Tariff impact on Saudi retailers minimal: EFG Hermes

Hatem Alaa, Deputy Head of Research and Head of Consumer and Healthcare at EFG Hermes

The impact of US tariffs on the retail sector in Saudi Arabia and the Gulf will be limited, as most companies rely mainly on the local market and have minimal exports to the US, Hatem Alaa, Deputy Head of Research and Head of Consumer and Healthcare at EFG Hermes, told Argaam.

Speaking on the sidelines of EFG Hermes’ 19th Annual One-on-One Investor Conference in Dubai, Alaa noted that the current pressure on the market is more attributable to falling oil prices, which indirectly affects the retail sector by reducing public spending levels — a factor that could impact company performance.

He added that the current market downturn presents a good investment opportunity in sectors such as healthcare and non-oil-dependent consumer goods.

Alaa highlighted that the banking sector in Saudi Arabia has been one of the strongest performers in recent years and is expected to lead the region in Q1 2025, driven by loan growth and rising profits amid continued interest rate cuts.

He explained that most sectors in the Saudi market delivered weak results in Q4 2024, except for the banking sector, which maintained relatively strong performance.

Alaa predicted that the performance of the consumer and retail sector in Q1 2025 will mirror that of Q4 2024, with continued pressure on profit margins. However, he expects signs of improvement to emerge in the second half of the year, potentially leading to gradually stronger results.

He pointed out that the consumer goods sector has seen a notable decline in performance since Q3 2023, due to slower-than-expected demand growth. He attributed this partly to the slowdown in population growth, as well as increased promotions, price discounts, and limited sales growth — all of which have intensified competition, particularly in the food segment.

Alaa noted that Almarai Co. was among the few companies in the food sector to achieve strong performance in 2024, thanks to market diversification and expansion into Gulf countries such as the UAE and Kuwait. International markets now account for over 30% of the company’s sales.

Alaa also mentioned that competition for Saudi consumers’ spending has intensified, driven by growing options for entertainment, dining, and travel. He noted that while average income has increased, it hasn’t fully offset the impact of inflation and rising living costs over the past period.

He highlighted that some companies have turned to consumer financing programs and "Buy Now, Pay Later" schemes to boost sales. However, he warned that profit margins for these sales are lower compared to cash sales.

He also pointed out that the Saudi Central Bank’s (SAMA) decision to require merchants to bear the cost of consumer financing starting in April 2024 will further pressure the sector’s profitability, particularly in electronics.