Shifting sands The retail landscape in Saudi Arabia is changing fast, and developer Fawaz Alhokair is at the forefront. Noella Pio Kivlehan reports
The rate of acceleration is fast enough to have even Jeremy Clarkson foaming at the mouth. In the past 10 years, the retail market in the Kingdom of Saudi Arabia has developed from a mishmash of individual shops to large mall developments attracting the world’s best-known retailers.
It is being spurred on by a country where the residents are becoming more brand-conscious, and the population is becoming dominated by young people and women. Since 1998, the country’s population has been growing at the rate of 3% per year.
The figures speak for themselves. Over the past decade, retail trade activities grew by a compound annual growth rate of 5.8%. Last year, the value of Saudi Arabia’s retail sector was expected to reach SR70bn (£10.5bn), but it actually exceeded SR90bn (£13.5bn). An even higher growth rate is projected for four years’ time, in 2012, when the sector is expected to hit SR130bn (£19.5bn). In terms of development, there is 2.4m m2 of existing retail space and a further 4m m2 planned before 2009.
One of the principal drivers behind this growth is developer Fawaz Alhokair. By pioneering retail franchising through its malls, it is credited with transforming retail in Saudi Arabia.
Fawaz Alhokair’s entry into the market came in 1998, when it opened its first shopping centre in Medina. The company, which focuses on the mass mid-market sector, is the largest owner and operator of malls in the kingdom. Now with 10 other centres in the country’s major towns and cities, Fawaz Alhokair plans to open a further 12 in the next three years to take its total leasable space to 2.2m m2. Areas of concentration will be Jeddah, Mecca and Riyadh.
Retail is a popular pastime for families and individuals in a country that has no bars or clubs. And this has dictated how many malls have been conceived. “The mall is more than just a retail mall here,” explains Fawaz Alhokair’s head of real estate, Kamel Al Qalam. “It’s family leisure time, and it’s the most creditable way for the family to spend time together. We didn’t have this in the past.”
The company has three retail concepts: Geant, hypermarkets Kika, furniture and Biggest & Best, which sells electrical goods. Al Qalam admits that Saudi Arabian malls are “consistent with those of the Western model” and adds: “We have used Bluewater [in Kent, England] and The Mills company in the US. We have adapted these two different retail types to Saudi Arabia – but with a local twist.”
One of these twists is that Fawaz Alhokair centres are not based on anchor stores. “Here,” says Al Qalam, “the anchor concept is not yet mature. Debenhams or Zara could be considered anchors, even though they would only occupy 2,000m2. Entertainment is more of an anchor because that would be targeted specifically at our customers.” As examples, he cites food courts and ice rinks as major components.
Leases for retailers vary within the malls, which have opening times that fit around the Saudi Arabian lifestyle malls open from 9am to midday, closing through the hottest part of the day to reopen from 4pm to 11pm. During the holy month of Ramadan, it is 10am to 2pm and 9pm to 2am. Mid-size retailers are on a three-year contract which, says Al Qalam, “gives us the flexibility to renew the offer to the consumer as new brands come to the market”. For hypermarkets and entertainment anchors, leases are 15 years long.
When asked if his company would consider selling some of its assets, Al Qalam says: “We are considering it, but for the immediate future we will continue with our model, which is to build and operate.”
He adds: “We are not being held back by the economic slowdown. We have enjoyed a substantial growth and we do have the real estate problems that are facing Europe and the States.” This growth has already taken Fawaz Alhokair into neighbouring states such as the United Arab Emirates, Kuwait and Qatar, and into other Middle Eastern countries such as Lebanon, Egypt and Jordan. In Egypt, the company has bought a large plot of land outside the capital, Cairo, on which it plans to build another shopping centre, the 220,000m2 Mall of Africa, with a projected opening date of 2010.
“We have a strong appetite to develop in Egypt,” says Al Qalam. “We see potential and growth, particularly with malls for that area. In Egypt, there is very little offering from creditable malls. We also see ourselves going to other North African countries.” Indeed, he believes that the concepts Fawaz Alhokair has rolled out in Saudi Arabia can go anywhere.
One market into which Fawaz Alhokair will not expand, at least not yet, is Dubai, which Al Qalam describes as “very mature”. Another is Western Europe, “because of the size of the market”.
Given the amount of growth the company has planned for Saudi Arabia alone, there is a fear that the country will become over-saturated, something which Al Qalam admits could happen. “There is always a level of saturation,” he says. “We are planning a further 12 malls, and we know with that number we will have reached a level of maturity, but there will still be a need for growth and that will be on a case-by-case basis.”
And when the brakes do finally go on, Saudi Arabia will be left with a retail market strong enough to compete on the world stage.
Fawaz AlHokair facts
l Saudi Arabia-based Fawaz Alhokair Group is split into three divisions: retail real estate and emerging business
l FY 2008 group turnover in excess of $2.1bn (£1.17bn), with sales of $427m
l Alhokair Fashion Retail (a listed company) had turnover in excess of $395m in 2007, up from $345m in 2006
l More than 65 brand partners in diversified portfolio (Saudi business only)
l More than 9,000 employees
l More than 18m customers
l 5m sq ft (465,000m2) of prime retail real estate
l Single largest owner and operator of shopping malls in Saudi Arabia
l Current network of 11 operational malls in major cities across Saudi Arabia with plans to open a further 12 by 2013
l Nine international food concepts with five new concepts under way
l 110 operational outlets with a target of a further 400 in the next four years.
Retail opportunities
The third floor of Fawaz Alhokair’s Kingdom Centre in Riyadh is unique in all of Saudi Arabia’s shopping environments: here, women serve women.
Generally, there is gender separation under Saudi Arabian law, which states that women are not allowed to work. Men sell to women, even in the lingerie department – La Senza is one of Fawaz Alhokair’s most popular stores – and there are no changing rooms. But on the third floor, Fawaz Alhokair has designated it strictly women only, which has allowed the company to employ 10 women. As a result, sales on this one floor are double those of any other floor in any other centre.
In a total population of 27m (including 5.5m resident foreigners), a large majority are young people. Women represent more than 50% of consumers and, more importantly, they are becoming increasingly brand-conscious.
The size of the population, and an undeveloped and transparent market, mean that more retailers are being attracted into the country, with Fawaz Alhokair having launched Gap, Banana Republic and Austrian furniture group Kika in 2007. Gerry Waters, Fawaz Alhokair’s chief executive officer, says that, in the past, finding retailers was a piecemeal operation.
“It was literally going out and walking around sites, or getting consultants searching,” he says. “But now it’s more strategic. There’s history in Saudi, and there are certainly gaps in the market. The types of retailers that are not here are pharmacy chains like Boots. Home-furnishing operators are also missing – for instance, there is only Ikea here.”
And in describing what food brands he would like to see in Saudi Arabia, Waters says: “The Holy Grail of Tesco and WalMart. But Tesco’s priorities lie elsewhere.”
The company started out with primarily British brands such as Bhs and Mothercare, but that changed when it secured Zara a few years ago. “Getting Zara gave us access to the rest of Europe,” Waters says, “but the hunting ground now is the US.”
Currently, retailers operate on a franchise basis. Waters says that this is due to an element of political instability in the region.
“Why should they risk their cash?” he asks. “We have a level of experience to help them. But I believe the franchise-only element will change as things stabilise and Saudi Arabia moves towards being a member of the World Trade Organisation and a more privatised economy.”
West end boys and girls
Management of the shops is not the only thing that is different for Western retailers. “Nine years ago,” Waters says, “15-20% of product was not for the local market, but now everything is, apart from perhaps some winter collections. The Saudi people want what people in other countries are getting.”
He explains: “The thing to remember is that Saudi Arabia is a sophisticated retail scene. Retailers have to be among the very best of the best to survive. There’s nowhere else in the world that you will find retailers from the mass mid-market to the top end all under one roof.”
However, one thing Waters is at pains to correct is the perception of Saudi Arabia as a rich country. “No, spend is not that high,” he says. “It’s a myth that all Saudi Arabians are rich. The community is generally working like other communities.”
But, with no outside influences such as bars and clubs, any money that is spent is spent in the malls. This alone is enough to attract retailers from around the world.
