Hennes & Mauritz (H&M), MAC Cosmetics, The Body Shop, Esteé Lauder, Limited Too, Clinique, and Foot Locker- have all partnered with the Kuwait-based M.H. Alshaya Co. to establish a brand presence in the region
Why is it that some of the West’s biggest brands rely on a company that started in the Arabian Gulf at the end of the 19th century? How does this company—now operating more than 1,400 stores in the Middle East—help Western brands navigate the consumer market there? Additionally, how has it emerged as the go-to company to help those same retail brands expand into other international emerging markets, such as the Czech Republic and Russia?
M.H. Alshaya Co. traces its roots back to the early 1890s, when it began trading with India. When the oil boom began, the company began building its financial empire, making significant inroads and fortunes by branching out beyond simple trade and successfully investing in real estate and hotels. Although known today mostly for retail investments, Alshaya’s role as a brand tour guide for Western companies began in 1965, when it opened a Sheraton in Kuwait City—a significant move, considering it was the first time the hotel company had opened a location outside the US. Today, when it comes to retail in the Middle East, there’s no bigger player than M.H. Alshaya. Just consider that in the small, oil-rich country of Qatar, on a peninsula in the Persian Gulf, you’ll find that staple of the American suburban mall—accessory stores targeting teenage girls looking for US$ 4 hoop earrings and $US 3 belly button rings. In fact, accessory store Claire’s operates six locations in Qatar and 25 in Kuwait.
More recently, Payless Shoe Source—yet another staple of the American mall—announced plans to bring its bargain shoe concept to the Middle East, aiming to open as many as 200 stores. Western retail executives have rejected the once prevailing perception of the Middle East as a region beset by instability, terrorism and Islamic fundamentalism. Instead, these executives view the region as an untapped market of voracious and underserved shopaholics.
“The people of the Middle East are young, vibrant and love to shop—frequenting malls and other shopping venues is a significant leisure activity, with customer visits as often as three times a week,” said Matthew Rubel, CEO and chairman of Collective Brands, Inc. (which owns the Payless brand) in a September press release announcing his company’s deal with M.H. Alshaya. “Consumers in the Middle East want the latest fashions. Women, in particular, enjoy expressing themselves through shoes and accessories. We are thrilled to have such a tremendous franchisee in Alshaya, with its significant retail expertise, infrastructure and deep knowledge of the region.”
The reputation of Alshaya is unrivaled. So when Swedish clothing company H&M made its debut in Oman in November 2008, it chose M.H. Alshaya to help bring its fast-fashion to the Middle East (the brand also operates in Bahrain and Saudi Arabia).
So how did this Kuwait-based company turn into the unofficial tour guide of Western brands who wanted to tap into a booming consumer class enriched by petrodollars? Experts on retailing in the Middle East attribute the success of M.H. Alshaya to its executive chairman and fourth-generation leader of the company, Mohammed Alshaya, who is no stranger to American and Western mores. He is a graduate of The Wharton School of Business at the University of Pennsylvania, where he earned a master’s degree in business administration.
“The inspiration and professionalism of Mohammed Alshaya himself [were needed] at a time, almost 20 years ago, when the quality and standards of retailing in the Middle East were quite archaic compared with Western Europe and North America,” according to Simon Thomson, an expert on retail development in the Middle East and owner of the UK-based consulting firm Retail International.
Alshaya’s foray into the retailing business began in 1983 when the company struck a deal with UK retailer Mothercare. Since then it has earned a reputation as the go-to franchisee when Western retail brands want to expand into the region.
Today the Kuwait-based company functions as an international franchisee, operating more than 40 of the most iconic retail brands, including Foot Locker, Mothercare, Debenhams, River Island and Boots. In all it has 1,400 stores in 16 countries. M.H. Alshaya Co. is the retail division of the Alshaya Group, which has roots in Kuwait and operates in other sectors, including the hotel and automotive industries.
Convincing Western brands to expand to the Middle East hasn’t always been easy. In a June 2008 interview with the Financial Times, Alshaya talked about the region’s link with conflict and extremism and said he was able to convince brands to open locations in the region by offering to shoulder the risk of expansion. “It’s hard work because this is a small market, and in the Middle East it’s always the [negative] stereotype,” he said.
By working deals with Western brands to franchise in the Gulf Cooperation Council (GCC), which refers to the Arab States of the Gulf—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates—Alshaya bore the development costs and risks. That’s been another key component of the company’s success, according to Thomson. “In the GCC countries, historically it has not been legally possible for a foreign company to operate without a local majority owning partner…Thus franchise has become the readily acceptable format for foreign retail brands to establish a presence in the region. Franchise also suits the franchisor very well in that the downside risk is minimal because the local franchisee provides most of the resources—financial, human and real estate,” he said. “The Middle East is perceived by those who do not know the area as politically high risk and franchise would be the only way of getting foreign brands into the region.”
Indeed, the region has been transformed by a breathtaking expansion of retail space over the last two decades. In the early 1990s, there were only about 5 million square feet of leasable space in shopping centers in the GCC. That figure swelled to 53 million in 2006 and is expected to top 130 million square feet by 2010, according to the 2006 report “The Middle East Real Estate Dynamic” by Retail International.
M.H. Alshaya’s reputation is no longer limited to expertise in Middle East retail. More recently, the firm has started opening franchise locations in emerging markets. When the Body Shop wanted to open up the market in Russia, M.H. Alshaya paved the way there and has also helped Western brands go beyond the oil-rich countries of the Gulf, recently opening retail stores in Turkey, Russia and Eastern Europe.
Alshaya told the Financial Times: “Whenever there is something that makes sense and we understand how we can turn it around or encourage it to take on more aggressive expansion…we will look into it.”
As the bloodletting in US and European retail markets continues unabated, with the scuttling of store openings and the continuing precipitous slide in consumer spending and confidence, it’s not hard to understand why Western brands would continue to expand in the Middle East, especially the Gulf region.
And that’s exactly what is happening.
Just recently, Alshaya told Gulf News, a major newspaper in the region, his firm would forge ahead despite the global financial crisis and open 450 new stores in 2009, mostly in the Middle East. He also said he’d been approached by international brands facing slower growth at home. “Others had not thought of going international and they are dependent on their home markets [but] now they are thinking of an opportunity in an emerging market,” he said.
Source: brandchannel.com
Author: Mya Frazier
Mya Frazier is an independent business journalist based out of Columbus, Ohio. She is a frequent contributor to Advertising Age and a former advertising columnist and reporter at The Cleveland Plain Dealer and Cincinnati Business Courier.
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