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Saudi Arabia poised to become the Gulf’s most competitive e-commerce market
Al-Monitor Pro Members
Samuel Wendel
Senior Market Research Analyst, Al-Monitor
April 22, 2023
The UAE has long been the Gulf’s most dynamic e-commerce market, a regional hub for industry players from Amazon to Uber. However, Saudi Arabia’s digital economy is developing rapidly and the kingdom could soon overshadow its smaller neighbor as the region’s most competitive e-commerce market. But who will be the dominant player? The logical candidate is Riyadh-based Noon, famously launched with $1 billion in funding to take on Amazon — a move that remains a work in progress. In April 2023, Noon revealed it had cut about 10% of its workforce, which comes after seeing significant losses in recent years. It likely won’t get any easier going forward: competition is set to accelerate in Saudi Arabia, with an intriguing new player expected to enter the online retail market in 2023.
- Following surging uptake during the pandemic, e-commerce continues enjoying strong growth in the Middle East and North Africa. The region’s e-commerce market value hit $37 billion in 2022 and is projected to reach $57 billion by 2026, representing an 11% compound annual growth rate (CAGR) between 2022-2026, according to an industry report from UAE e-commerce freezone EZDubai, published in collaboration with Euromonitor.
- That said, market projections vary overall, but generally point to steady growth, with Saudi Arabia and the UAE clearly the largest e-commerce markets in the GCC. Data research firm Statista projects Saudi Arabia’s e-commerce market revenues will reach $11.98 billion in 2023, with the UAE’s hitting $11.78 billion, before rising to $20.16 billion and $16.37 billion by 2027, respectively. That would reflect a 13.90% CAGR for Saudi Arabia between 2023-2027 and 8.57% for the UAE.
- Meanwhile, EZDubai tabbed Saudi Arabia’s total e-commerce market size at $6.6 billion in 2022, compared to $5.9 billion in 2021, while expecting it to reach $9.2 billion by 2026. Correspondingly, the UAE’s market size was $5.9 billion last year and could be worth $8.8 billion by 2026. That would reflect a 9% CAGR for both countries between 2022-2026.
- Interestingly, Saudi Arabia’s Ministry of Commerce has noted that the total volume of cross-border e-commerce in the kingdom in 2022 amounted to 190 million packages, with a value of $29.6 billion, with the top countries that Saudi-based consumers bought products from online including China and the US.
- According to a 2022 regional survey conducted by Checkout.com, 91% of Saudi consumers now use e-commerce — the exact same rate as MENA consumers overall, while 96% of UAE consumers reported using e-commerce.
- The survey also found that 14% of Saudi consumers shopped online at least daily, while 9% of GCC consumers spent money online at least once daily. Meanwhile, 78% of Saudi consumers reported they will maintain or increase their current level of e-commerce spending into 2023, compared to 80% of UAE consumers and 88% across MENA.
- Saudi Arabia’s government is keen to promote the fintech underpinning e-commerce, which includes a goal to increase electronic payments to 70% overall by 2025. As of 2022, electronic payments in its retail sector reached 62% overall, according to the Saudi central bank.
- When it comes to Saudi Arabia’s competitive landscape, rivals Noon and Amazon rightfully garner most attention. However, there were over 33,000 online retailers or e-commerce businesses registered in the kingdom at the end of Q1 2023, according to the Saudi commerce ministry.
- That said, Saudi Arabia’s most visited e-commerce site is actually online classifieds portal Haraj. Noon ranked second, China’s Aliexpress third, followed by classifieds site Opensooq and then Amazon, according to Israeli web analytics firm Similarweb. Amazon.ae is the UAE’s top site, followed by Opensooq, classifieds portal Dubizzle, Noon and then Amazon.com (the global site).
- Although Noon initially launched in 2016 in Dubai, the company now lists Riyadh as its headquarters and has operations spanning the UAE, Saudi Arabia and Egypt. Its backers include billionaire tycoon Mohamed Alabbar and Saudi Arabia’s Public Investment Fund; both own 50% stakes.
- Since launching, Noon has been burning through capital: the company recorded losses of at least $500 million between 2020 and 2021, according to a PIF prospectus. Also, Bloomberg reported in April 2022 that Noon had cut about 10% of its roughly 3,400-strong workforce. Layoffs including roles in marketing, advertising and other departments and were intended to increase efficiency and reduce costs. “We’ve been cutting costs and reducing staff for the past year and a half,” said Alabbar in an interview, while adding that those moves were now done.
- Alabbar reported that Noon’s cash burn rate had fallen drastically and margins were improving, lessening the need to raise an additional $2 billion — a prospect the billionaire raised in 2021 to help Noon upgrade its infrastructure to speed up deliveries.
- Those cuts also came amid continued expansion: in 2022, Noon opened a new 45,000 square meter customer fulfillment center in Riyadh, while also breaking ground on an Abu Dhabi fulfillment center scheduled for completion in 2024. In February 2023, Noon also completed its $335.2 million acquisition of online fashion retailer Namshi from Emaar (which was founded by Alabbar).
- Meanwhile, Amazon also continues to invest in Saudi Arabia, which includes opening a new Riyadh office in October 2022. It currently has 12 operations sites in the country, according to its website.
- Notably, in June 2022 it launched its Delivery Service Partner program in Saudi Arabia, allowing local sellers to establish and manage their own logistics businesses delivering Amazon packages. Saudi Arabia is the region’s first country to feature the program, which Amazon launched in collaboration with the General Authority for SMEs.
- Interestingly, government partnerships could in theory expose Amazon to Saudi Arabia’s new multinational headquarters law, which requires firms to establish regional head offices in the kingdom in order to access government contracts.
- Looking ahead, Saudi Arabia’s e-commerce landscape is set to welcome Cenomi — that’s the new brand identity of the Saudi retail giant Fawaz Alhokair Group. In December 2022, the group announced a rebrand and simultaneously outlined a new push into e-commerce.
- That’s supposed to see it launch Cenomi.com during 2023, a new e-commerce marketplace focused on fashion, beauty and lifestyle and underpinned by its massive footprint consisting of 1,700 stores. The marketplace will use a model similar to Noon and Amazon by including third-party sellers alongside its existing brands.
Scenario 1: Noon’s performance underwhelms going forward.
Rising competition in Saudi Arabia sets off a price war and Noon’s market share comes under threat. It continues posting losses, forcing it to seek a sizable injection of funds to keep up, while rethinking regional expansion plans.
Still, Noon isn’t the only growing tech player cutting costs and posting losses — and few have the financial firepower of the PIF and Alabbar behind them. Saudi Arabia’s market also has significant room for growth, with Noon in a leading position already.
Scenario 2: Saudi Arabia pries aways e-commerce business from the UAE.
Government efforts to entice multinationals to relocate sees e-commerce and fintech companies setting up regional headquarters in Riyadh. This comes at Dubai’s expense, with Saudi Arabia’s market potential proving too good to pass up.
Yet, it’s highly unlikely that the UAE will see an exodus of e-commerce business. It’s still the more mature market and remains an ideal regional entry point for global players.
E-commerce competition intensifies dramatically in Saudi Arabia in 2023, forcing Noon to focus more resources on protecting its market position as Amazon beefs up its presence and Cenomi launches. That sees more investments, new partnerships, increased hiring and new efforts to woo customers from both players. The Saudi government is likely to continue pushing sector growth too and efforts to attract more global business could easily see more e-commerce, logistics and fintech players relocate to Riyadh. Ultimately, the Saudi e-commerce market remains immature compared to the UAE, but the kingdom — with a population of roughly 36 million — has far more untapped opportunities than its smaller neighbor and could easily surge past growth projections in 2023.
Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.
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