More modern shoppers: New retail spaces and brands are opening up the market

Rising incomes facilitated by Algeria’s economic development, coupled with increasing exposure to international brands and modern outlets, are combining to create the right environment for retail expansion. Although most sales are still channelled through the informal sector and small, family-owned stores, growing examples of successful, large-scale retail shopping developments over the past few years have been paving the way for modern shopping ventures.

PAY DAY: Much of the country’s attractiveness for retail operations stems from rising incomes and relative stability. Due to its strong fiscal position, Algeria was able to avoid both the worst effects of the 2008-09 financial crisis, as well as the political and social unrest that bogged down several neighbouring economies in 2011. According to a recent report from the African Development Bank, economic growth over the past year has been driven mainly by “domestic demand supported by significant accumulated revenues and high oil prices”.

Additionally, local firms are capitalising on the spending potential. “Algerian consumers share a strong brand loyalty, particularly towards domestic brands,” Djamel Bekar, the CEO of the Entreprise Nationale des Industries Electroniques, told OBG. “Domestic producers are in a good position to grab market share.”

Available liquidity was in part allowed to trickle down into consumers’ pockets through government policy and social transfers, strengthening consumption patterns by raising the population’s purchasing power. In 2010 and 2011 authorities increased public sector salaries and introduced subsidies for a series of household goods. This came on top of a decade of stable growth in income. According to figures by the World Bank, per capita income in Algeria rose from €1781 in 2001 to about €5244 in 2011.

NEW CONVENIENCES: The retail experience itself has also been changing. A rising number of supermarkets and smaller modern retail outlets are opening in several wilayas (provinces) and competing directly with established informal distributors. But with modern retail only accounting for an estimated 3% of commerce in Algeria, according to Numidis, the Cévital Group’s subsidiary in charge of developing modern retailing, the potential for growth is considerable. International brands are closing in on the market, opening up in some of the capital’s most popular retail areas. After the successful opening of the Bab Ezzouar Shopping Mall in Algiers in 2010, new large-scale projects are planned for other cities around the country, such as Oran, Annaba and Sétif.

MALL GROWTH: With available spending capacity and the level of modern retail offer still in its infancy, developers are seeing the potential for additional types of retail real estate, particularly in terms of traditional Grade-A retail space. According to the National Centre for the Registration of Commerce (Centre National du Registre du Commerce, CNRC), the number of small stores that were registered in the country as of mid-2013 was 632,834, a much larger figure than the 2865 modern retail stores. But the market has already proven that large-scale modern complexes can attract shoppers. According to data compiled by shopping mall operators Sierra Cévital, Algeria has a low gross leasable area (GLA) per inhabitant, estimated at 5 sq metres per 1000 inhabitants, considerably less than the EU’s average of 226 sq metres per 1000 inhabitants. Even compared to neighbouring markets, the development of shopping malls in Algeria falls behind, given Tunisia’s current GLA of 9 sq metres per 1000 inhabitants and Morocco’s GLA of 12 sq metres per 1000 inhabitants.

Part of this is due to the relatively small number of international brands and franchises present in the marketplace, and also in part a result of the difficulty investors have in accessing land (see Real Estate chapter). A considerable number of existing plots around urban centres are classified as agricultural land, which means that operations wishing to build new retail outlets must secure procedural changes to land use denomination to advance their plans. Competition for land is fierce. “Finding land is a challenge, and when you do find it, it is generally expensive,” said Salim Rebrab, the managing director of Numidis. “We are competing for land with residential developers, which have a different financial capability.”

MORE MALLS: As a result, the 2010 opening of the Bab Ezzouar shopping mall – the country’s first – represented something of a milestone for the sector, and three years on, the mall continues to attract an average of 30,000 people a day. Following the success of the first large-scale shopping centre in Algeria, developer Société des Centres Commerciaux d’Algérie decided to take the concept to the eastern city of Oran, where it plans to open a mall in 2015. At an investment of $440m, the new 32,000-sq-metre complex will be located in the community of Es Sénia and will include 20,000 sq metres of retail space.

In 2012 Algerian group Arcofina Holdings, opened the 140,000-sq-metre Ardis Commercial Centre operated by the group’s Ardis brand, as part of Arcofina’s Alger Medina mixed-use project. French retailer Carrefour had initially agreed to be part of the project, but withdrew in 2009, citing the country’s high import duties and unfair competition from the sizeable informal market, although local press reports have indicated that it may yet return.

Also operating in the retail property market, Sidar Algeria, a subsidiary of the Saudi-based real estate developer, created the Al Qods shopping centre in Algiers, which opened in 2008 and has been focusing on the mid-range consumer. Additionally, the group is developing other retail projects, such as a 62, 000-sq-metre commercial and business complex in Oran and smaller shopping centres around the capital.

ONGOING UPGRADES: Existing retail spaces are also being upgraded. Portuguese shopping mall developer Sonae Sierra has partnered with Algerian conglomerate Cévital to take over three leasing and property management contracts for shopping centres in Aïn Defla, Bouïra and Mostaganem, amounting to a combined retail space of 40,390 sq metres. Sierra Cévital will also be in charge of the commercialisation and management of Algerian group Prombati’s new Park Mall, in Sétif, which is set to open in the summer of 2014. The mall will have a total of 30,000 sq metres of retail space and about 100 shops.

BRINGING IN BRANDS: The retail market in Algeria has been traditionally structured around family-owned stores that sold several international brands together in the same space. These are generally stocked by the owner, who acquires a limited number of products from a wide range of different brands abroad and brings them into the country. This is expected to change, though, as more and more international brands strive to secure a solid foothold in the market. “Algerians are educated customers, who understand the difference between the real brand stores and multi-brand stores. I think that, as more and more franchises come in, the multi-brand stores will eventually disappear,” Sobhi Bakir, the operations manager at retail company Azadea Group, told OBG.

This switch in the market is also accelerated by the profile of Algerian consumers, who are developing higher expectations with their increasing purchasing power. The growing number of clothing brands entering the market is tightening competition for the best available spaces, especially in the capital city of Algiers, where modern retail operators can choose between mall spaces and high-end retail neighbourhoods, such as around Didouche Mourad Street in downtown Algiers. “It is very hard to find adequate retail space. This is especially hard for street locations because the available areas are generally small,” Bakir told OBG.

RETAIL RENTS: Yearly rents for retail space in Algeria are generally paid up front and can change considerably, depending on the area. The Bab Ezzouar shopping mall charges between AD30,000 (€285) and AD45,000 (€427.50) per sq metre, for example. Finding available retail space can be especially challenging on Didouche Mourad Street, which runs through central Algiers, connecting the upmarket neighbourhoods to one of the capital’s main squares by the post office building. Prices there can range from €333 to €591 per sq metre per year.

Governmental investment to expand inner-city transport links is also expected to influence the emergence of retail areas in the future. “Didouche Mourad has become even more interesting with the metro because it brings people from several other neighbourhoods in Algiers,” Bakir told OBG.

Sidi Yahia Street in the commune of Hydra in Algiers, is also quickly becoming one of the more sought-after locations in the capital, with brands such as Mango, Aldo and United Colors of Benetton already present, and with French restaurant chain Paul set to join in 2014. Average retail rental prices can go from €296 to €407 per sq metre a year.

Competition for space is set to increase further with the addition of new international heavyweight brands into the market. The country’s first Zara store is set to open by the end of 2013, at the Bab Ezzouar shopping mall and US clothing brand Gap is due to follow in 2014. Both will be managed by Lebanon-based retail company Azadea Group.

SUPERMARKETS: Expansion has also been happening in the fast-moving consumer goods retail segment. Numidis, for example, has been expanding its Uno brand of supermarkets. The group already has four hypermarkets and one supermarket. The Uno at Bab Ezzouar shopping mall has a total area of 5000 sq metres, but the group has also been experimenting with the concept of large retail spaces in less populated places such as Bouïra, where it opened a 5900-sq-metre hypermarket in September 2011 and Aïn Defla, where it inaugurated a 5122-sq-metre store in April 2012. The group also launched a 6150-sq-metre hypermarket in the city of Mostaganem in July 2012, and it is currently looking for additional opportunities to expand in other cities.

The sector should also get a boost if government plans to invest in new retail outlets over the coming years move forward. In late 2012 the Ministry of Commerce announced a strategy to build 270 retail stores across several cities, at a total investment of $250m. Authorities justified this plan with the need to create more retail points to help stem inflation, especially in consumer goods. The large majority of the new government-built outlets, or approximately 240, will be wholesale points, while the remaining 30 will be retail shops. According to figures from the ministry, the country needs a total of 1500 additional stores to improve its distribution networks.

Considering that a large proportion of the land available in Algeria is presently under government control, the initiative to build the new sales points will most likely accelerate the construction process, as most private investors in the retail sector face significant red tape when trying to secure land.

ENHANCED LEGISLATION: The retail sector will also get a big push from stronger legislation. In an effort to facilitate access to the sector, an amendment to Law No. 04-08, which regulates commercial licences, is currently undergoing parliamentary review. Proposed amendments, such as removing the ban on entrepreneurs who have committed criminal offences to open a business, are expected to bring more people into the formal commerce sector. This is linked to the understanding of the authorities that young entrepreneurs are opening businesses informally out of fear that they would not be allowed to get a formal retail licence due to past offences. The government is, however, committed to maintaining a licence ban on offences, such as counterfeiting and copyright infringement. Retaining this measure should also help to give additional guarantees to those international brands wanting to move into the Algerian market.

Additionally, more stringent control has been putting added pressure on informal retailers. Over the first six months of 2013, the Ministry of Commerce undertook 300,000 inspections which led to seizures of merchandise totalling €29m. Authorities told local media that they would attempt to reduce informal commerce by about 80% in 2013. Although this measure is expected to be well received by operators that will benefit from a more structured retail environment, opposition is also anticipated from some groups of the urban population, where informal commerce remains an important way to earn income.

On the other side of the spectrum, authorities are becoming increasingly aware of the need to protect international brand names to make the prospect of establishing themselves in Algeria attractive. “Once you show the authorities that you are the legal representative of the brand in Algeria, the Customs authorities will prevent parallel exports to come through the airport,” Bakir told OBG. “The law really protects franchises. Once you have all the paperwork in order, they put you on an expedited list, which shortens clearance times for branded products.” Better protection will likely tighten the market by making it harder for the multi-brand stores to compete.

OUTLOOK: A stable rhythm of economic growth is expected to help maintain Algeria’s reputation as an interesting market for retailers. The easing of clearance procedures as the government implements a new system over the coming years will do much to bring a certain level of predictability for brands trying to enter the market. This will make the country even more attractive for retailers and international brands.

Still, other challenges must be overcome. The availability of land, especially in and around populated areas of the country where most of the demand is concentrated, will determine the pace at which modern retail can grow. As malls and supermarkets move away from the capital and try to establish themselves in other urban areas of the country, new concepts and diverse offers might be necessary to compete with the traditionally established family-owned stores. The increase of formal retail options emerging outside of the country’s shopping malls will also do much to attract new waves of consumers into the sector.

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The Report: Algeria 2013

Industry & Retail chapter from The Report: Algeria 2013

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