A combination of political instability, falling consumer confidence and a currency devaluation has translated into inconsistent performance for Tunisia’s retail sector in recent years. However, despite the difficulties, the formalisation of distribution networks, and the increase in global brands and food franchises continues to expand modern shopping opportunities. The government’s commitment to security upgrades after the terrorist attack in 2015 is likely to positively impact buyer confidence in 2018, especially as the number of foreign tourists is once again on the rise. While certain macroeconomic conditions and regulatory changes have had a noticeable effect on purchasing power, the retail sector continues to present good prospects for domestic and international operators alike.
On the Ground
As the smallest country in North-west Africa by area, Tunisia lacks the sizeable population of neighbouring Algeria as well as the competitive formal sector that characterises Morocco’s retail sector. However, the country’s cultural links to Europe and its fairly substantial middle class have made it an interesting market for expansion over the past 15 years.
The sector is not without its challenges, however. The informal marketplace, which has traditionally been a hindrance for other regional retail markets too, has taken a stronger role in Tunisia’s commerce activities following the 2011 revolution and subsequent economic instability. According to a 2017 study by the Confederation of Corporate Citizens of Tunisia, a employers’ union, the value of the informal segment was estimated at 38% of GDP.
In addition, as is the case throughout the region, small shopkeepers have proved resilient in the face of modern retail development and continue to hold a dominant place. While the sector thus remains underdeveloped in comparison to its Maghreb peers, there are significant opportunities for investors.
Sector Figures
According to consulting firm AT Kearney’s 2017 Global Retail Development Index, which tracks the top-30 developing retail markets worldwide, Tunisian retail sales totalled $15bn in 2016. Marginal improvements across all dimensions on the index saw Tunisia increase its position by two places on the previous year, ranking 24th overall in terms of attractiveness for retail development. To compare, Morocco came in ninth place, followed by Saudi Arabia (11th), Algeria (14th) and Jordan (15th).
Furthermore, according to the market saturation category on AT Kearney’s index, Tunisia scored 74.4 out of 100 points, indicating that the market still remains somewhat underexplored in terms of retail offerings, leaving ample room for development. Jordan scored 64.7 points in the category, followed by Morocco with 64.5 and Saudi Arabia with 22.
The retail landscape in Tunisia is affected by a range of demographic factors. The population of 11.5m as of October 2017 is growing at 1.1% annually, with well over 2m living in Tunis alone. Per capita income, meanwhile, stood at €3689 for 2016, down from €3588 in 2015, according to the latest available figures from the World Bank.
Modern Distribution
Despite the prevalence of small corner shops, modern distribution is increasing, with global supermarket and retail chains expanding their offerings both through hypermarket locations as well as smaller stores that cater to specific neighbourhoods. Still, according to AT Kearney, organised grocery retail remains underdeveloped compared with Morocco and Algeria, even as French companies like Carrefour and Monoprix, and health food chain Mg Maxi increase their market presence via store openings and competitive pricing.
According to a 2017 report by multinational retail banking company Santander Bank, modern distribution generated annual sales of about TD800m (€307.2m) and accounted for roughly 2% of overall GDP. Between 2013 and 2017 the segment grew at an annual rate of around 15%, with modern distribution channels now accounting for roughly 20% of the total retail market.
City Concentration
This expansion has closely followed the country’s regional poles of development, concentrating retail offerings in the capital Tunis and seaside communities, which accommodate two-thirds of the population and roughly 80% of spending power. However, with around 33% of the population inhabiting rural areas, the segment still has a large areas in need of service. In these districts, small locally owned corner grocery shops account for a large proportion of the retail sales.
Even in large urban areas, however, a fragmented network of localised grocery sellers operating from small shops holds sway over the distribution of daily food products. On average, Tunisians allocate roughly 34% of their household expenditure to food items, preferring to acquire perishable goods daily in close proximity to their homes, restricting the number of trips to larger hypermarkets. As of mid-2017, 210,000 small grocery stores were operating across the country, according to Export.gov, a body that helps US firms export to international markets.
To protect the current sector structure that combines both small stores and larger distribution chains, regulations limit the participation of foreign operators in retail and wholesale businesses by enforcing the need to participate in joint-venture agreements with Tunisian firms. Regulations are especially limiting for the establishment of hypermarkets, as the rules set limits on the number of such facilities in any one area, and permits require authorisation by the Ministry of Industry and Trade.
Despite this, modern retail distribution channels are growing rapidly, with the government aiming for such businesses to make up 50% of the market in the coming years, up from 20% in 2017. As of mid-2017 there were over 250 modern distribution stores, including two hypermarkets, 150 supermarkets and over 100 smaller shops. By 2019, $670m is set to be invested in the construction of six new hypermarkets, each with a retail area averaging 1500 sq metres, according to Export.gov.
Shopping Malls
Another important development helping to bring big-name brands into the country is the construction of modern shopping centres. Although the concept of dedicated retail areas has been present domestically for years, such properties have historically been limited to B- and C-class real estate, lacking modern amenities and global brands. However, the country has witnessed an expansion of modern commercial space, especially with the opening of Tunisia Mall in December 2015, which marked a milestone in the sector’s development. This 37,000-sq-metre shopping facility in the upscale neighbourhood of Berges du Lac in the capital, was constructed by local developer Chaabane Group for TD130m (€49.9m).
November 2017 saw the inauguration of Tunisia Mall II, a 28,000-sq-metre extension bringing the entire complex to over 60,000 sq metres, housing 130 brands. At an estimated cost of TD58m (€22.3m) Tunisia Mall II will create nearly 500 jobs, with the shopping centre expecting an annual footfall of over 5m people, or nearly 15,000 per day – similar to figures seen with the first Tunisia Mall opening.
Among other large-scale retail projects set to open in 2018 are Bourgo Mall, a 20,000-sq-metre shopping centre on Djerba island, and Azur City, a mall near Ben Arous built by the real estate group Mabrouk. “Real estate infrastructure for retail is growing rapidly. There are approximately 10 malls currently under construction, representing between 200,000 and 300,000 sq metres of commercial surface,” Sami Ben Ayed, general manager at cosmetics and perfume suppliers Fatales, told OBG.
Brand Arrivals
The rise of well-equipped retail space is prompting the arrival of new international brands, such as French sporting goods retailer Decathlon, which opened its first store in November 2017. The 1500-sq-metre unit is located in the capital’s Tunis City shopping centre, and plans have been announced to open a second 1300-sq-metre Decathlon store in the northern Tunis suburb of La Marsa during the first half of 2018.
Among the fastest-growing retail segments are fashion and clothing. In partnership with local operator Master Retail, Spain’s second-largest fashion retailer Cortefiel Group introduced two of its flagship brands, Springfield and Women’s Secret, in 2016. In September the Géant Casino shopping area in Tunis welcomed a 260-sq-metre Springfield store, which retails clothing for men and women in the 18-35-year demographic, and a 95-sq-metre Women’s Secret, which focuses on lingerie. Cortefiel also inaugurated two more Springfield outlets in the capital – a 58-sq-metre store inside Carrefour in La Marsa focusing exclusively on women’s clothing and a 150-sq-metre shop at the Central Park shopping centre. The group expects to open 10 more Springfield stores and five more Women’s Secret outlets before 2021, according to local media reports.
Luxury retail will be boosted by the return of visitors from European markets and the opening of new five-star hotels. Among the most noticeable launches include the Four Seasons Hotel and Resorts, which, in collaboration with Mabrouk, opened its new 203-room Tunis hotel in late 2017. Meanwhile, Marriott is preparing its return to Tunisia with its new five-star Marriott Tunis. Such openings should bolster the arrival of visitors with greater purchasing power and therefore support the performance of luxury retail in the medium term (see Tourism chapter). Indeed, financial outlet Bloomberg included the country as one of its 22 recommended tourism destinations for 2018, citing its recent luxury brand development as a factor.
High-end retail in the capital city will also benefit from the development the Tunis Financial Harbour in the northern suburbs of Tunis from Kalâat El Andalous to Raoued. A partnership between Bahraini investment bank Gulf Financial House and the Tunis Bay Development Company, the $3bn project is set to include office space, residential units and leisure facilities spread over a surface of 523 ha in Ariana, accommodating up to 67,000 visitors per day. The project will feature a 80-ha golf course, a 100,000-sq-metre mall and a souq, among other amenities and commercial spaces. The development is expected to create more than 16,000 jobs.
Online Commerce
Beyond shopping centre development, online options are gaining a foothold, with access to banking services and the number of internet users in Tunisia increasing at a rapid pace. Between 2009 and 2017 the internet penetration rate rose from 6% to 72.2%, according to the Ministry of Communication, Technologies and Digital Economy, with the rise in smartphones seeing the number of mobile internet connections passing 6.7m in 2017 (see IT chapter).
The e-commerce segment recorded 2.4m transactions and an annual turnover of around TD166m (€63.7m) in 2017, according to March 2018 statements by Omar Al Bahi, the minister of commerce. Clothing, perfumes and cosmetics are the most common purchases made online, although this may change as grocery retailers expand their virtual presence. As online stores gain a larger share of the market, retailers are shifting their focus from traditional brick-and-mortar shops to e-purchases. It is not uncommon for new Tunisian retailers to first test the market through an online sales platform before engaging in development of a physical shop.
A number of challenges face the segment, however. According to Al Bahi, as e-commerce is playing an increasingly important social and economic role, more efforts are needed to focus on consumer protections and increasing the safety of online payments. Additionally, despite the potential for nationwide coverage, online trends still follow the same existing regional disparities as traditional retail expansion, with about 98% of internet sales taking place in the urban centres and coastal cities of Tunis, Sfax, Gabès and Sousse, according to local media reports. The dinar’s non-convertible status also restricts cross-border transactions, with the exception of specific – and very infrequent – allowances granted from the Central Bank of Tunisia.
Regulation
Consumer purchasing power is also likely to be affected by regulatory changes and increased tax obligations, which are expected to be passed on to consumers in the form of higher prices. The 2018 Budget Law, in particular, which was approved by Parliament in December 2017, increases corporate taxes from 25% to 35% for retail areas, car dealerships and franchise operators. The new regulations also include a rise in value-added tax, a levy on telecommunications services and higher import duties. This is in addition to two price hikes in 2017, which amounted to a combined increase of 9.5% on the price of fuel.
Outlook
Tunisia’s retail sector has been affected by economic instability over several years. This situation has made it more difficult for retail operators to properly gauge opportunities and demand patterns. However, the country’s progressive stabilisation and the government’s commitment to safety is having positive effects, especially as tourists have started to return. The modern distribution sector has continued to thrive in recent years, with international franchising and supermarket brands expanding and large-scale retail outlets growing in prominence.
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