British brands find hope in the Gulf
They did it before and had their fingers burnt. Who can forget the ignominious retreat from France by Marks & Spencer, which 11 years ago had to lower the Union Jack on its European stores.
But now British retailers are pushing overseas again and the Middle East is one of their priority markets.
Faced with low growth or even no growth at home, they are looking overseas to counter the chill on the British high street. Familiar brands like M&S have been taken to heart by the local Gulf communities: the company sold 160,000 bras in the region last year, a 74 per cent increase on 2010.
“With the current financial landscape in the West, retailers are looking for alternative sources of sales,” says David Macadam, the head of retail for the Middle East and North Africa (Mena) at the property consultancy Jones Lang LaSalle.
“The region has great spending capacity and the demographics are in retailers’ favour. Shopping is part of the culture. There is a relatively small population in the UAE, but it has some of the highest earning malls in the world,” Mr Macadam says.
M&S, which works with its franchise partners Al-Futtaim and Al Hokair, opened five stores in the region last year, taking its total to 30.
“We’re committed to building our presence in the Middle East as one of our priority international markets,” says Mark Koprowski, M&S’s regional director for Mena.
Sales in the region jumped by 19 per cent last year compared with 2010, and the company’s rivals have been quick to notice.
This year, the supermarket chains Asda and Tesco have announced they will expand in the region.
The bookseller WH Smith is also making a big push, as is the Scottish fashion retailer M&Co, which plans to open 12 stores in the UAE during the next five years and 30 around the Gulf in Kuwait, Oman, Bahrain and Saudi Arabia.
House of Fraser, another major brand, is moving in. The department store chain will open its first store in Abu Dhabi next year, while Mothercare, which sells baby clothes and supplies, has expanded happily into the region.
The upmarket food group Waitrose is also expanding in the Middle East. Even Poundstretcher, the recession-busting shop where a range of plastic general goods, toys and stationery is sold for a £1 per item, has opened in the Madina Mall in Dubai, bringing its motto “every penny counts” to local shoppers.
John Stevenson, the general retail analyst at Peel Hunt, a brokerage specialising in medium-sized companies in the United Kingdom, explains that this time around, the brands have found a way to expand with significantly less risk.
“In the early [2000s], British retailers were not too adept at expanding internationally, and there were a number of high-profile disasters,” he says. “This time, they are using joint ventures and franchising to access high-growth markets such as India, China and the Gulf states.”
In a franchise agreement, the retailers will typically take a royalty on any sale made. The franchise partner will also fund any capital investment. This allows British retailers to quickly roll-out international outlets, without any capital constraints and without the risk of entering markets that they do not understand.
Franchise partners tend to have good access to space in prime new developments, which a UK retailer, working alone, might struggle to secure.
The downside to franchising is that the potential returns are limited, unless the parent company later decides to buy out the agreements and move to a joint venture.
Tesco is working with Fawaz Abdulaziz Al Hokair Group and opened its first F&F clothing store in Jeddah this year. The store will be based on its core F&F clothing collection for men, women and children.