Jordan's retail sector poised for expansion as population grows

The retail sector has shown consistent growth in recent years, with the Central Bank of Jordan (CBJ) estimating its contribution to GDP at JD1.13bn ($1.6bn) in 2015. This figure is from a GDP of JD11.4bn ($15.5bn), or around 10% of the overall total. Retail is also a major source of employment. The Department of Statistics (DoS) recorded 173,179 private sector employees in the services, shops and market sales segments for 2014, along with 19,077 in the public sector. This figure was out of workforce totals of 733,536 and 327,671, respectively.

The Global Retail Development Index (GRDI) compiled by AT Kearney for 2015 ranked Jordan 25th out of 30 emerging markets surveyed. This was higher than regional peers Oman (26th) and Kuwait (27th), but lower than Saudi Arabia (17th) and the UAE (7th). Jordan dropped three places from its ranking in 2014, however, with AT Kearney attributing this primarily to the increased risk caused by the conflicts in neighbouring Syria and Iraq. The report noted, however, that these events were external to Jordan, which remained stable.

Sector Growth

Retail has continued to expand despite these factors, showing a compound annual growth rate (CAGR) of 7.1% over the 2010-14 period. AT Kearney projected 6% annual growth and noted that Jordan remained “the Middle East’s least saturated market in the GRDI”, with a ranking of 64.2% in this regard (the higher the score, the lower the saturation). In contrast, the UAE scored 16.5% and Oman 24.9%. This shows the great potential for retail growth in the kingdom, where total retail sales for 2015 reached $13.7bn, with AT Kearney continuing to regard the kingdom as recommended for long-term consideration, given its strong fundamentals.

One of these advantages is Jordan’s population. According to the DoS, the country counted 9.7m residents in May 2016, up from an estimated 6.25m at the start of the Syrian conflict in 2011. These figures reveal the impact of the war on the kingdom, where between 630,000 and 1.2m Syrian refugees are now living. The population of the country grew by a CAGR of 9.17% over five years, compared to around 2.2% prior to the beginning of the conflict. This has had a major effect on retail demand, although the increasing level of poverty within the refugee population has meant a major decline in the purchasing power of these new arrivals.

The spending power of the non-refugee population has also been affected by regional events. Economic growth in real terms has slowed in recent years, from 3.1% in 2014 to 2.4% in 2015. Behind this is the loss of neighbouring markets and the fall in oil and gas prices, which has affected growth among Gulf Cooperation Council (GCC) member states. With many Jordanians working in the Gulf, and the kingdom a major recipient of grants from the GCC, this slowdown has been felt throughout the country. Nonetheless, the retail sector has overcome some extremely challenging economic and political conditions and continues to expand.

Consumer Profile

According to the most recent census in 2015, Jordan has a total population of 9.5m. The most recent DoS demographic data, from 2014, shows that Jordanians live in households of an average size of 5.4 persons – a figure that has gradually declined since 1979, when the average household contained 6.7 persons. In 2014 the DoS also reported that 37.3% of the population were under 15 years of age, with 3.3% over 65. The country is thus predominantly young a one.

The population is also highly concentrated in the north of the country, with the Amman governorate, where the capital is situated, possessing an estimated population of 2.58m native-born Jordanians in 2014. The next largest governorate was Irbid, with 1.19m, followed by Zarqa, with 994,500. The country’s population is thus largely centred around a few northern conurbations, although the main route for cargo imports, Aqaba, lies in the far south. This can lead to additional transportation costs for many retail operations. Amman, long the centre of modern retail in the kingdom, divides into west and east. The former is less populated, but its inhabitants generally have a higher income, making it the focus of most mall development. Key districts include Abdali and Shmeisani, the residential area of Abdoun and the historic district of Jabal Amman.

Still Going Strong

However, many Jordanians continue to use traditional retail arrangements to meet many of their daily needs. Indeed, figures from the DoS for 2013 show the gross value added (GVA) of stalls and markets for food, beverages and tobacco products at JD564,000 ($793,000), a significant increase on JD403,000 ($567,000) in 2012. In this product segment, non-specialised local stores continued to dominate, contributing JD119.4m ($167.9m) of GVA in 2013, slightly up on JD118.9m ($167.2m) in 2012. Retail sales of food, beverages and tobacco in specialised stores – specifically supermarkets and hypermarkets – saw their GVA rise from JD71.9m ($101.1m) to JD73.2m ($102.9m) over the same period, with this segment’s share of the total growing marginally from 37.6% to 37.9%.

Other retail segments also saw expansion. Retail sales of computers, peripherals, software and telecommunications equipment in specialised stores rose from JD49.6m ($69.8m) to JD51.5m ($72.4m), while electrical household appliances, furniture, lighting and other household articles sold in specialised stores saw sales go from JD80.6m ($113.4m) to JD82.9m ($116.6m). Books, newspapers and stationary sales from specialised stores also increased, from JD1m ($1.4m) to JD1.4m ($2m).

The Hard Sell

While growth was steady across different market segments, a breakthrough by specialised, modern-format stores is unlikely to be seen at any point in the near future. It may be that the increase in market and stall sales is also a reflection of growing levels of poverty among the refugee community in particular, with highly price-conscious consumers in the national community also shying away from branded, formal retail in favour of non-specialised, less formal outlets. These continue to exist in large numbers, without the kind of consolidation that comes with the transition to a more modern retail format.

Some of this is related to consumer preferences. “Jordanians tend to follow trends rather than explore new offerings; in essence, they either continue consuming whatever their parents consumed or slowly begin to follow regional trends in consumption,” Kamil Nader, CEO of Nader Group, told OBG. “They have a distrust towards ‘white brands’ or supermarket brands, and this whole category is not well developed in our market – especially bearing in mind the limited amount of disposable income that they do not wish to risk on an unknown, albeit cheaper, label.” Furthermore, according to Sultan Allan, head of the Textile and Ready-made Garments Syndicate, Jordan had one clothing outlet for every 650 people as of January 2016, while in the US the ratio was closer to one for every 3200.

New Malls

Nonetheless, the physical size of the modern retail segment continues to expand dramatically. In April 2016 the Abdali Mall opened in Amman, adding some 55,867 sq metres of net leasable space on a 227,327-sq-metre site. The mall is part of a more than 2m-sq-metre mixed-use development project that is spread over five floors, with five basement floors housing a smart and easy-to- access car park that accommodates 2400 vehicles. Divided into three segments, this latest addition to West Amman’s retail portfolio places its shops and stores alongside an entertainment segment with nine cinema screens, and food and beverage facilities including a food court, cafés, restaurants and a spacious supermarket.

In April 2016 Saudi Arabia-based Al Othaim Leisure and Tourism signed with Abdali Mall to lease 3600 sq metres of space to provide a family entertainment centre. Later, in June 2016 Abdali Mall Company, the privately owned developer and operator of the facility, announced that clothing brands Tati, from France, and Matalan, from the UK, would be opening outlets, and both retailers have since started operations in the shopping centre. Lebanese lifestyle retail group Azadea also maintains a large presence in the mall, with 15 stores in total. Abdali Mall thus looks likely to capture a major share of the higher end of retail business in the capital city. The shopping centre will also add space to the Abdali complex The Boulevard, which has some 40,000 sq metres of retail space already in operation.

Other high-end retail developments include a series of shopping arcades in some of the city’s upcoming hotels. The St Regis, due to open in June 2017, is set to have a retail district covering three floors of the hotel, alongside luxury residences. Other hotels soon to open and offering high-end retail space include the Fairmont; the W, opening in March 2017; and Le Gray Living, which also offers a complex of residences, offices and outlets.

These projects join a list of established malls in the capital. These include the Al Baraka and Avenue malls in Sweifieh, a district they share with the Galleria Mall; the Taj Lifestyle in Abdoun; the Zara Centre in Wadi Saqra; and the Mecca Mall, close to the City Mall, on King Abdullah II Street. The latter has the country’s largest hypermarket, a Carrefour outlet. The French retailer also has a store in Galleria and a third in the Irbid City Centre Mall.

Beyond The Capital

Outside Amman, malls have also been spreading in recent years, with several new mall and organised retail projects also now under way beyond the traditional centres of the capital. In Aqaba, the $10bn Marsa Zayed project is a mixed-use waterfront area redevelopment scheme, with the nearby Saraya Aqaba project – a tourism and leisure development with a man-made lagoon – also adding retail, hotel and residential space. Phase One of Marsa Zayed, including a mosque and village, is due to be completed in 2017, with later phases to feature retail facilities. Meanwhile, Saraya Aqaba saw the filling of the artificial lagoon with water at the end of 2015, with work continuing on the site.

A major development under construction is Ayla Oasis, which is being overseen by the Ayla Oasis Development Company. Ayla will be a waterfront development that stretches across 17 km of shoreline in Aqaba and covers 4.3m sq metres. Intended to tie into the Aqaba Special Economic Zone Authority’s plans to transform the city into a business hub and travel destination, Ayla will offer residential units, commercial and retail space, five-star and boutique hotels, a marina and an 18-hole golf course. The city would be divided into five districts, namely, Marina, Lagoons, Creek, Golf Hills and Avenue. With construction starting in 2008, the development will unfold over three phases to span 12 years. The first is under way and set to be completed in 2018.

Elsewhere, Samarah Mall, on the Dead Sea opened in 2014, with retail, restaurants and residential units the first phase of a major development, which will continue a planned expansion for the next five years.

Prices & Incomes

Overall, prices have seen only minor growth in Jordan in recent times, with some products even seeing price deflation. According to CBJ statistics, in May 2015 the consumer price index (CPI) stood 0.1% down on the previous month, while, at 114.6 points – with 2010 as 100 points – it was 1.9 points down from May 2014. Overall, the CPI in 2015 fell 0.9% on 2014 as well.

Between May 2015 and May 2016, food and non-alcoholic beverages decreased from 114.8 points to 110.8 points – the biggest decline – while clothing and household goods both saw some inflation. The former went from 129.8 to 133.5 points, the latter from 112.8 to 114 points. In terms of other household expenditures affecting disposable income and retail behaviour, rents showed a continuous increase, from 125.3 to 129.3, while fuel and lighting costs fell, from 108.6 to 100.6, reflecting declining international oil and gas prices.

Fuel Prices

The liberalisation of Jordan’s fuel retail market has been under way for a number of years, with the previous monopoly held by the Jordan Petroleum Refinery Company now broken. This has allowed private retailers, such as Total and Manaseer, to supply products to some 350 service stations across the country.

The process of liberalisation is still in progress, however, with a 2019 date set for completion. Calls for upward revisions of margins for both distributors and station retailers have recently been made. Further regulation on the location of service stations, environmental and safety measures, and customer service are likely to affect a long-term transition from small petrol stations to larger service stations, complete with retail outlets and cafés.

Meanwhile, although recent price declines have been good news for consumers and retail businesses, the environment remains a challenging one, and many consumers report perceiving ever-increasing prices. In early 2016 news came that certain international clothing brands were either pulling their stores out of Jordan or scaling back on investment. This refocused attention on the cost of doing retail business, especially at the higher end, at a time of economic slowdown. Customs fees of around 20%, plus an 8% sales tax on international brands and a 2% income tax, constitute major challenges for the sector, with the growing supply of high-end outlets making for an increasingly competitive market.

Taking Charge

However, the government has taken some steps to assist. The 8% international brand sales tax was halved from 16% in 2015. Where more might be done, shopping mall owners suggest, is in reforming the property taxes for large retail outlets. According to the owners’ association, property tax is levied on the whole area of a site, rather than on the leasable space, adding to costs. Malls are also major consumers of electricity. Mall owners have thus lobbied for their facilities to be categorised in the same way as hotels when it comes to electricity charges, with these being around half what the malls currently pay.

There have also been calls for a new consumer protection law in the country. At the moment, the Consumer Protection Society monitors prices and standards on a kingdom-wide basis. The society also tries to spread consumer awareness, yet it is often unable to affect changes given current inadequacies in the basic law, particularly when it comes to enforcement in cases of unfair pricing.

Outlook

The sector’s immediate future is tied closely to that of the overall economy, with this in turn subject to a number of external uncertainties. The conflicts in Syria and Iraq look likely to continue to impose constraints on economic growth, while the overall regional downturn caused by lower oil and gas prices will also have a knock-on effect on the kingdom’s economy and consumer spending.

At the same time, however, the fundamentals remain strong. Jordan has major room for growth in the modern, organised retail segment, as its population also continues to grow. It has a unique geographical location, making it a natural corridor for growth in the surrounding region, as well as a convenient destination for shoppers from abroad. With any easing in regional tensions, the kingdom has the capacity to position itself for more robust future growth. Alongside more active government and private sector cooperation in ironing out legislation that affects the sector, the footfall may only increase in Jordan’s burgeoning retail environment.

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