Muhammad Alagil, CEO of Jarir Marketing, sat down with Upper Reach to discuss the incredible growth Jarir Bookstore has had in recent years, and how they became one of the leaders in the retail sector in Saudi Arabia thanks to their customer focus strategy.
I would like to share with you some information about Jarir Marketing Co. At the end 2003 the company decided to go public mainly for two reasons. First, we wanted to mitigate second generation family risk. We needed a risk reduction strategy to assure a future for our company. Secondly, we needed some liquidity. At that moment we were five founder partners and one of them passed away so we didn’t want to deal with any problem related to his wife or kids. It would help us structure the board better. Being a public company also means being in the spotlight and that situation forced us to grow. We needed to set up a better board committee to improve ourselves. If I remember well, the company got a private placement investment of $800 million SAR. And since we went public we've grown more than fifteen times. So I think we have done very well.
What do you think has accounted for that success? Why do you think it’s done so well? There are not so many competitors that do the same sort of thing.
I think it is because of our work philosophy: “customer is our boss”. This work philosophy goes down to everyone in the company. Employees don’t work for me, they work for our customers; even I work for the customers. We created a customer focused culture. We have always looked at service culture and productivity per salesman.
If I’m not wrong, there is a 40% Saudization. I heard that Saudis like to feel they are the boss. So, how do you change that culture from "I want to be the customer's boss" to “The customer is our boss”?
First of all, we hire Saudis because they can be really productive. Most of our Saudi salesmen are on the technology side. They are really good and committed to their work. I can say that the difference is based on the training of our employees. We see training as an investment and not as a loss.
We noticed that Saudi CEOs are quite positive about the ability of Saudis, but if they are not Saudis, then they are less positive about their ability.
In general terms, if there is an Indian running a business it’s quite possible that most of its workers are also Indian. If there is a Lebanese as a CEO the same thing will happen. So, it’s a natural thing that we try to work in our comfort zone; and our comfort zone is our nation. We need to make profit. If we make profit, our shareholders are happy, and thus, the stock will sell. The senior management is compensated based on profit growth, not on sales growth, not in stock; bottom-line. With more than 10% growth they get a certain bonus. With double-digit growth above 10%, they get 50% more. We have to be responsible for our customers and our society.
Like the retail sector in Saudi Arabia, a lot of the small money is going into that from an investment perspective. All the fundaments are in favor of retail. Are you concerned that maybe some competitors will stop coming into the market? I mean, companies like WHSmith or Office Depot.
We have Office Depot, they have opened stores here. I think having some competition is a good thing for us, it keeps us sharp. So we want to use the best practices and we want to be responsible for our shareholders and our society in this business to achieve our main goal that is to expand the company and double our sales in the next 5 years.
Today we can compare ourselves with companies like Office Depot, Staples and Best Buy; in 2003 this was just a dream. And as you mentioned earlier 40% of our sales people are Saudis, so this means that they can produce and make profit for the company. Last year we had 30 million visitors coming into our stores.
It seems you have achieved very strong brand loyalty. Can you explain, how you achieved this?
I think it's important to build a brand and talk about it, but at the same time it’s necessary to give the customer what they were promised. I think our team, our sales people and the management of the company have done a very good job in this area, and that’s why we have such a strong brand. Last year we translated a book and published the Arabic version every 36 hours. This year we think we will do it in less than 24 hours. We are one of the largest, if not the largest, private publisher in the translation industry.
You have a Jarir Reader; it’s like an IPad competitor. There is an increasing retailer shift to online sales. How much of a concern is that for you?
It is still small but I think it’s growing very well and it’s going to do well for us. By my experience, I can tell it’s going to be profitable for the company. I would like to share with you that in terms of laptop and tablets, we are the largest retailers In the Middle East, Africa, and Eastern Europe.
How do you compare Saudi Arabia when you think about the international investment picture? I mean, US is resurging, we have a stagnant Europe, East Asia looks like it might be wobbling, Africa is very frontier, fundamentals are strong here, but you have a lot of instability at the same time, regionally.
Saudi Arabia is a very stable country despite the negative vision some people have. The population is very satisfied, even people from the countryside are very happy. Also, I think there have been a lot of initiatives; an increase in opportunities for women into the labor market and this is going to vastly increase household income.
From an outsider’s perspective, Saudi Arabia carries a lot of stereotypes. It is not very known about in terms of a country to do business. It’s a place where people know there’s wealth and money, but…
It’s difficult to get a visa. There are some negative myths about us that I think are worth demystifying. Let's talk about openness, reading. We get our books to Saudi and we send them to the Gulf States. Our distribution center is Saudi. They go through censorship and we ship them to other countries. And this is a problem that we did not expect; you will be surprised how some of these books are not allowed in many countries. And we are not talking about sectarian or religious books; we’re talking about normal books, novels.
In terms of governance, for instance, it is as good as any emerging market. We are not the best communicators to the world, but investors should feel very comfortable.
What is your evaluation of the market? I mean, I think the market hit 600 billion USD the other day. Do you think it’s overheated?
If you see the big picture, I can say it’s not overheated yet. As you know, petrochemicals because of the oil issue and banks are not overpriced here.
I'd like to speak about family companies. I mean 90% of the Saudi economy is still held in private closed stock companies. What do you think are the benefits of taking a family-owned company public? Do you see that happening more and more with some of these companies now that they are looking at succession and they are seeing how complicated it is?
Yes, I think we're going through a huge change now; and this is because about ten years ago we used to have lot of regulatory barriers. However, with the foundation of the Capital Market Authority everything is much easier. More companies are going public now.
There are several advantages for companies if they go public. For example, there is better governance; this allows transitions and more professional management. This mitigates risks due to family feuds. Also it’s necessary to expose and organize their finances. And finally it forces them to have a plan. Three of the greatest companies and management commitment really have a plan to grow. Companies who really don’t have a plan eventually they will get out of the market. Going public is much better in the long term. I think the public market in terms of number of companies will increase like 10% or 15% a year.
In terms of the Saudi Stock market opening up for the international investment, do you think this will make a major difference to help business here?
International investors are going to be more demanding and they will vote international professionals as the board members. I think this will allow them to invest in something outside the MSCI, public pension funds. We’ll probably see maybe another 100% more foreign investors.
Does this have any influence about how you approach doing business?
No, I don’t think so. In Jarir, we just want to work for our shareholders, I mean, first for our customers and this will automatically translate into shareholders’ returns. With the right governance we made a lot of money. We want to grow and expand the business.
You spoke earlier about the importance of female employment and the most important thing in Saudi Arabia is people. How important is it for private companies to take up some of the responsibility?
I think it is very important, as in any country, to train people such as new graduates. I think the problem is economics. I wish the government could help us by increasing the cost of non-Saudis, the cost of their residency, for example.
For any company, a massive risk is international expansion. You are already in the Gulf region; you have a few shops in Qatar, one in Kuwait and one in the UAE. And now you are looking to expand significantly, going into Egypt and North Africa. How much of a risk is that for the business? And what are you doing to manage that?
Maybe we have three years or more to do this. We still have to populate the Gulf. We are not even 20% close to where we want to be. But we will be able to expand. About Egypt, it’s going to be a separate operation. First we need to have a full management team there because it’s going to have a different distribution center; we can’t support it from Saudi. I mean we can send them some of our technologies, merchandising or even people, Egyptians or Saudis that work with us.
Thinking about standards and governance, corporate social responsibility is an important part of that. Do you consider that an important part of your role as a leading company? Do you take it seriously?
The business of translating books into Arabic and publishing them started as a form of social responsibility; I mean we were not making money out of it at the beginning, but now we do. Probably we were one of the first to do this in the Arab world. We saw the importance of being connected and that’s why we started this business. When we have the profit we help in health care, education and sports too.