Retail slump may be ‘near ending’ – Jarir
RIYADH, Oct 23, (RTRS): The slump in Saudi Arabia’s retail sector may be close to ending as consumption starts to stabilise after shrinking because of low oil prices and government austerity policies, the chairman of one of the kingdom’s biggest retail chains said.
“We think the sharp decline is fundamentally over, or will be over by the end of this year,” said Muhammad Alagil, chairman of Jarir Marketing Co, which focuses on selling consumer electronics, books and office supplies.
Next year, the company may be able to grow both profit and sales at rates in the high single digits or low double digits, he added — though much of that growth would come from opening new stores rather than increasing business at existing outlets.
Saudi Arabia faces its most difficult economic times in a generation as the government cuts spending in order to curb a huge budget deficit caused by shrunken oil revenues. The retail and wholesale sectors, including restaurants and hotels, shrank 0.6 percent from a year ago in the second quarter of this year.
Hurting
Jarir’s net profit edged up 0.7 percent from a year earlier to 220 million riyals ($58.7 million) in the third quarter as its sales dropped 1.0 percent to 1.52 billion riyals. Alagil said low oil prices were hurting his stores’ business not merely in Saudi Arabia but also in other Gulf Arab economies.
“If it falls 15 percent in Saudi, it is falling 10 percent at our stores elsewhere in the Gulf,” he said in an interview at the Reuters Middle East Investment Summit.
Alagil said there was uncertainty in the Saudi retail sector because of cuts to the allowances of public sector employees announced last month and the risk of more austerity steps to follow. Authorities have said they plan to introduce value-added tax, at a rate of about 5 percent, in 2018.
“It is very difficult to be clear about how much the impact of these steps will be. Nobody is really sure.” Reflecting that uncertainty, Jarir’s share price has plunged 45 percent this year to 87.00 riyals, a level which Alagil described as excessively cheap. He said he didn’t exclude the possibility of a share buyback, although that would depend on the board’s decision.
Alagil said there were several reasons to think the worst of the slump was ending. One reason was that many people had begun dipping into their savings to sustain spending.