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‘Our focus now is on retail and shopping malls’

Interview - December 10, 2012
Dr. Abdulmajeed A. Alhokair is Senior Vice-President of Fawaz Alhokair Group, one of the leading conglomerates in Saudi Arabia and is involved in various sectors, including retail, real estate, construction, financial services, healthcare and hospitality. In an exclusive interview with United World he discusses the Saudi economy, recent changes in the kingdom’s retail sector, the importance of logistics and the company’s expansion

We are following the King’s vision for the country very closely in terms of how the youth will be empowered and how there will be major investments in education, health, infrastructure and others. We would like to know what your perspective is as far as a general view of the country is concerned and where do you think the country is headed right now.

You know that over the last few years, the King and the government have made major changes in Saudi Arabia. They have invested heavily in infrastructure and trained university students both abroad and at home in order to improve education. In the last three or four years with the financial crisis, Saudi has not been negatively affected by the crisis. I can say the opposite; and I believe that we have actually improved performance. I have seen that the Saudi economy has been excellent and has proved to be much better than we originally thought. This is all a part of the King’s vision and we can see this in the results over the last two years; everyone is saying that the results have really been a major improvement in life. We are sure that the economy is very strong.

We have seen, throughout our reports and World Bank reports, that it is becoming easier to do business here in Saudi Arabia, and this will really increase the added value of the country by bringing in such a level of international business. What is your opinion?

I can say that business here is easier, but not quite to the standards that we would like and that we are hoping for. There is still far too much room for improvement, even though we can say that it is easier than before. We would like to be more of an advanced country, where it is extremely easy to do business. We are happy with the improvements that have been made. The idea is to always move forward.

What would really change this?

There are two areas which are constantly raised as an issue by our international partners and one we also notice from travelling extensively. First, the process of issuing visa to visit Saudi Arabia needs to improve, as at present it is a major barrier. We have to travel to Dubai or Istanbul to conduct meetings. We need to make Saudi Arabia more accessible. Secondly, the constant change in regulations for customs and importing goods into the kingdom. Whilst there has been an improvement recently, some changes are creating obstacles. We need to move forward with the rest of the world to, for example, a paperless process for customs clearance and within a time frame of six hours from arrival. Our business has over 100 shipments a week and it is becoming very difficult. There have been significant improvements at the Ministry of Labour over the last two or three years, as well as in the Ministry of Commerce. It will happen that the other two do improve, and the good thing is that the government has started to listen to the complaints.

When they see improvements, they will follow. Now that we talked about the economy, what is your view of the retail sector here and what have been the changes since we wrote about it six years ago?

The retail sector here in Saudi has improved significantly and we can say that it is like any other first world country in retail. It has become saturated and mature and the customers are now well aware of fashion, understanding it better than other countries. It is not like 10 or 15 years ago when it was so difficult to demonstrate style, but now they are aware of it and it is now easier because they know the brands. Before, they did not know the brands but now they know the real from the fake.

Ten years ago, the only people who really knew the brands were the ones who travelled abroad, but now the penetration has reached the majority.

About 12 or 13 years ago Saudis would ask to be suited from top to bottom, but now they buy and do what they want. Before they would be given a package and a colour, but now they make the decisions and the customer has the understanding. Before the women would come and not talk at all, but now they do and they have opinions. So there is a very big change in the mentality of the customers.

What about the other sectors where the group has a presence, such as real estate and entertainment?

Over the last four or five years there have been many opportunities. Seven or eight years ago we were in various sectors from hypermarkets to electronics to food, but over the last five years we have started to focus ourselves on the commercial and retail industries. Food is a small standalone business, but our focus now is on retail and shopping malls. We retain interest in hypermarkets but as a silent partner. We have now started to focus and expand on these two sectors worldwide in the GCC, CIS, MENA and America. We already have our own mall in Egypt.

I have heard some information about the company starting to grow in 1998 and 1999 with the three brothers and a very wide range of things, and now you have narrowed down the spectrum. On a personal and professional level, what have been the key moments for the company?

I can say that there was a major change in the company when we signed with the international brands because we were a local company. So when we were first in this business it was Adam and Wallis from Sears in the UK. Before that we signed two or three small brands, but this was the major change for us and this took place in 1996; we opened in 1997.
The second most important change – and this was the biggest and most important change – was when we signed with Inditex. After that it became much easier for us to approach any brand in the world. This was the visa for everything and this was in 1998.
The third important event was when we signed with Gap, not Gap itself, but it gave us the ability to move into the malls with the appropriate fashion brands and to have hypermarkets. We started to build our mall, so this signing gave us the vision and ability to do malls. These were the most important three, but I can say that Inditex is the one that opened the world for us. They have developed something for every taste; they have five or six concepts.

What is your relationship like with these different holdings and different companies here in Saudi Arabia?

It is a strategic partnership. We work with them day to day in order to maintain the relationships with our partners. It is a strategic partnership where we are major partners to all of our partners and they to us. It is a win-win relationship for both of us and it is also strategic.

How does it usually start; you find a niche in the market and then you find a brand and offer them a partnership or the other way around

There is no single way of doing this for us; we may need to have a certain brand because the market is short of this brand. Maybe we need a funky brand, so we will start to look where the best one in the world is. We will look, through our people, to go and evaluate the stores and the concepts and the price, but we need to consider whether it will work or not. If they say yes, then we start to negotiate the terms of the arrangement. This is one way; the other is when a brand approaches us because they are looking for the biggest. If they approach us, then we do our homework and if it is suitable, then we go to them. For many of the brands, we have travelled in order to see what is the latest in fashion and brands, so this is another way.

Do you do trial brands, and how do you know if something will work here in Saudi Arabia?

Depending on how big the brand is in the country and how it is in the world. If it is a question mark brand, you will go with one or two stores to test it. We will do one in Riyadh, one in the east and one in the west as a trial for one season. Whatever brands are there are there for specific reasons. On the other hand, if we have a worldwide name, then we do not want to test it and we will immediately go to five or six stores, then we expand.

One of the things that surprised me about Saudi, as a foreigner was when I was looking for something at Zara and there is one for men and one for women and then there is one that is mixed, is this up to you?
No, it is up to the customer. It is our job to make our customer happy, so if there are no men who are looking to shop in a particular mall or are not allowed, it is not our job to put a Zara Man in that mall, so it would be kids and women. Sometimes, we will have a Zara Kids exclusively and in some malls just a Zara Man, so there may be three. So we are following the needs of the customer, we do not dictate.

In terms of global expansion, what was the first step in terms of global expansion and how did it evolve?

Yes, well an example is in how we decided to go to the CIS region. We first looked where the biggest potential was, because it was difficult to go and try to compete in Turkey, where it is a saturated market and where most of the brands are already there. We can go, but we will not dominate.
Our strategy is that if we cannot go big, we will not go. We cannot go with two to four brands, even if people will buy them, because it will not last. We experienced this when we went to Dubai because we went there late and found it difficult, so we chose places where there was a huge potential and the market is fair. Or, we chose places like CIS, Egypt and Jordan, or America where it is exclusively American brands and there is a huge potential for European brands and this is difficult for them to acquire. Look at Zara in the USA over the past 13 years – they have about 50 Zara shops, so it is a difficult market. So we went to America with many brands. You will not go from London to Chicago for one store or brand, but for us with 10 or 12 brands, it is easier. So we study the market potential, the market needs and the saturation.

I was initially going to ask you how the logistics work for the company, is it like Spain where you bring stuff straight from Turkey or Portugal or is it what comes from Spain?

I can say that logistics is the blood of the company; you know the most important thing in the company is the logistical side. To have 75 brands as partners, it is all about logistics. For Zara, they ship everything through by air while Marks and Spencer do half by air and half by sea with a little road transport as well. We bring the Turkish brands by road, making it easier because it is only three days by road from Istanbul, meaning that it is quicker than by sea. We have a hub in Jebel Ali to consolidate some of the Far East shipments, from where it is then shipped to different parts of the world. For CIS to work with us, Kazakhstan is different from Azerbaijan, meaning that there are all kinds of logistics. We are very efficient in our logistics as some of the stock moves from our partner’s warehouse to our store to America or Europe; it takes only 36 hours, faster than FedEx.

I am guessing that with the infrastructure here it is easier, but what about in a place like Azerbaijan?

We charter two flights a week only for the CIS area in order to move products. To move a product from London to Georgia or Azerbaijan is a nightmare and it is very expensive, but because we have the volume we can charter two flights a week. About three or four years ago we chartered about 15 planes here for Ramadan. If the product comes on the 25th of Ramadan, it will sell like crazy at full price, while if it takes five days more you will not sell it and no one will want it. It is about fashion and the season; it is like something just before Christmas or just after when everything is going to go directly on sale. You lose the margin – our products are like fresh tomatoes. This is why we rely so heavily on logistics, and it is worth chartering a plane if we have the volume. We have about 25 brands in the Azerbaijan region, so it is easy to charter one or two flights a week.

So besides partnering with Dubai, do you also have to partner with the logistical side?

A big part of it is working with airlines like KLM, Lufthansa, Emirates and we are very big partners.

All of the companies in Saudi Arabia are going through major changes, placing more and more importance on corporate social responsibility and care for the environment. What is your perspective on this and what are you doing in respect to it?

Well for our corporate social responsibility, we have done many initiatives in this regard and recently we issued a policy that deals with social responsibility. We are involved in several campaigns, but not only here. We do a lot to sponsor education. We also do a minimum of four blood donations per year, where we have them come here and everyone donates and we encourage this. These are three big ones, but we have many others.
In terms of the environment, we are among the few who recycle. We have mountains of packing material, so we recycle this. In the mall, well I should say that we are in a very hot country and we designed the mall to take care of the consumption rates. We used sunlight efficiently and have insulated the building in order to conserve electricity. In August, the consumption is the highest so we are actually able to reduce consumption due to the efficient insulation. There is a heavy demand for energy.

The King’s vision is to employ and empower the youth and females. You are in the fashion business, so you know more than others. What is you reaction to the empowerment and employment issues?

In Saudi, I am a member of the committee that promotes women workers in the country. This is lead by the Minister of Labour in order to promote women workers in the stores. We were one of the companies who did the initial tests and in 45 days we had women working in the stores where we recruited 600 women.
We were the trial, so when we saw the Saudi women working for 45 days we were working with the ministry. We are now doing some studies regarding nurseries within our mall, and working with the ministry to help to see how we can encourage women to work more. We have a lot of women working in the building and I can say that now it is not really a barrier or an obstacle, it is now easier.
We have training sessions at three academies for women to improve their skills as managers. We are taking untrained managers and teaching them how to be better at what they do. We want to take them to branch management positions and this is what we are doing for women.
We have very young workers here: the maximum age is 35 to 40. Almost all of our 2,000 Saudis are working in fashion. For the total of the group we have about 3,500.

I think that that is a very big step in corporate social responsibility. Many people are reluctant, but you are pioneers.

The CEO in Azerbaijan is Saudi, when he started 20 years ago he was a salesman who worked with us for a few years and then we sent him to the UK to do an MBA and he became the country manager.

It is so nice when you hear a story like that, because they grew together with the company.

Our HR in fashion is about 4,500 employees and the HR director is Saudi. When he started he was merely 18 years old and again, we sent him to Canada for language training and he is now the head of HR. We have Saudis in very high positions; I am Saudi.

You know more than anyone that in the retail sector in so many countries around the world about the important of sending the right messages. I just want to know what your perspective is on the power of communication and media in today’s world?

Media is important for us. The media has really helped us in the CIS countries; when we were there we saw that Zara was not known so well by everyone. The good thing about the media is that when we opened Zara, the media put it as a top news story so when the President of Armenia watched it, he would see that it was something. The media holds great power. If the media had not put this in the news on the first day, we would have needed about two months to get the awareness out. The good thing is that Zara has its own media for every country, as does Marks and Spencer, so we are collecting this in these countries. We are facilitating this, they have their own and we have our own.

What do you think about where the company is headed in the future? We know that in the short term there are some expansion plans, but what about in the long term: where would you like to be positioned?

After focusing on these two businesses, we will expand them worldwide; we say that the sky is not the limit. Going to America is a big step, but we have gone to the CIS and that is much more difficult than America logistically, even though it will still be a big challenge. We like challenges and this is the secret of our success.

When are you planning to enter the US?

We are open already, we have about 22 stores open and they have been open since March in order to study the market, logistics and the law. We will not go big from day one; it will be a very strategic expansion. From here to London is like from LA to New York, so it is big and we have to choose where we want to be and to learn form our mistakes before we go to the second phase.

You said that for every opening there is a curve. Where are you since the opening phase in March? Will it go up?

America is not an easy market and it will take time. It is a very sophisticated market and it is not like any other country in the world, so the media plays a very big part. This is what we are doing now and we are progressing as expected. There are no major surprises. Nothing unexpected happened.