Finding a niche: Hypermarkets and large shopping centres are growing in spite of reduced purchasing power

The last few years have presented a challenging market for the retail sector, with Jordanians’ incomes squeezed by the increasing cost of living. Yet new malls continue opening, hypermarkets continue to grow, and more retailers are still entering the market. Economies of scale can offer attractive savings to consumers who have less disposable income, many of whom appear to be sticking to familiar household brands despite the tough conditions. But the stakes are high amidst changing consumer habits, and the need for retailers to find and target a niche has become more apparent.

CONSUMER CONFIDENCE: Purchasing power has been reduced by high inflation over the past two years: Jordan’s consumer-price index stood at 5% in 2010, according to the IMF, and is projected to have risen to 5.4% in 2011. This in turn is forecast to increase to 5.6% in 2012. With prospects for raising household income looking limited in the near future, consumers are likely to rein in their spending. A quarterly survey conducted by Bayt.com and YouGov suggests that Jordanian consumer confidence has been falling since the middle of 2011 and in March 2012 reached its lowest level since 2008.

The retail sector was granted additional breathing space when the government agreed in March 2012 to suspend an increase in national electricity prices until May 1, with the rise coming into force at the end of May. “We expect that the change to the tariff will result in a 5-10% increase in total operational costs at all levels of the supply chain,” said Laith Abu Hilal, the chief commercial officer at the Jordanian operation of the grocery chain Safeway, in an interview with OBG. “For the end consumer, this results in an estimated increase of 10–15% in the price of temperature-controlled items.”

The postponement was designed to give the government time to devise a system that will only affect high-income groups. The authorities are also intending to remove certain fuel subsidies in 2012, but they are unlikely to rush into this at a time when businesses are already complaining about the negative effects of high fuel prices on their operating costs.

HYPERMARKETS: However, reduced purchasing power does not mean that there is no money to be made in the Jordanian retail sector. Through economies of scale, hypermarket chains are actually better placed to offer their customers the most competitive prices, according to Abu Hilal. “Hypermarkets can in this way provide a cushion against the rising cost of living,” he said.

Realising that these stores often have the best offers, an increasing number of Jordanian consumers are making a special trip to a hypermarket twice a month to stock up on cheap household goods. “Since the Arab Spring we have seen a reduction in big-ticket purchasing among Jordanians, who are focused less on spending and more on debt repayment and savings,” said Bashar Arafeh, the CEO of ePoints, a customer rewards programme. In an environment where consumers are watching their pennies, price reductions on food staples can go a long way.

NEW ENTRANTS: In the longer term, too, food retailers remain optimistic about the continued growth of hypermarkets. Statistics vary on their current share of the food-retail market, but the rapid emergence of the hypermarket in Jordan’s urban environment over the past decade is undeniable. In December 2011 Egypt-based Spinney’s opened its first store in Amman, at the newly established Taj Lifestyle Centre. It says it aims to target a high-end market, providing an on-site bakery and patisserie, a “meals to go” section and a salad bar. The opening was followed by the announcement in February 2012 that the Qatar-based Al Meera Consumer Goods Company, which owns and operates supermarkets, is looking to expand into the Jordanian market, as well as into Libya, Egypt and Tunisia.

Citing trends in the development of his distribution business, Kamil Nader, the chairman of Nader Group, said Jordan’s ongoing hypermarket boom is a significant trend. “A decade ago, 70% of our business was with wholesalers, who would sell on to smaller retail outlets; now wholesalers take 30% of our business, while hypermarkets take 15%,”Nader told OBG, adding that the latter figure could easily increase to 30%. However, he also noted that he expects conventional corner shops will remain on the scene for some time yet.

Proof of the hypermarket’s high growth potential can be seen in the fact that not only new entrants into the market but also established chains are experiencing growth, said Nader. These include French grocery chain Carrefour, which opened its first outlet in 2006 – a hypermarket in City Mall – and now has six other supermarket and convenience outlets spread around Amman. Safeway Jordan was the first retail chain to establish itself in the country, and it currently maintains six full-service stores, two wholesale centres and eight convenience outlets. Cozmo, which targets the higher end of the market, also has a number of large stores in Amman.

POLICY CHALLENGES: A major concern of some food retailers operating in the country is the government subsidies provided to military and civil coops. Suppliers must stock these co-ops at low cost, which reduces the competitiveness of private retailers. However, the system is ineffective, Abu Hilal said. “Supermarkets with large-scale operations can still compete with the co-ops. The end result is that government co-ops do not offer lower-income groups a decent alternative to private retailers.”

Furthermore, Nader believes that government food subsidies are not going to those who need them most, as no system is in place to prevent higher-income groups from accessing cheap goods. Some form of ID cards could be used to this end, he said.

A streamlined and better coordinated regulatory environment would benefit Jordan’s food sector. A number of agencies are currently involved in regulating the industry, including the Food and Drugs Administration, the Ministry of Agriculture and the Ministry of Health. Therefore, the fees and procedures imposed on retailers and suppliers are sometimes unnecessarily duplicated. A further challenge is the Customs regime: for most imported goods, duties stand at 30%. Clothes retailers in particular have had to cope with high duties following a new tariff in 2010, whereby each kg of imported clothes is subject to a tax of JD1 ($1.40).

BRANDS: One trend currently observed across the Jordanian retail scene is the growing prevalence of brand-name goods. “We are now seeing a growth in brand consciousness among local consumers,” said Matthew Simon, the general manager at the Jordan office of Landmark Group, a major regional clothes retailer that has a presence in Amman and Irbid. This is occurring in spite of reduced purchasing power. In fact, a range of high-end household brands are continuing to do well, according to Nader.

“Whereas consumers in advanced economies are individualistic and exploratory, consumers in Jordan are brand-oriented; they tend to stick to familiar household names,” Nader told OBG. The price difference between trusted brands and cheaper alternatives is not significant, he said, which means most consumers are unlikely to change their purchasing habits any time soon. He believes the retail market is not yet developed enough for supermarkets’ own brands to be successful.

CLOTHING: For those with disposable income, high-end clothing brands are proving increasingly popular. Managers at retail stores selling international fashion labels in West Amman – the capital’s wealthier district – told local press in January 2012 that affluent groups are increasingly purchasing such brand-name items. Intense competition means clothes retailers offer significant discounts at periods of peak demand, during which time residents from less wealthy districts also frequent the stores.

While international clothes brands are clearly looming larger on the Amman scene, they nonetheless target a relatively small market in the country, especially at a time when the cost of living is weighing heavily on household income. Boosted by increased demand among the budget-conscious, traditional clothing markets with non-branded goods are reportedly doing well under the current conditions. By contrast, the established mid-market retail options are experiencing a period of low demand, with shop owners citing consumers’ reduced purchasing power as the primary cause.

JEWELLERY: Another of Amman’s high-end retail markets to have thrived in recent years is that of jewellery. “Jewellery has become a necessary element in a typical Jordanian marriage, not just among wealthier groups,” Jamal Suleiman, the general manager of Diva Jewellery, told OBG. “Most marriage certificates specify at least JD5000 ($7026) in jewellery,” he said, noting that reduced purchasing power is unlikely to have a significant effect on the weddings market.

The non-weddings market has, however, been considerably reduced in the wake of the global economic downturn of 2009. Yet there is still strong demand among wealthier people in Amman, especially rich Iraqis who moved to the city in large numbers after 2003. Furthermore, many still see gold and diamonds as a safer investment than hard currency.

Diva is one of many large outlets to be found in Um Utheina, which has become something of a new jewellers district. Other multi-branch players with outlets in the area include Shawkat Shami, Sakkijha, Nabeel Sakkijha, and Imseeh. “Shoppers who are looking for the latest designer jewellery come here,” said Suleiman. “Amman’s more traditional jewellery outlets are to be found in downtown Amman.”

Jewellers are also continuing to capitalise on the mall culture that has recently emerged in the capital: in the Taj Mall, which opened in late 2011, there are 11 jewellery outlets. These include not only local players such as Imseeh but also international brands, such as Swarovski. Diva Jewellery currently has four branches in Amman, but is set to see a fifth outlet come on-line in the Abdali Mall, which is currently under construction. “I anticipate that this additional branch will become the centre of our business out here in Amman,” Suleiman said, pointing to the development’s prime location as one its main advantages. The jewellery market is also being targeted by foreign investors, with UAE-based Pure Gold Jewellers looking to enter Jordan by the end of 2012, along with Turkey, Morocco and Lebanon.

PHARMACEUTICALS: In a country known for its pharmaceuticals manufacturers, pharmaceutical retail chains are also taking off. The largest of these is Pharmacy1, which began operations in Jordan in 2001 and continues to grow, according to Dr. Amani Abu Hilal, a senior vice-president at the company. “Performance figures for 2011 suggest that business has grown by 28% in 2011 throughout our Jordanian branches,” she said. The number of branches in Jordan have increased from 42 in 2009 to 53 in 2012.

Despite its prominence, the company is not the only player in the market; there are 13 other pharmacy chains located across Jordan. As can be seen elsewhere in Jordanian retail, economies of scale allow larger operations to access discounts on bulk orders from suppliers, which in turn permits savings to be passed on to the customer.

In addition to cheaper prices, large pharmaceuticals outfits bring improved customer service. Given that international observers still have reservations over the presence of counterfeit drugs, comprehensive company policies are an important competitive advantage. “We have implemented strict preventative policies on the exchange of medications, but I feel that overall we are still in the minority,” Abu Hilal said. As well as improving customer service, larger chains have also introduced new services. For example, Pharmacy1 has set up a Training and Drug Information Centre, which Abu Hilal said offers free guidance on the availability and usage of medication.

A remarkable feature of pharmaceutical chain retail has been its ability to expand significantly outside of Amman, which is home to almost half of Jordan’s population. Although focused on East Amman, Pharmacy1 also has two branches in Salt, two in Aqaba, six in Zarqa, two in Irbid and one in Madaba.

Jordan’s regulatory environment has had to adjust in order to make room for the new phenomenon of the retail chain. An important milestone was the removal of the legal requirement that each pharmacy outlet be owned by an individual pharmacist. “It took time for the all the authorities to recognise the change. The regulatory environment has definitely become easier for us to navigate now,” said Abu Hilal.

One sign of the success of these chains is the fact that they are criticised for putting independent pharmacies out of business. In fact, parliament is currently processing a bill which is backed by the independents and, if enacted, would hinder the further expansion of existing pharmaceutical chains in Jordan, as well as the entry of new chains into the country, said Amjad Aryan, the CEO of Pharmacy1, in an interview with OBG. “This measure is short-sighted, because large pharmacies like ours provide real benefits to the local people and the economy,” he said.

NEW MALLS: When considering the dynamics of Jordan’s retail sector, it has become imperative to take account of malls – now an important feature of Amman’s skyline. But at a time of falling consumer confidence, smaller disposable incomes and a drop in annual tourist arrivals, the big question now is whether the country can sustain the further growth of malls. Matthew Simon, the general manager of Landmark Group’s Jordanian operations, told OBG, “The mall revolution under way in the kingdom is being driven more by changing attitudes than shifts in purchasing power”. This certainly bodes well in the longer term for Jordanian malls.

Others highlight the location of further malls as a crucial factor. “Major retail outlets have been constructed in central, overly congested areas. As Amman develops, we need more shopping malls outside the city centre, where there is adequate space for leisure and the development of retail clusters,” Imad Bukhari, the CEO of Cozmo, told OBG.

However, the opening of the Taj Lifestyle Centre, otherwise known as Taj Mall, in November 2011 suggests that even at a time of reduced purchasing power there is still room for retailers to manoeuvre in. The mall is now Amman’s second largest – after Mecca Mall – and offers 150,000 sq meters of space with capacity for 190 stores. Not all of this capacity has yet been occupied – a sign of the tough economic times. Of the space available to lease, 80% had been taken up in November 2011, according to a statement made at the time by Al Tajamouat for Tourism Projects Company, which owns the mall.

Like a number of Amman’s other malls, the Taj Lifestyle Centre is home to both international and local retail brands. There are a number of fashion retailers, a 16-screen cinema and around 50 restaurants. Some 40% of the shops in the mall are entering the Jordanian market for the first time.

ON THE HORIZON: Two other large-scale retail complexes are currently under construction. The Jordan Gate consists of two towers, which are to house a commercial centre, along with retail zones, restaurants and other entertainment facilities. Originally due to be completed in 2008, the project has run into some financial barriers and it is not yet clear when it will finally open its doors to the public.

The second of the planned malls is part of the Abdali Downtown project. Although construction work on this project has also experienced delays, the site is now under active development once again. In an interview with OBG, George Amireh, the CEO of Abdali Investment and Development, said that August 2012 will see the partial opening of the Boulevard, which includes retail outlets, apartments and office space, while the residential units being developed by Damac Properties will open by mid-2013. The mall itself is due to open by early 2014, after the second phase of construction began in December 2011.

“We are now attracting and negotiating with investors for phase two of the project,” Amireh added. One distinguishing feature of the project is the ample green space which has been integrated into the design: under phase 1 and 2 of the project, says Amireh, 42% of the total area has been reserved for green parks, and 25% of the rooftop space for plants.

These new retail projects come in addition to 268,000 sq metres of existing mall space – the culmination of continued expansion over the past decade. Beginning on a small scale with the opening of 17,000 sq metres at Abdoun Mall, the available space expanded radically in 2004 with the arrival of Mecca Mall; this mall was expanded in 2006 to become the city’s largest mall, at with 180,000sq metres. The same year, City Mall opened up, bringing a further 160,000 sq metres, and in 2008 Baraka Mall opened at a capacity of 16,000 sq metres.

OUTLOOK: New entrants into Jordan’s retail scene will have to study their market carefully if they are to succeed. High-end products are arguably in strong demand among affluent Ammanis, although the majority of Jordanians will likely have lower levels of disposable income in the months ahead.

However, purchasing power does not tell the whole story. “Although purchasing power in Jordan is decreasing, credit facilities are becoming more ubiquitous and accessible,” said Amjad Al Sadeq, the director of issuing and business development at EMP Middle East, a credit card provider. “This is because banks are now drifting away from corporate lending – an area that is currently burdened by a large proportion of non-performing loans – and focusing more on the retail segment.”

A number of retail chains have continued to grow in spite of the difficult conditions. As the cost of living continues to rise at a rapid pace, the discounts made possible at hypermarkets through economies of scale are set to become more appealing to lower-income groups. With branded goods becoming increasingly important to Jordanian consumers, the squeeze on incomes is unlikely to preclude the success of new entrants who carefully target their niche.

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The Report: Jordan 2012

Industry and Retail chapter from The Report: Jordan 2012