challenges and costly operating models. Amazon presents
3. E-payment adoption a challenge to local and regional retailers, so KSA needs
to ensure a system exists that nurtures these businesses,
The Kingdom recently made great strides in introducing and at the same time incentivizes foreign ones to localize
new and different payment methods through the Monetary while still promoting fair competition to help domestic
Authority’s subsidiary, mada, which enable popular tech- e-commerce develop.
nologies such as ApplePay and debit-card online payments
that were not possible before. However, recent studies Current incubators in KSA and GCC region can also help
show that cash-on-delivery remains the most popular entrepreneurs pursue new projects in e-commerce and
payment option in KSA with 25% of e-commerce build communities for sharing knowledge and information.
transactions completed in cash in 2020. 55 For all-around The annual SIDMC 57 conference brings global leaders
efficiency, convenience, and security, retailers need to offer together with local e-commerce champions to share
both electronic and cash payment options despite the know-how that can take Saudi e-commerce to the global
higher cost and possibility of increased returns due to forefront.
customers’ lack of commitment. Otherwise, as competing
retailers offer such options, laggards could lose a signifi-
cant proportion of their customer base. Increasing the

Looking at the Long-term Benefits

E-commerce is the driving force of today’s retail, globally The right set of governmental policies can help advance
and in the GCC region, as a standalone service or as part of infrastructure, change citizens’ habits and allow local
an omnichannel offering. With Saudi Arabia’s high digital players to flourish, turning the Kingdom’s retail sector into
affinity and relatively below-average brick-and-mortar retail a digital powerhouse and regional hub, and making Saudi
infrastructure, it is indeed a fertile environment for the e-commerce a pillar of the GCC economy.
rapid proliferation of online shopping. The influence of
COVID-19 allowed us a valuable look into how e-commerce
can grow, and its momentum should be maintained.

53.
https://www.customs.gov.sa/en/node/1222
54.
https://santandertrade.com/en/portal/international-shipments/saudi-arabia/customs-procedures
55.
https://www.statista.com/outlook/dmo/ecommerce/saudi-arabia
56.
https://www.speedtest.net/global-index/united-arab-emirates#mobile
57.
Saudi International Digital Marketing and E-commerce Conference, held in April

17 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

About The Authors

Pablo Martinez is a Managing Director and Senior Chris Biggs is a Managing Director and Senior Partner in
Partner in the Dubai office of Boston Consulting Group. the London office of Boston Consulting Group. He is the
He is the head of the Consumer Goods practice and the global sector leader for BCG’s Retail practice. He also
leader of the Strategy Practice for the Middle East. You leads BCG Digital for Retail. You may contact him by
may contact him by e-mail at [email protected] e-mail at [email protected]

James Brindley is a Managing Director and Partner in Monika Cernikova is a Principal in the Prague office of
the Prague office of Boston Consulting Group. He is a Boston Consulting Group. Monika is a core member of
core member of BCG’s Consumer practice and supports BCG’s Consumer practice, focusing mainly on Retail.
retail clients from across geographies, including the She has spent several years working with clients across
Middle East. You may contact him by e-mail at GCC. You may contact her by e-mail at
[email protected] [email protected]

BOSTON CONSULTING GROUP 18

Acknowledgments
The authors are grateful to the broader team of BCG colleagues and alumni whose insights and experiences contributed
to this white paper, and in particular, Huseyin Erol, Davide Camisa, Sophia Frempong, Martin Zak, Dora Mocsinka,
Max-Christian Rath, Jakub Caloun, Sarah Alsalem, and Lea Uhliarova.

This BCG insight paper was prepared in collaboration with Meta, and namely:

• Suha Haddad: Director of Agencies & Ecosystem Development – MENA

• Leen Fakhreddin: Creative Agency Partner – MEA
• Anna Germanos: Head of CPG, Retail & E-commerce, MENA

19 THE SAR 50 BILLION E-COMMERCE OPPORTUNITY IN SAUDI ARABIA

BOSTON CONSULTING GROUP 20
Back Cover