Strong earnings growth expected to continue despite Saudization
Saudi Arabia’s retail sector is set to continue growing according to a new report, despite concerns over wage inflation due to Saudization of jobs.
The NCB Captial report says that expansions through the openings of new stores, margin support from economies of scale, and consolidations of fragmented markets are key drivers of profit growth, but that price-led competition remains a key concern.
Head of equity research at NCB Capital, Farouk Miah, also admitted that “the coming twelve months will be difficult due to low organic sales growth, as well as pressure from Saudization.”
Saudization is the drive to encourage employment of Saudi nationals in the private sector, which in recent years has been dominated by expatriate workers. In some cases wages have been inflated to encourage nationals to take up jobs.
Miah went on to explain that consolidation of fragmented sectors dominated by independent stores is a key theme for the retail market, saying: “Extra, Jarir and Al Othaim are well positioned to benefit from this structural trend in their respective sectors, leading to 30-50 percent expansion in their store count over the coming five years.
“Al Hokair has already consolidated the Saudi mid-market fashion segment, with potential growth coming from expansion in the value-segment and opening stores abroad.”