It’s all at the mall: Major franchises and international supermarkets are playing a growing role

One of the largest contributors to the national econ-omy and to employment, the retail sector continues to see healthy growth, despite facing a number of chal-lenges. Franchising is well established in Jordan, with a constant flow of international brands entering the king-dom, and another major mall is due to be completed in 2014, the second opening since the end of 2011.

SPENDING POWER: According to a regular survey conducted by Bayt.com and YouGov, consumer con-fidence fell to its lowest level in August 2012 since the survey began in 2007, though it recovered slightly in October 2012 (latest available data). Fuel price rises in 2012 have hit consumers’ pockets, and media reports in spring 2012 suggested that such factors were lead-ing to a downturn in areas such as clothing sales.

However, inflation remains broadly under control, standing at 4.5% in 2012, according to the IMF, which forecast it to fall slightly to 3.9% in 2013. Furthermore, despite significant macroeconomic challenges and consumer concerns, domestic commerce remains a major part of the economy and has seen healthy growth in recent years. The total value of wholesale and retail economic activity stood at JD1.56bn ($2.19bn) in 2011, according to the Department of Statistics (DoS), accounting for around 7.6% of GDP. Activity in the sec-tor was up 7% in 2011 in nominal terms, or around 4.4% in real terms, and in the first nine months of 2012 reached JD1.32bn ($1.86bn), representing nominal growth of 10.7%, or 7% after inflation.

SUPERMARKETS & HYPERMARKETS: Jordan’s super-market sector includes a variety of international, region-al and local brands and counts several recent new entrants. The major international supermarket chains in the country are Carrefour and Safeway. Carrefour first entered the kingdom in 2006 and currently oper-ates seven supermarkets and one hypermarket, an 11,000-sq-metre two-floor outlet in City Mall.

The chain, which in Jordan is 100%-owned by Majid Al Futtaim of the UAE, intends to open six new super-markets and two more hypermarkets in 2013, includ-ing a 6000-sq-metre facility in Irbid (its first outside of Amman), and to reach four hypermarkets and at least 22 supermarkets by 2017.

Safeway operates six full-service stores in the kingdom, as well as two wholesale centres and eight Safeway X-press convenience stores. The brand is owned in Jordan by Kuwaiti retail firm The Sultan Centre.

Another foreign player is Egypt-based grocery chain Spinneys, which has a presence in a number of Mid-dle Eastern countries and which entered the market with the opening of a 4000-sq-metre branch at the Taj Lifestyle Centre at the end of 2011. Spinneys fol-lowed this with a second store in the Shmeisani dis-trict of Amman in November 2012.

“The rapid growth of hypermarkets in the region has affected business and consumer strategies,” Farah Musharbash, director of marketing at Nabil Food Prod-ucts, told OBG. “Both consumers and hypermarkets are demanding lower prices, which in the end lead back to the distributors and producers. For this reason, Nabil is trying to diversify its client portfolio.”

LOCAL PLAYERS: International and regional players face significant competition from Jordanian chains. “One of the key characteristics of the Jordanian retail market is that there are lots of local players, which is not the case in many other Arab countries,” said Fran-cois des Garets, country manager of Carrefour Jordan.

Among those local firms expanding is Sameh Mall, which opened its sixth outlet in the kingdom in April 2012 shortly following the opening of a fifth branch earlier in the year. The company’s six outlets are split evenly between Amman and Zarqa; it is also planning to open a store in Irbid in the near future.

Another local supermarket brand is the up-market Cozmo chain, which has six branches, all in Amman. Cozmo is owned by Jordanian conglomerate The Group, whose other brands include the Jordanian franchises of department stores Bhs and Hamleys.

While each of the supermarkets in this wide range offers its own retail identity, Jordanian consumers are not strongly attached, nor loyal to particular chains, said des Garets. “Rather, they are looking for oppor-tunities and are very price-oriented,” he told OBG.

IMPACT OF ENERGY PRICES: As with many indus-tries, actors in the segment say that rising energy costs are hitting them hard, especially as some players did not expect or budget for energy price increases. In March 2012 the government doubled the electricity price for retailers; the state subsequently cancelled the increase, but then added 25% to prices in May 2012. “If electricity prices keep going up, we will have to revisit our business model. We also felt the last fuel price increase very strongly in terms of customer spending power in the hypermarket, though not in our supermarkets, which benefit from proximity to the customer,” des Garets told OBG.

MALLS: Jordan remains a relative newcomer to the world of large-scale malls; the first major modern shopping centre, Mecca Mall, opened less than a decade ago, in 2004. However, the sector has been expanding quite rapidly recently, with three large malls now in place, including a new entrant that opened in late 2011 and another mall, which will be the largest yet, scheduled to open its doors in 2014. Total gross leasable area (GLA) in the kingdom stood at around 310,000 sq metres as of 2012.

Malls are concentrated in the capital Amman, where the three largest are the Mecca, City and Taj malls. Mecca Mall, which belongs to the local company Kurdi Group, is both the oldest and the biggest of the three, having opened in 2004, and currently comprises 195,000 sq metres. The mall is located on Mecca Street and houses around 450 shops.

City Mall, which is situated north of the Eighth Circle in Amman, has 160,000 sq metres of built-up space, which includes 55,000 sq metres of GLA, in addition to a 2400-space car park. The mall opened its doors in 2006 and it is owned by Al Khayr Real Estate Investment Company.

The most recent major entrant to the Amman mall scene is the Taj Lifestyle Centre (TLC), a 150,000-sqmetre shopping and leisure centre in the upscale dis-trict of Abdoun focusing on the mid-range to high end of the retail market and built at a cost of JD151m ($212.4m). The investor behind the mall is local firm Al Tajamouat for Touristic Projects, part of the Al Tajamouat Group, which is also active in the industri-al city, warehousing and logistics, housing and cater-ing fields. As of December 2012, 90% of TLC’s retail outlets had been rented and 65% had opened for business, according to Halim Salfiti, chairman of the board of Al Tajamouat Touristic Projects. The shopping centre has further expanded its facilities to include a 16-screen cinema complex.

“We decided to open a mall because there has been lots of growth in retail, and retailers were excited at the prospect of opening well-built malls,” Salfiti told OBG, adding that the mall’s performance has exceed-ed the firm’s expectations. “We have already hit our footfall target of 20,000 visitors a day and some of the main anchors of the mall such as the cinema, the Fam-ily Entertainment Centre, and some major retail out-lets and restaurants are not even open yet,” Salfiti told OBG in December 2012, adding that he believes foot-fall could reach 25,000 or 30,000 in the near future.

UPCOMING: A major shopping centre now in the pipeline is Abdali Mall, being built in the central Amman neighbourhood of the same name, as part of the Abdali redevelopment project by the United Real Estate Com-pany of Kuwait, at an investment cost of around $243m. The mall, which is currently scheduled to open in the first quarter of 2014, will become the largest shop-ping centre in Jordan, with approximately 223,000 sq metres of built-up space. In addition to shops, the mall will include a food court, several high-end restaurants, a multiplex cinema and parking spaces for 2500 cars.

While the segment is maturing, some retail indus-try figures say that mall operators still have much to improve on. Some sector leaders believe that a major issue being faced is that few players know how to design a shopping mall and ensure that it has a coherent mix of tenants in order to make it attrac-tive. They have also spoken of the lack of long-term planning at the start of the process, such as mak-ing decisions in advance as to where shops and food courts would be located.

Further development in Amman itself may also be constrained by land availability, forcing operators to locate malls further out of town. “Most remaining plots of land in West Amman are small,” said Salfiti.

FRANCHISING & FOREIGN BRANDS: The expansion of the mall segment is helping to further consolidate the presence of major foreign retail brands and fran-chises in the kingdom. For example, around 50% of the shops in the TLC are first-time entrants to Jordan. Major mid-range clothing brands are particularly well repre-sented, with the likes of Mango, Zara and H&M all pres-ent. Local chains and franchises are also starting to take off, in particular outfits in the food retail seg-ment, such as Fakhreldine Group’s Kebab Express, which has two outlets in local malls.

Big names continue to set up shop in the country, often brought in by Gulf-based franchise holders. Jan-uary 2013 saw the first branch of British chain store Marks and Spencer – a 900-sq-metre outlet in TLC – open in the kingdom. The chain is expanding its pres-ence in the Middle East under a franchise agreement with the UAE’s Al Futtaim Group.

Another major international retail brand due to arrive soon is Swedish mass-market furniture retail-er Ikea, which is opening an outlet on Queen Alia Air-port Road in the capital, at an investment cost of around $55m. Construction of the 42,000-sq-metre store commenced in June 2012, for a scheduled opening in summer 2013. The franchise is being brought to the country by Al Humaidhi Group of Kuwait and Jordan Union Land Development.

Such developments are changing the face of the retail business in the country. “Jordan’s retail scene used to be dominated by mom-and-pop stores,” said Salfi-ti. “Now it is increasingly controlled by regional play-ers such as Al Sha’r from Kuwait and Al Hokair Group from Saudi Arabia,” he said, adding that this had raised standards of professionalism in the segment.

The evolution of the sector has also affected cus-tomers’ expectations. “The change in consumer behav-iour in the past five years is evident,” Imad Bukhari, CEO of Cozmo, told OBG. “Consumers have become more demanding in terms of product selection, quality and pricing as the market has matured.”

The growing presence in the kingdom of such major household names is also likely to help local retailers’ persuade wealthier Jordanians that they no longer need to travel abroad for shopping sprees. “People used to associate shopping with travel, especially as regards medium- to high-end shopping,” said Salfiti. “Customs duties on most apparel products were great-ly reduced a few years back, bringing down prices for shoppers, but still people often have the incorrect pre-conceived notion that Amman is expensive. We are working on changing people’s minds and habits to encourage them to shop locally.”

AUTOMOBILES: Motor vehicles sales revenues stood at JD243m ($342m) in 2010, according to DoS data. Used vehicles account for the great bulk of car sales in the kingdom, where taxes, transportation costs and relatively low incomes compared to GCC states make new cars difficult for many Jordanians to afford.

Regulatory changes affecting the car retail market in 2012 include a five-year age limit that has been imposed on imports of used vehicles into the kingdom and an increase in taxes on conventional cars, from 81% to 90% – though the government reduced taxes on small-engine hybrid vehicles from 55% to 25%, and to 12.5% for drivers replacing a conventional car with a hybrid, in order to encourage more efficient fuel consumption. In November 2012 local media cited claims by dealers that prices had risen by around 15% as a result of the government’s decisions, which togeth-er with fuel price increases had further taken a toll on already stagnant car sales.

PHARMACEUTICALS RETAIL: The gross output of the pharmaceuticals and medical retail segment stood at JD50.7m ($71.2m) in 2010, according to DoS fig-ures. The segment has seen the emergence of a major Jordanian retail player in the form of Pharmacy1, the largest pharmacy chain in the country by far with 54 outlets, as of December 2012 (up from 42 in 2009) and around 600 employees, including 260 pharma-cists. The company has also expanded into other regional markets, such as Saudi Arabia and Iraq, and is working on developing a franchising system outside of Jordan. Based on the company’s experience, the seg-ment appears to be doing well; Luma Aryan-Aref, the senior vice-president for pharmacy services at the firm told OBG that revenues grew by 25% in 2012.

Key aspects of the regulatory framework for the segment include fixed retail prices for any product considered a medicine, including over-the-counter items, and Aryan-Aref told OBG that there is also little variation among other goods sold in pharmacies. This means that pharmacies in Jordan have to find other ways to stand out from the crowd. “Prices for most goods are the same everywhere so the only way to compete is on service,” she said.

Other key regulations include a total ban on adver-tising not only of drugs, but also on marketing of any kind by pharmacies. This is due to an antiquated law from the 1970s that has yet to be adapted to cur-rent times. The regulations are strictly enforced.

Challenges in the segment include attempts by some customers to sell drugs on to others or to return them to the pharmacy for a refund, after hav-ing already been indemnified for their purchase by their insurance company. Aryan-Aref said that some customers try to return counterfeit medicines instead of the original drugs, a problem which is avoided by refusing to accept returns. Aryan-Aref also told OBG that dealing with Jordanian insurance firms can also be difficult because few processes are automated.

HUMAN RESOURCES: According to DoS data, whole-sale, retail and vehicle repair, when combined togeth-er, accounted for 15.4% of the labour force in 2011, which was more than any other private sector activity.

Despite the large number of Jordanians working in the segment, recruiting and holding onto staff can be difficult for retailers. According to one retail leader, human resources can be especially challeng-ing due to high rate of staff turnover, with some positions even changing multiple times a year and difficulties associated with finding well-qualified staff for management positions.

Retailers can also face more unique problems related to cultural issues. For example, Aryan-Aref of Pharmacy1 told OBG that the firm has difficul-ties finding female staff willing to work evening shifts, a particular problem for the segment given that the majority of pharmacists in the kingdom are women. She also noted that finding customer-ori-ented staff can also be a challenge.

“Pharmacy graduates have the knowledge in terms of the science of the profession, which schools here do a very good job of teaching; however it can be harder to find candidates who have the ability to properly talk to a patient,” Aryan-Aref said, though she added that staff in the segment as a whole were becoming increasingly professional.

ONLINE RETAIL: Despite low credit card penetra-tion, e-commerce is growing rapidly and local online retailers have been securing foreign backing. Accord-ing to Arab Advisers Group, Jordanians spent around $370m online in 2011, which was up 92% on 2010 figures. Examples of local online stores include the online supermarket, Sallaty.jo, which was launched in 2011. The site offers around 12,000 products across 11 categories of goods and allows customers to pay by card or in cash on delivery. It was found-ed by local businessman Samia Jarrar with backing from Mena Apps, a Dubai-based firm that invests in and provides support to online content start-ups. Another Jordanian e-retailer, MarkaVIP, received a $10m investment from a European venture capital firm, Prime Ventures, in April 2012.

OUTLOOK: Although plans to raise electricity prices in early 2014 may further hit consumer confidence, the IMF is forecasting that GDP growth will pick up, predicting an increase from 3% in 2012 to 3.5%, and inflation is projected to fall slightly, all of which should support further growth in retail spending. Fur-thermore, despite falls in consumer confidence, sec-tor growth has often managed to outstrip that of the wider economy in the past.

Additional investment in new malls and foreign-backed expansion in the supermarket and other seg-ments are likely to further consolidate the presence of large-scale outlets as well as major international brands and franchises, helping to bring the Jordanian retail segment further in line with regional and internation-al standards of development related to the sector.

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The Report: Jordan 2013

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