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Mon 25 Jan 2016 04:11 PM

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Saudi consumer spending growth slowing, says retail giant

Jarir chairman says low oil prices hitting households' disposable income and geopolitical tensions making shoppers more cautious

Saudi consumer spending growth slowing, says retail giant
(Getty Images - Photo for illustrative purposes only)

Growth in Saudi Arabia's consumer spending is slowing as low oil prices hit households' disposable income and geopolitical tensions make shoppers more cautious, the chairman of one of the kingdom's top retailing chains said.

The slide in the oil price from over $100 a barrel in mid-2014 to just over $30 has forced Saudi Arabia, the world's biggest crude exporter, into budget cuts that have eaten into the income of many Saudis working in the public sector, crimping their spending power.

Muhammad al-Agil, chairman of Jarir Marketing Co, said he did not expect the slowdown to be as serious as an oil price crash that hit Saudi Arabia in the mid-1980s, halting his company's expansion for a year.

Jarir would continue to grow by taking market share from competitors and opening more stores, he told Reuters in an interview.

But Agil said Jarir, which sells books, office supplies and consumer electronics from 33 stores across Saudi Arabia, as well as six in other Gulf countries, was feeling a slowdown that had begun in earnest during the past six weeks.

"Definitely people's wallets are getting smaller," he said, adding: "When people are worried about anything, they spend less, especially on the unnecessary (things)."

Jarir's experience suggests the Saudi economy may continue to lose steam early this year. The government began cutting state spending in the second half of 2015 as the plunge in oil prices pushed its finances deep into deficit, but for most of that period, consumers continued to spend freely.

Now that private consumption has lost some momentum, economic growth may fall considerably from last year's rate of 3.3 percent. Private consumption accounted for 41 percent of gross domestic product in the third quarter of 2015.

Agil said the government's spending curbs had cut overtime payments and other bonuses to employees in the public sector, where most Saudi citizens work, and may have reduced their income by about 10 percent in this way.

Meanwhile, geopolitics has dampened consumer sentiment, he said. Saudi Arabia has been embroiled in a military intervention in Yemen since early last year, and cut all ties with Iran this month when its Tehran embassy was attacked by Iranian protesters after the kingdom executed a leading Shi'ite cleric.

Total consumer spending is continuing to grow, although at a slower rate, because spending on staple goods is holding up, but spending on discretionary items such as consumer electronics is shrinking, Agil said.

The slowdown made itself felt in Jarir's fourth-quarter earnings. Net profit edged up just 1 percent from a year earlier to 208.1 million riyals ($55.5 million) while turnover fell 3.8 percent to 1.52 billion riyals, even though the company opened new stores during the year.

But Agil said he would not abandon the company's plan, announced last year, to invest 1.1 billion riyals over five years to open six to seven new stores annually at home and abroad. In addition, it test-launched an e-commerce operation this month.

Agil insisted that Saudi Arabia's young and growing population, as well as a trend for women to join the workforce - boosting families' income even in tough times - meant it still made sense to invest in an era of low oil prices.

"We have come through difficult periods before and the economy was able to adjust," he said, recalling the oil price crash of the mid-1980s as well as another major slump in the early 1990s.

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