The Egyptian Retailing Industry
Ramzy, Omar, Ogden, James R., Ogden, Denise T., Journal of International Business and Economics
Egypt is the largest market in the Arab world. A population of more than 84 million citizens makes Egypt a lucrative market in the Middle East. About 42% of the population is under the age of twenty (Cairo Festival City hopes to capitalize on Egyptian retail sector, 2008). Cairo, Egypt's capital, has about 17 million residents. Alexandria, the second largest city, has over 4 million people. Egypt Retail Report forecasts the country's retail sales to grow from EGP147.80bn (US$27.22bn) in 2010 to EGP208.37bn (US$38.37bn) by 2014 (Egypt Retail Report Q4 2010).According to the Al-Futtaim Group, there will be an increase in per capita income by 7.2%) between 2007-2012. This will lead to an increase in demand for luxury products and necessitates more modern retail technology. This shift will attract the attention of international brands for the Egyptian retailing market. Egypt's GDP was US $226 Billion in 2010. Between 2010 and 2014, GDP per capita, is predicted to rise by 63.9% to U.S. $4,463.
The Egyptian retail market is growing because of the large youth population who are accepting a more westernized lifestyle. The youth generation in Egypt is educated, open-minded and technologically savvy. It is evident that changes occurring in Egypt are not only economic but political as well.
The emergence of a more affluent middle class and the trend toward accepting modern retailing concepts that match their lifestyles is also driving shopping behavior. In addition, more people own cars in Egypt. The average car ownership is 23 cars per 1000 people, which indicates that the country is in a steady rate of growth (Business Monitor International, 2010). Egypt is ranked 13th in terms of the most attractive retail market worldwide. It is one of the most promising and fastest expanding markets in its region. In 2009 Egypt was ranked 15th in global retailing (Consumer survey reveals Egyptian retail purchasing habits, 2010). Thus, the economy is lucrative for foreign investment.
This paper presents an analysis of the Egyptian retailing industry. U.S. retail practices are used for comparisons. Several areas will be addressed including fragmentation vs. concentration, international investment, modernization, Internet retailing, branded product practices, customer service and site selection. Results of a survey distributed to 31 large U.S. retailers are also presented. The survey assesses interest by U.S. companies to invest in Egypt.
2. EGYPTIAN RETAILING
The U.S. retail market differs greatly in comparison to the Egyptian retail market. First, the Egyptian retail market in fragmented in comparison to the concentrated U.S. market. Egypt is shifting toward concentration while the U.S. has a well-established concentrated market. In Egypt the market is dominated by small retailers while in the U.S. large retailers capture the majority of market share.
New modern retailing systems and large retailers created disintermediation in the Egyptian distribution network. Independent small grocery stores used to buy their supplies from giant food retailers instead of wholesalers. Thus these larger retailers sold to small independent retailers as well as the ultimate user.
Another unique characteristic in the Egyptian retailing system is the scarcity of department or general merchandise discount stores. In Egypt most large food retailers are discounters. Although there are some specialty retailers and category killers, their prices are perceived as high. Toys are Us, Radio Shack and Virgin megastores are upscale retailers in Egypt. International retailers that specialize in furniture and home appliances do not exist yet in Egypt. The boom of new cities in Egypt occupied by affluent people is an opportunity for furniture stores. IKEA the European furniture retailer announced it is opening soon in Egypt.
Egypt is an attractive market for many reasons. The inflation rate is about 10% but is expected to drop due to reform programs and political stabilization (Egypt: Retail sector to reach $ 25.33 billion, 2011).
2.1 Fragmentation to Concentration
Egypt's economic reform program and exposure to global activities has led to a new lifestyle and more modern shopping habits in the country. These changes have helped to transition the Egyptian retailing sector from fragmentation, in which there are many individual and small retailers selling lower end items, toward retail concentration.
Several positive changes are occurring that make the retail landscape appealing and indicate a shift from fragmentation to concentration. First the growth rate is in an upward trend. In addition the youth population and rising middle class will seek more modern products. Finally the consumer base is poised for growth (Egypt: Retail sector to reach $ 25.33 billion, 2011). Signs of retail growth in Egypt are evident. City Stars Egypt, the largest retail space in Egypt (with around 150.000 sq meters and a value around $800 million) opened in 2004. The Dandy Mega Mall and Maadi City Center, both large retail centers, have opened in recent years. Many other planned shopping sites are under construction with a balanced tenet mix which appears to mimic the U.S. retail market.
3. INTERNATIONAL INVESTMENT IN EGYPT
The move toward retail concentration encourages international retail investment in Egypt. Retail internationalization occurs when a retail establishment transfers a retail concept (idea, physical presence) to another country, in this case Egypt. International retailers must develop rapport with local suppliers and other members of the distribution network. This is in addition to understanding the culture and consumers of the new environment. Egypt is expected to witness a friendlier business environment which will better fit investors' preferences.
Today there are several international retailers located in Egypt including
* Aldo (footwear) which has four stores in Cairo and one in Alexandria.
* Bershka, located in 50 countries and the youngest brand of the Inditex group, is operating in Egypt selling fashion clothes, shoes and accessories to the 13-25 year old market (Bershka, 2011)
* Bianco, a trendy footwear brand from Denmark is currently operating in Egypt and has two outlets in El Obour City and City Stars Mall.
* The French Connection, a clothing retailer, chose Egypt as one of its Middle Eastern locations.
* H&M, located in Cairo.
* Radio Shack is the biggest electronics retail chain in Egypt. The first outlet was opened in Cairo in August of 1998.
* Zara and Mango, the Spanish apparel provider.
* Clarks, the UK specialty footwear and leather goods provider, opened recently in City Stars Mall.
* Esprit, located in Cairo.
Other retailers scheduled to open in Egypt include the UK Marks & Spencer which is expected to open in The Dandy Mega Mall (Consumer survey reveals Egyptian retail purchasing habits, 2010). IKEA, the Swedish furniture store, announced its opening in Cairo. This introduces big box specialty furniture retailing to Egypt.
Grocery chains are also experiencing success in Egypt. Carrefour, Spinneys and the locally owned Hyper One are opening stores (Egypt: Retail sector to reach $ 25.33 billion, 2011). There is a potential for more retail expansion since the market is undersupplied (Economic Update Egypt: The rise of retail Egypt, 2011).
3.1 Retail Modernization
When it comes to retail internationalization, large international retailers like Carrefour, Ahold, Tesco, Wal-Mart and Metro have already begun operating in emerging economies with locations in Asia, South America, Eastern Europe, and the Middle East, often locating where food retailing is dominated by family-owned stores and other small retailing formats (Goldman, Ramaswami and Krider, 2002). In some emerging countries modernization, especially in food retailing, is accepted while in others it is not. Many studies of emerging economies have indicated that modern …
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Publication information: Article title: The Egyptian Retailing Industry. Contributors: Ramzy, Omar - Author, Ogden, James R. - Author, Ogden, Denise T. - Author. Journal title: Journal of International Business and Economics. Volume: 11. Issue: 3 Publication date: September 2011. Page number: 40+. © 2008 International Academy of Business and Economics. COPYRIGHT 2011 Gale Group.
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