To think that malls are going to be a safe haven for retail businesses a decade from now in the Gulf or elsewhere is simply irrational. 

Ankush is a journalist hailing from India, who has edited and written for publications in his home country, the UAE, US, and UK. Previously the editor of Gulf Business in Dubai and of Entrepreneur in India, Ankush is a keen student of economics, a follower of Manchester United since 1996 and a disciple of Archer.

In the mishmash of a content disaster that LinkedIn has become, more on which I will write someday, there are still islands where you can sometimes find great conversations, links to stories that the eye might have missed, and just sometimes, a job you are fit for.

In my case, I found an interesting article from Saudi Arabia, which was focussed on malls in the Gulf nation and one of its biggest operators, Arabian Centres.

Conducted when its new CEO Khalid Al-Jasser, a former banker, took over the reins at the organization, the piece provided a fairly good insight on what a major player in the region’s retail space is thinking.

As the man who is leading Arabian Centres, part of the Fawaz Al-Hokair conglomerate, Al-Jasser is at the helm of a company that now has 19 malls—and has 10 more planned for the next two years.

To back up why it will launch 10 in a space that is rapidly changing under assault from the burgeoning e-commerce sector, Al-Jasser gave this reasoning.

“In Saudi (Arabia), the overwhelming majority of people who go to malls are nationals [and not tourists like Dubai, he implied]. They want the full customer experience, which is why our malls are built to such a high standard. We’re keeping an eye on (e-commerce), but Saudi people want to shop in the mall, not from their computer.”

With all due respect to the group and its leadership, this thinking could not be more wrong.

The malls are not going to die, yes, but also, expecting footfalls like that of the past is just too optimistic. Many a big retail brand in the past have fallen to this irrational optimism.

Here are the facts. E-commerce in Saudi Arabia is already booming and is accelerating at a frightening pace. In my talks with many e-commerce companies, almost all of them based out of Dubai, all talk is about Saudi Arabia and how important the market is for them.

Ankit Wadhwa, co-founder of Wadi.com, which raised the biggest Series A round in the Middle East put it in perspective for me a few months back.

“I would like to say here that it’s difficult to sit in Dubai and get the full perspective of what Wadi has achieved so far. About 70% of the region’s GDP comes from Saudi Arabia. The only country in this region with a large, local addressable population for e-commerce is in Saudi Arabia.”

Don’t dismiss that as just another startup entrepreneur making up press-worthy words. The Saudi e-commerce march is on and it is irreversible. This is why.

Young demographics

Saudi Arabia is a nation of approximately 32 million people, of which roughly 10 million are expats, and it currently has a median age of just 28.5 years. And a giant majority of this population are under the age of 24 (approximately 65-70% according to some estimates).

According to one report, as of 2016, the largest concentration of Saudi e-shoppers is currently in the 25-34-year-old age group, with 4 million men, and 1.5 million women, and another 2 million under the age of 24.

By 2020, this age group will grow to 6 million men and 2.2 million women, as more and more of those under 24 enter the 25-34 age group, coinciding with when they will begin earning their own income, post-education. This is the most tech-savvy age group in the country, and it is already conditioned to e-commerce.

Tech penetration 

According to the same aforementioned report, internet penetration in Saudi Arabia is currently at 75.8% and should reach 91.5% by 2020.

In 2017, the number of smartphone users in Saudi Arabia is estimated to reach 21.18 million for a penetration rate of almost 65%. And by 2022, that number is expected to be close to 25 million.

This is significant given that 66% of online shoppers (most under the age of 34) have used a mobile device to make their most recent purchase, with 44% also using a desktop/laptop.

Al-Jasser said that most Saudis people want to shop in the mall, not from their computer. I am afraid the game is already changed and that the engagement rates on mobile phones for e-commerce players are only skyrocketing.

It would not be long before mobile commerce is the dominant form of e-commerce in the region, as it will be in the rest of the world, as companies make giant strides to making the mobile experience simpler and faster.

Social media is unstoppable

According to a report from Euromonitor, Saudis are some of the most engaged people in the world when it comes to social media. It currently has the highest Twitter penetration in the world and generates some 90 million views on YouTube every day.

In addition, there are around 8 million Saudi subscribers to Facebook and the country ranks second in Snapchat usage globally, with continued growth still being seen in these areas.

Forget the fact that it is progressively getting easier and cheaper now to sell something directly off social networks such as Instagram, and that it is markedly cheaper to market something on social media.

Can you first reconcile the idea of a 19-year-old, compulsive Instagrammer going to the mall to hunt multiple stores to buy a sneaker instead of doing the same with five clicks on his mobile phone?

A changing KSA

This is not such a clear mathematical factor as those above, but it is still something to ponder about from a cultural point of view—not as much with the growth of e-commerce but to the decline of mall footfalls.

As anyone would attest, Saudi Arabia is one of the most conservative nations in the Gulf, and indeed in the world.

This conservativeness extends to forms of entertainment or rather the lack of it in the Kingdom. Cinemas are banned in the kingdom since the 1970s and there have been almost no concerts or music-focused events in the country till this year.

Consequently, many Saudis consider malls to not just be shopping centers but also entertainment centers. Shopping is synonymous with entertainment.

But the Saudi government is determined to shake up things under the Vision 2030 reforms announced by Crown Prince Mohammed bin Salman bin Abdulaziz last year, aimed at opening up the entertainment scene, and creating both jobs and new revenue.

It is not difficult to theorize that when amusement parks, cinemas, concerts, and events pop about in numbers, malls will no longer hold the allure that they have now.

 

In my opinion, to think that malls are going to be a safe haven for retail businesses a decade from now in the Gulf or elsewhere is simply irrational.