As coronavirus takes its toll on economies and businesses across the globe, Retail Week brings you regular dispatches from international retailers and experts, who provide their insights into how they are coping with the pandemic.

In today’s edition, Muwaffaq M Jamal, the managing partner of Retail & Marketing Consultancy Group, reveals how retail in Saudi Arabia has benefitted from an increase in VAT – a policy that contrasts moves made in the UK to try and kickstart consumer spending. 

This article first appeared in issue six of World Retail Congress’ report, The Retail World 2020: Retailing in a time of crisis

Recent weeks have marked a new phase in Saudi Arabia. The curfew was completely lifted in a challenging test for everyone to comply with the safety precautions of social distancing, mask-wearing and closed international borders. As the full country was under complete curfew during the Eid holiday, the first phase was critical in ensuring that any passing on of the virus was limited.

By the end of June, the total number of coronavirus cases had reached 190,823, with 130,766 recovery cases and 1,649 deaths. Active cases stood at 58,408. Of these, 2,278 cases were critical and were in intensive care units. The daily rate of new cases rose to a little over 4,000 because of the lifting of the complete curfew, while the daily rate of recovery cases rose to an average of 3,500.

Public offices are fully operational, though high-traffic places such as legal courts are reverting to online services and managing crowds strictly. The same is taking place in the private sector, where employees have not completely returned, with approximately 40% of the workforce still working remotely from home. Some public and private sector offices had to close for an average of one day when cases surfaced among their employees.

Unprecedented sales

Retail performance, on the other hand, has been outstanding.

The authorities announced an increase to VAT from July 1 from 5% to 15%. This drove people wild all over the country and retail outlets were swamped with influxes of customers buying non-food items in order to save on the impending 10% VAT rise.

In only one week, purchases through car dealerships increased 26%. Some luxury brands, specifically in watches, as well as all automotive retailers, managed to achieve their annual targets in the weeks following the announcement.

Some international furniture brands had their stores closed because of the excessive number of visitors. This is not to mention the pressure that built up again on delivery services.

With unprecedented retail sales taking place, it is natural to expect a significant slowdown after July 1. That is also very much anticipated as it follows the Ramadan and Eid periods, which are always a slow time for retail. 

“With the current circumstances, the numbers that are expected to be allowed [to perform hajj] are not going to be exceeding the low tens of thousands”

Similarly, the travel sector is witnessing unprecedented local travel activities. All the west-coast cities are remarkably busy with visitors from all corners of the country. That is driven by the closed borders, which has forced people to take their vacations close to the seaside or in resorts in the mountains, both of which are on the west coast.

This is also expected to grow retail on this coast. The General Authority for Tourism and National Heritage is focusing its efforts to grow tourism activities on the west coast by launching the summer season there. 

Leading into hajj, the authorities announced a limited number of pilgrims to be allowed to travel this year. That will take place during the period from July 29 until August 13.

Usually, the number of people who fly into the kingdom to perform hajj is around 1.8 million and another 700,000 people travel from within the country, making the total an average of 2.5 million to 3 million people.

With the current circumstances, the numbers that are expected to be allowed are not going to be exceeding the low tens of thousands.

Some procedures were announced for those who are interested in performing hajj, such as only allowing those below the age of 65, social distancing and, most importantly, being quarantined for two weeks after the pilgrimage. This will for sure have a major impact on the commercial benefit of hajj in Mecca and Medina, specifically on the hospitality sector, not to mention the impact on the retail sector.

The outlook for the retail sector in Saudi is positive, as the recent abnormal growth in retail sales driven by the imminent VAT rate increase has shown, but this will slow over the next three months due to summer.

The Retail World 2020: Retailing in a time of crisis

WRC issue 6

Retailers across the globe are facing their greatest-ever challenge as the pandemic grips every country.

How are retailers coping and responding to the needs of their customers, communities and the business itself?

Hear from retailers and experts from around the world in the monthly report from World Retail Congress. The sixth issue is available to download in full here.