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Retailers seek right formula to expand in local market - Daily News Egypt

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Retailers seek right formula to expand in local market

"Fashion has a huge opportunity in Egypt, especially new volume brands, which are starting to expand in governorates. Few brands achieve their highest regional targets in Tanta," says Retail Group Egypt's country director

Having a casual stroll through the hallways of any shopping mall in Egypt, it is expected to notice the changing number of stores declaring they are currently out of business as well as those promising the anticipating shoppers new tags of luxury.

Throughout the past year, few of those considered to be successful brands retracted their business from Egypt. However, with a new year unfolding, an equally new wave of brands are starting to announce their upcoming first encounter with the local market.

While price tags have noticeably increased during the past couple of months, sale offers are becoming legitimate reasons for commotion. The fashion industry was hit by the devaluation grenade earlier last year. Meanwhile, international retailers had an additional set of obstacles, namely the new customs and registration regulations.

A few months ago, many popular brands were left with empty stores, while new merchandise remained in official storage waiting to be discharged as the season passed unnoticed. Some brands threw in the towel, few managed to turn the situation in their favour, and others remained resilient.

With January ushering in a new year ahead, the hardships of coping with a new system are currently in the past as retailers gather their gained experience.

Retail Group Egypt, a subsidiary of Alhokair Fashion Retail, has been a key player in the local retail industry. The company manages many brands that specialise in a diversity of international fashions, including established brands such as Mango, GAP, Accessorize, and Aldo, among others.

Their portfolio was the first to evidently shift according to the new events, replacing troublesome names with new introductions such as New Yorker and Old Navy, which are expected to launch their first Egyptian stores in March 2018.

Daily News Egypt sat with Khalid Hamed Adnan Abu Sarriyeh, Retail Group Egypt’s country director, to discuss their procedures when filtering brands and selecting new labels that can cope with the current local market.

How would you define the past year?

2017 was a challenge; however, it was better than the year before. In 2016, consumers still did not have the culture of how to deal with inflation. They had to cope with the economic changes and start accepting the new prices. This reflected on the general buying power; the average customer currently buys less than before. But, the gap is not striking.

From our side, we managed to control our operation and rent costs. Accordingly, our net profit recovered from the year before.

In 2014 and 2015, the market was raw and inexperienced; therefore, a lot of brands took an irrational decision to enter the local market. However, it was not long until it became obvious that some brands will not handle the inflation as well as the new importing and registration regulations. All brands had to submit their paperwork to the government to continue in the market.

Therefore, 2017 has witnessed the end of many renowned brands in Egypt. However, volume brands on the other hand have proven that expansion is possible amid such circumstances.

What were the main characteristics of the brands which could not survive?

Those that could not sustain their operations to see a new year in the local market were neither able to keep pace with the new regulations nor capable of providing frequent shipments. Meanwhile, other brands preferred to work on a buying or consignment basis and refused to collaborate with the franchisee.

Simultaneously, prices after the devaluation became a new obstacle. For example, a very well-known footwear brand had to close down because their prices jumped all the way to EGP 8,000 per pair, which is above their previous price point as well as the market’s average price for similar products.

How did the new customs regulations reflect on the retail industry?

Customs regulations had a massive impact on franchisees. For example, those who used to import three shipments per month currently bring in only one. On the other hand, the increased taxes have directly led to increased prices.

These two factors have reflected on the operation and landing costs of the merchandise. Accordingly, the franchisee has suddenly found himself between having to pay the brand and keeping prices affordable for the local market.

In parallel, the market’s buying behaviour shifted tremendously. The average customer currently buys 50% less than before.

When the new regulations were launched, many brands found themselves tangled with rigid paperwork in a bumpy process. However, now we systematically get our merchandise cleared on time and without any noticeable hustle.

Why did Black Friday manage to become 2017’s biggest retail trend?

Black Friday is gaining momentum as well as increasing popularity due to social media and the people’s enthusiasm to discover new trends. Meanwhile, it is also an opportunity to make use of reduced prices and attractive offers.

Between each season and the one after, sales multiply by 100%. Retailers currently depend on this specific day. In terms of sales, it is often equal to 10 times the normal operating day.

What is your expansion strategy for 2018?

We have a new strategy to bring new brands, which should be suitable for the local market. We have signed with New Yorker because it is a volume brand with a reasonable price-point. We are set to open three branches over 2,700 sqm with more than 100 job opportunities.

On the other hand, we are bringing the iconic Old Navy to Egypt. The two branches will occupy more than 3,000 sqm and provide 70 jobs.

What keeps international brands interested in the Egyptian market?

The local market is by far the biggest in the Middle East. Meanwhile, it is a promising market regardless of the surrounding events. Egypt’s market needs understanding of its regulations and needs. Once you have a suitable stock, you should never worry about sales and profit.

Meanwhile, almost 45% of the market is made up of youth who understand fashion, brand culture, and social media. Brands first entered the local market in 2004. Since then, the market has developed a surprising level of understanding that has surpassed the average.

When compared to the surrounding countries, who welcomed this culture at least seven years earlier, the local customer has a higher appreciation and influence on international brands.

According to the rent per metre (RPM) indicator, Egypt has better numbers. There are certain brands that sell $16,000 per metre in Egypt while only achieving $8,000 in other regional markets. These are numbers verified by Forbes, Bloomberg, and many other entities.

How do you expect the fashion industry to develop in Egypt?

Fashion has a huge opportunity in Egypt, especially new volume brands, which are starting to expand in governorates. Few brands achieve their highest regional targets in Tanta. For example, we are planning to open approximately 15 stores in Tanta by the end of 2019 in collaboration with our sister company Marakez.

Actually, the knowledge that Marakez has managed to rent out an entire mall, two years before its opening, is a great indicator regarding the governorate’s buying power. In parallel, Aswan and Ismailia are starting to attract retailers.

How crucial is the fashion industry to the recovery of the local economy?

This industry is not just about selling merchandise and opening new stores. In fact, it is also about many other depending industries. Each store requires many other supporting specialities, including shipping, customs, construction, storage, and security.

On the other hand, we bring foreign currency to the country while paying taxes and insurance to the government. Furthermore, each 30 sqm provides one job opportunity. With that said, there is an entire type of tourism that depends on retail, found in cities such as Dubai and Istanbul.

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