Retailing in Saudi Arabia

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Outline

In Saudi Arabia, the retail business accounts for a large percentage and is very dynamic in the business industry. The business set up in the retail industry is seen by many as a success because of the friendly environment created by the various factors. For example, the country produces oil that makes it very strong economically when compared with other countries dealing with retail business at the global level. Research has shown that the retail market enjoyed a friendly environment created by the financial crisis in America through imported goods. The retailers also follow efficient strategies and business tips that enable them to survive in the competitive market. This includes advertisements that spend a lot of money annually as well as a close link to their customers.

Introduction

Retailing in Saudi Arabia comprises of selling of goods from a particular place such as shop as well as through posting and is normally done in small quantities by an individual who is usually the direct consumer. Other services that may accompany retailing include delivery of the goods. The one who purchases the goods can be a business or just an individual where goods are bought from importers or local manufacturers. The purchase can be direct as well as through a wholesaler where the same goods are later sold in reduced quantities to the final consumer. The whole process follows a chain that is characterized by the retailers completing the process and aggressive marketing along the chain to promote awareness of the goods as an important strategy. The outlet of the retail shops may be located near the residential areas or along major streets that may not be necessarily residential as well as shopping centers. However, most of the retail shops are located in the central business district and where they are located along the streets, they target pedestrians. With the recent form of technology introduced through the internet, much significant retailing in Saudi Arabia is going on online; better known as e-commerce or as non-shop. The main objective of shopping through retailing is a way of obtaining basic needs such as clothing and foodstuffs. Research however has shown that it can also be done as a form of recreational activity characterized by window shopping where the customer goes looking for the goods without buying, sometimes resulting in the prospective purchaser not buying the items at all (Gesteland, 1996).

The setting of retail prices

Studies have shown that the majority of retailers prefer cost-plus pricing to other techniques that are done through the addition of a mark-up percentage to the cost of the retailer and this determines the profit margin that the retailer is going to obtain. Another method of fixing the prices of the goods in the retailing market is through suggested pricing that is commonly done by the manufacturers and is characterized by the price of the commodity being marked on the sold product. This means the retailer has no chance of fixing his/her own price. Retail pricing in western countries is commonly known as psychological pricing where they are displayed on labels. Studies have shown that pricing can be discriminatory because of various reasons and this involves the retailer fixing particularly higher prices to some individuals while reducing the price for the same commodity for others especially if he/she realizes the willingness of the customer to buy the commodity is low. This is caused by a number of reasons such as determination of buyer’s wealth by the retailer and carelessness of the buyers as well as little knowledge about the price of the commodity by the buyer that may even be made worse if the buyer is too eager to have the commodity. Another commonly used practice in the fixing of the prices is to provide a discount to students as well as youths (Miller, 1980).

Transfer of goods in retailing

A consumer of goods may have goods of interest from the retailer through a number of mechanisms that are designed to fit the status quo of the prospective buyers. One of such mechanisms is counter service where the buyer is not in a position to obtain the goods he/she wants and has to rely on the seller. Goods that are normally transferred through this mechanism are those that are small but expensive such as jewelry as well as controlled goods such as drugs and alcohol. This mechanism was very popular in the US before 1900 and research has shown that it is still popular in some countries. Another mechanism used for goods’ transfer is known as self-service where the buyer has the opportunity to handle the goods of his/her interest sometime before he/she makes the decision to buy the good. This method has gained popularity for close to a hundred years now. The delivery mechanism is another form of transfer where the commodity is transported directly to the final user in his/her place of residence or workplace. The mechanism makes use of mail orders or a telephone call based on the advertised goods in the catalog as well as from other forms of advertisements such as newspapers and television. Online shopping has gained popularity in Saudi Arabia as well as globally since 2000. The person directly involved in the sale of the goods may also decide to travel with the goods from door-to-door and this does not require the end-user to have ordered the goods (Katakura, 1977).

Types of a retail building in Saudi Arabia

The retail market refers to the place where most of the customers meet to make a common buying or selling of goods. Most of the retail markets are located in the town squares or along busy streets and do not have to necessarily include permanent structures and therefore most of them are in form of stalls. However, retail buildings having been changing in design over time where initially, the stalls could handle just one type of article in a covered marketplace that was mostly adjacent to the producer. Today, it is common to find several shops adjacent to each other and selling different articles in a general store. In such cases, prices of goods are usually fixed to minimize the problem of haggling and enhance browsing (Shankarmahesh, 1990).

Genres in retailing

This refers to the mode of operation of the retail shops such as the type of goods being sold. For example, a retail shop could be selling specifically new or second-hand commodities especially if it is a profit-making retail shop. If the shop is non-profit, individuals may volunteer to donate different commodities to a particular shop for sale or to be given for free. The retail shops could also be functioning on a consignment basis where people place items in them and if they happen to be sold, the owner of the shop benefits from a certain percentage of the profit generated. This form of the genre is advantageous in that, the shop exposes the available goods to more able buyers (Hassan, 1994).

Techniques of retail selling

Research has shown that there are several factors that are considered in retail selling other than just selling. In Saudi Arabia, owners of big corporations share similar characteristics where they try to beat their competitors through massive advertisement. They hire companies that are popular in merchandising solutions to design for the displays that are workable for the best advertisement in their stores. This is aimed at attracting a large number of buyers through a particular demographic and the retailers end up spending a lot of capital in this strategy alone on yearly basis. The program for the promotion however has to match the season and so it keeps on changing with the change in the products. Studies have shown that retailers may even go to an extent of using facing in order to bring a new outlook for the available goods even when this is not real. Another technique commonly used in retail selling is where a group of customers will agree to make a common visit to the particular shop that could be acting as an anchor mall supplying smaller retailers (Attia, 1999).

Trends of retailing in Saudi Arabia

The insight of the retailing market in Saudi Arabia highlights the major issues affecting the retail industry such as retail channels in the sector. These channels are made of department stores, a retailer in food products as well as health and cosmetic products, clothing, furniture, and retail goods for households. There are well-established profiles of major retailers that provide analysis of their performance as well as their challenges in the retail market. Retailing in Saudi Arabia comprises alternate channels such as kiosks, online retailing, shopping at home as well as service stations. Research has shown that the Saudi retail business is among the largest retail industries and is very dynamic in the market. As far as the current values are concerned, they reached the peak of the retail industry in 2007 which was far beyond the past records. The fact that Saudi Arabia is an oil-producing country has contributed significantly towards the growth of the economy in comparison with other countries in the world. Currently, the economy is enjoying the increase in the price of oils at the global level. The retail market industry has also been favored by the socio-demographic factor where the growth of the population is estimated at 3% in 2007. The increase in the cost of fuel has been seen as the major factor favoring the retail market. Research shows that this affected to a great extent most of the imported goods such as groceries as well as other products. Statistics from the central department have revealed that the rate of inflation was recorded as the highest since 1999 where it reached 3% in 2007. This sudden increase in the retail prices was caused by a decline in the value of the dollar which has a great influence on the Saudi riyal. This consequently increased the price of goods that were imported from Europe. Research has shown that the retail market in Saudi Arabia continued to enjoy a favorable environment from other hidden factors that impacted positively on the general market. Some of these factors included a review in legislation in early 2007 in retail trade that paved a friendly path to investments in foreign countries. Disposable income from per capita also increased, real state industry started to experience booming and the majority of giant retailers designed aggressive plans to expand their business in the course of the year (Gesteland, 1996).

Effects of the strong gains by major retailers

Studies have indicated that strong gains are associated with a faster concentration process in Saudi Arabia. The retailing market has consequently become fragmented with a characterization of single-outlet channels being witnessed in major retailing markets and independent grocers. This has also spilled to a specialist in food as well as retailers in personal goods and leisure. However, a close analysis of the trend shown by past review in the previous years, 2007 experienced more gains with giant retailers operating chained outlets and this increased concentration process. Among the major dynamic retailers that lend in the market were: Azizia panda, Al Bandar trading, Axiom telecom Al Sawani group. These retailers enjoyed strong gains because they were aggressive in expanding their business by increasing the volume of outlets and thus the space for selling their goods (Miller, 1980).

Contribution by non-grocery retailers

In 2007, retailers dealing with non-grocery goods also had a continuous share of the favorable retailing business where studies have shown that they registered even higher gains than those dealing with grocery. A higher percentage of the non-grocery retailers dealt with clothing as well as footwear, household furniture, and non-perishable goods such as leisure products. This kind of goods brought a high-profit margin because of the booming experience in real estate as well as aggressive expansion by the major retailers. In the majority of shopping malls, a lot of influence is being felt from key players of multinational as well as local brands such as Mothercare, Esprit, and next that are dealing with fashions in clothing. An increase in per capita income is also creating a friendly environment for these shopping malls owned by the majority of Saudis. Another contributing factor for the booming business in the retails business in Saudi Arabia especially for non-grocery goods was the high demand for mobile phones, laptops, and many other recently discovered technology goods (Katakura, 1977).

Retail business forecast in Saudi Arabia

The projected growth in the sale of products in the retail project by the year 2012 is expected to exceed 5% per annum. This sudden growth in the retail market will proportionately increase the spending power as well as impact positive progress in the living standards of many people. Research has shown that this will consequently make major retailers expand their industries. Most of the citizens of Saudi Arabia are therefore likely to have more buying power through an increased workforce and increased establishment of shopping malls as well as hypermarkets. There is also a high likelihood of an increased number of retailers dealing with durable goods and expansion of furniture stores. All these stores have extensive spaces and this continues to increase every year in Saudi Arabia (Shankarmahesh, 1990).

Tips aimed at increasing retail sales

Sometimes retailers face what is commonly known as a slump because of factors that are beyond their control and also because of seasonal sales as well as a reduction in foot traffic. However, the retailers in Saudi Arabia normally make use of the following tips to survive during such times. First, they advertise more especially at times when sales seem to be declining to match with the market competition. Another tip normally used is to create a buzz anytime something noteworthy takes place within the retail business. This is done by sending the concerned information to the media houses with an intention to influence them to have free coverage if the media finds it necessary. This can also be enhanced through more participation in community events such as organizing community classes and several meetings in the retail shops.

Most retailers in Saudi Arabia normally consider a close analysis of their strategies in pricing whenever they purchase products. They ensure the cost of goods is properly considered and the concerned retail shops have the capacity to generate a high-profit margin through the same price that has been fixed. The cost of the fast-moving goods is made competitive while at the same time the retailers ensure that they are profitable. However, research has shown that the right price is that which is affordable to the majority of the final consumers of the products because they increase the will of the customers to have the products.

Studies have shown that the design of a particular retail store has a great impact on the number of sales that are made within a given time. Most retail markets benefit from the opportunities provided by the strategies of cross-merchandize as well as opportunities for impulse sale. Other important tips that can greatly impact the designing of the retail stores include good lighting as well as creativity in the display of the products because studies have shown that, this attracts a lot of customers. In addition to this, the product’s education is enhanced through the use of videos and other forms of entertainment for the customers as well as any other promotional tactic (Hassan, 1994).

Conclusion

Retailers ensure that they are well linked to their customers for efficient delivery of excellent service to them as a way of increasing the volume of sales within a short time. The link also enables the retailers to give attention to their customers and satisfy their needs all the time. It is also common to find all the retailers making effort to appreciate the business with their customers as well as letting them know about how they recognize their contribution to the business. Research has also indicated that retailers in Saudi Arabia go an extra mile to educate their customers on the various issues regarding the products they are dealing with including their usage. This link with the customers by the retailers is enhanced if the customers are provided with a mailing list in which they fill their contact details. For a successful retail business, it is also very important for the retailer to ensure that the business money is managed properly although this is normally assumed by most people who think it is an obvious step in any business. This is important because sometimes the retailers are too busy with major activities regarding the business ignoring minor details of their business through which they end up failing to account for some financial transactions. To avoid such occurrences, retailers are advised to prepare budgets because this is the only way that they can account for every cent spent as well as having a good follow-up of the cash flow.

References

Gesteland R. (1996): Cross-cultural Business Behavior: Handelshojskolens Forlag pp. 46-53
Miller A. (1980): Saudi Arabian Oil and American Foreign Policy: University of North Carolina Press pp. 34-38
Katakura M. (1977): A Study of a Saudi Arabian People in Transition: University of Tokyo Press pp. 29-333
Shankarmahesh C. (1990): footwear exports in the semi periphery: Greenwood Press pp. 67-73
Hassan S. (1994): Global Marketing: Perspectives and Cases Dryden Press pp. 97-103
Attia A. (1999): Marketing ethics: a comparison of American and Middle-Eastern marketers: Elsevier pp. 49-54

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