Interview: Khalid Al Sehaibany
How do the Kingdom’s franchise regulations compare with other markets in the region?
KHALID AL SEHAIBANY: Saudi Arabia is the largest market in the Gulf and the franchising approach continues to expand in several business sectors. A thriving economy, coupled with a growing and young population, makes Saudi Arabia an inviting market for the franchising industry. The Saudi government encourages and supports private sector contribution and growth in line with its strategy to diversify the economy. The government provides soft and subsidised financing to assist Saudi entrepreneurs with start-up projects. The Centennial Fund is one such organisation that provides financing and mentoring for young Saudi innovators. The Saudi Chamber of Commerce and Industry has also been instrumental in promoting new business concepts. The government uses commercial company law as a baseline for franchising and has recently permitted foreign firms to engage in wholesale and retail trade, where many franchises are categorised, thus allowing foreign partners to own as much as 75% of a joint venture. US firms wishing to do business in Saudi Arabia must have a joint venture with a Saudi partner.
To what extent are the sophistication and purchasing preferences of Saudi customers changing?
AL SEHAIBANY: Methods of communication have advanced significantly in recent years with the development of smartphones driving how we connect with our consumers. Our retailing message is delivered instantaneously and in many cases is customised for a specific target market. The Saudi customer continues to demand value and quality in their non-discretionary expenditure. We have seen an increase in discretionary expenditure in communications and technology, while cosmetics and beauty products are still performing strongly as a category. Expenditure in apparel is driven by international brands and seasonal collections. We have noted a loss of revenues to competition with other regional retailing centres, such as Dubai. This loss presents an opportunity for mall owners to develop their brand mix to capture more revenue.
What progress have you seen in expanding female employment in the retail sector?
AL SEHAIBANY: The employment of female staff has been a significant advancement, especially for those retailers that cater to women. We have observed that the vast majority of such businesses have now switched to female staff. We expect this trend to continue over the next 12 months, given that the majority of our specialty retail space targets female consumers and women tend to prefer shopping in retail outlets that employ female staff, a preference that is expected to help accelerate female employment in the sector.
How are shopping habits developing in terms of demand for malls, strip malls and boutique shops?
AL SEHAIBANY: Given that shopping malls are the primary destination for family entertainment in the kingdom, there is an opportunity to expand and develop offerings to provide more public spaces. In our shopping spaces there is also a lack of variety for family restaurants. The entertainment segment continues to be a weakness in the Saudi market, and this gap leads to a loss of revenues as people spend their money in other centres in the region. Other elements in retail property design that are essential components of the overall layout include parking, easy access, a safe and secure shopping environment, and variety in the tenancy mix.
What obstacles are there for firms looking to expand to the kingdom’s secondary and tertiary cities?
AL SEHAIBANY: Many of the popular brands that are commonplace in first-tier cities are underrepresented or absent in second- and third-tier markets. The lack of suitable retail space and logistics are challenges for many of the brands trying to break into these markets. However, given that there is pent-up demand, retailers will be rewarded if they can overcome these obstacles.
