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The Potential of Pilgrim Retail

New retail developments in Jeddah and Mecca are evidence of the opportunity presented by increasing numbers of pilgrims travelling to Saudi Arabia.
Pilgrims in Mecca during Hajj | Source: Flickr/Omar Chatriwala
By
  • Kate Abnett

LONDON, United Kingdom — Each year, millions of pilgrims descend on Mecca in Saudi Arabia, Islam's most holy city, for the Hajj pilgrimage. This year's Hajj took place from 10 to 15 September, during which time authorities expected an influx of up to two million people.

In recent years, Saudi Arabia’s government has placed limits on the numbers of Hajj pilgrims, while major renovation and expansion projects are carried out to accommodate increasing numbers of religious visitors. On top of the pilgrim flows during Hajj, about 12 million pilgrims from abroad are expected to visit Mecca this year for Umrah (the pilgrimage to Mecca which can be undertaken at any time of year), a number the government plans to increase to 15 million by 2020.

This year, tourists in Saudi Arabia are expected to spend 33.6 billion Saudi Arabian Riyals (SAR) (about $9 billion). As the kingdom battles low oil prices, its tourism sector is likely to become a more significant source of revenue, supported by major new retail and hospitality projects in Mecca, Jeddah and elsewhere.

Among the largest are the Makkah Royal Clock Tower complex, metres away from the Grand Mosque, which houses the Abraj Al Bait shopping mall with 4,000 stores, and the massive 45-storey Abraj Kudai hotel, set to open in 2017, which will contain a five-storey shopping mall. Jabal Omarin Mecca, a mega-development comprising 38 hotel and residential towers by Jabal Omar Development Company, Saudi Arabia's largest developer, is also underway and will feature one of the kingdom's largest malls, with over 800 commercial and retail units.

The Hajj period remains one of the most successful retail months of the year.

In March, mall developer Arabian Centres opened Yasmin Mall, its fifth mall in Jeddah, a new 60,000 square-metre mall with 210 retail outlets, bringing the total mall retail space in Jeddah to about 1.2 million square metres, with another 900,000 square metres scheduled for completion in 2017 to 2018, according to real estate services firm JLL.

As well as catering to domestic shoppers, these new developments will tap the travel retail opportunity. “The Hajj period remains one of the most successful retail months of the year,” says Diana Jarmalaite, research analyst at Euromonitor International. “Retailers expected around a 12 to 20 percent increase in their monthly sales during the Hajj period, [with] healthy growth of sales expected among personal accessories and apparel retailers especially.”

Retailers adopt “aggressive sales strategies during and around the Hajj,” Jarmalaite says, adding that “intensive advertising campaigns [and] additional agreements with payment operators such as Visa or MasterCard are targeting travellers.”

Many pilgrims spend on souvenirs and gifts like prayer beads, Saudi-made clothes or gold, but the growing influx of people during Hajj — particularly affluent consumers who are able to stay in new luxury accommodation and extend their visas beyond the limited travel visas issued to pilgrims — could present an opportunity to luxury retailers. "It's still mainly spiritual — maybe 10 percent of people go to the malls and buy Chanel and Marc Jacobs," says Jamila Halfichi, fashion editor of international Arabic newspaper Asharq Al-Awsat.

Other categories stand to benefit, too. "It's a lifetime journey, it's something they might only do once in their lives, so they want to go for things that are special," says Princess Deena Aljuhani Abdulaziz, editor-in-chief of Vogue Arabia and owner of the boutique D'NA, which has locations in Riyadh, the Saudi capital, and Doha, Qatar, pointing to perfumes, make-up and accessories as popular categories among pilgrims. "I'm sure Mac Cosmetics is going to make a lot more money during Hajj than the rest of the year, because people have access, and maybe in their home countries they don't have those stores."

It's something they might only do once in their lives, so they want to go for things that are special.

At D’NA in Riyadh, “There was definitely increased sales [during Hajj], but not as much as it would be with Ramadan and the other Eid,” Abdulaziz adds, referring to Eid al-Fitr, the Islamic religious holiday which marks the end of Ramadan (Eid al-Adha takes place at the same time as the Hajj).

The investment in retail and hospitality around Mecca comes as Saudi Arabia looks to diversify its economy away from oil. The kingdom built up financial reserves of more than $700 billion during the oil boom from 2003 to 2013, but has been hit by plummeting oil prices in the years since, prompting the government to consider cancelling more than $20 billion of projects and cutting ministry budgets by a quarter, Bloomberg reported earlier this month.

As part of its plans to ease dependence on oil revenue for growth, in June, Saudi Arabia’s cabinet approved rules to lift the cap on foreign direct investment in retail from 75 percent ownership, enabling foreign companies to invest in retail with 100 percent ownership.

The kingdom’s store-based retail sector is forecast to grow by 13 percent this year to reach SAR 503 billion (about $134.1 billion), according to Euromonitor. Luxury sales are expected to grow at 14 percent to reach SAR 7.2 billion ($1.9 billion), which Euromonitor attributed to strong consumer confidence. However, cuts to public sector wages could impact domestic retail sales, and increase the role of travel retail to keep the sector buoyant.

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