In June, Saudi Arabia’s cabinet approved measures to open its retail sector to direct investment by foreigners, allowing companies doing trade in the kingdom to wholly own their businesses. But many companies might not jump at the opportunity to go into a notoriously complicated market alone.
This story first appeared in the August 3, 2016 issue of WWD. Subscribe Today.
Mortimer Singer, chief executive officer of Marvin Traub Associates, has worked with American retailers and brands like Bloomingdale’s and Macy’s to bring them to the Middle East.
“There’s no denying that Saudi is a huge part, if not the linchpin, of the whole GCC [Gulf Cooperation Council] retailing economy,” he said. “But I would still advise my clients planning to go in that they need to have a [local] partner. Navigating Saudi is not a simple proposition. There are significant cultural, not to mention political, questions, not just to answer but to solve with some level of certainty. Partners help with access to clients, the right tastemakers. It’s like having a built-in accelerator.”
Sacoor Bros., a lifestyle brand founded in Lisbon in 1989 and known primarily for tailored suits, has seen significant growth in Dubai, where it operates independently. This year, however, the company revealed a franchise partnership with Majid Al Futtaim Fashion to open 25 stores in Saudi Arabia over the next five years.
“They are the key to success in our regional expansion, supporting us with opening stores, and making introductions in a new country,” said Malik Sacoor, chairman and ceo of Sacoor Bros.
Majid Al Futtaim has had a significant presence in Saudi Arabia for more than 11 years through its Carrefour business, operating 12 hypermarkets and four supermarkets with more than 2,500 employees.
“We see the recent announcement on foreign ownership as a great move for both customers and the retail industry because it introduces more choice and competition in a market that is relatively unrepresented and underserved when it comes to international retailers, especially department stores,” said Ahmed Galal Ismail, ceo of Majid Al Futtaim Ventures. “While some international retailers may consider entering Saudi alone, most would consider regional partners who have a proven presence and retail history in Saudi. Our experience has shown that having an established local presence with deep understanding of the market, culture and regulations takes years, and we’ve invested in the necessary infrastructure and logistics as a must to make our fashion business operations efficient and successful. That’s why brands like Sacoor and Abercrombie & Fitch have chosen us to roll out their brands in [the kingdom].”
MAF will open an A&F in Saudi Arabia in the second half of 2017. “We expect there to be strong demand for our brands in these new markets,” said Arthur Martinez, executive chairman of Abercrombie & Fitch Co., noting the developer will allow A&F to expand its presence in the region.
Another critical component of having a partner is the ability to access the right real estate for stores. Andrea Abrams of Abrams Global advises clients on partnerships and retail expansions in new markets. She said that besides cultural understanding, partners can bring access to critical real estate locations. “There is a unique situation in the Middle East, where retailers are also mall operators. That’s a little different from the U.K. or U.S., where it is very separate. And finding the right retail space can make or break your project.”
Vic Annels, director of the U.K. Trade and Investment Office in Saudi Arabia, which seeks to promote investment from British companies in the country, said, “This is a country with size and scale, and they like to shop. The biggest decision you will ever make isn’t coming to Saudi, but how are you going to enter the market and who you will enter with.”
Annels cautioned that finding the right partner is critical. “If you fall out with a partner in Saudi Arabia, it can take six to seven years to resolve legal disputes.”