Friday, February 12, 2010

Retail Market Changes in Syria

February 12, 2010
Quite recently Syria started to witness a very big increase in the number of its shopping malls. These are changing the country’s retail market, which until a few years ago was mainly based on the classic old souks (the Souk Al-Hamidiyyeh, which is located in the historical part of Damascus, is the oldest mall in the world). "Brands" and "malls" are two new words for Syria, but the country is catching up quite fast the shopping mall gap it has with the other Levant and Gulf countries. In 2008, there were in Damascus an estimated 55,000 square meters (sq. m.) volume of gross leasable area (G.L.A.) for retail space according to Retail International, a consultancy specialized in shopping centers.

After one year, the same consultancy now estimates the Damascene G.L.A. at 100,000 sq. m., which means in other words an increase of almost 100 percent in just twelve months. Syria is defined as an emerging market in comparison with Jordan or the Gulf countries but, considering that the country has a population of 20 million, although with very different purchasing power, with no doubt there is a great potential for the retail industry.
Probably, there are three main reasons for this big change:

1) The arrival of international brands. In fact, until 2003 in Syria the imports of foreign goods were banned. Then, that year it happened the loosening of government controls on international brands and, in particular, Syria’s garment industry started to produce international clothing brands under license agreements. In addition to this, there is now the tendency for international brands to open their selling points in centers where there are good facilities (for instance, a large parking space). The decision of loosening government controls with reference to international brands was primarily linked to the fact that Syria has to diversify its economy. Probably, already in 2010, Syria will be a net importer of oil and the retail sector is still quite underdeveloped.  
2) Additional local spending by rich Syrians. It should be understood that shopping malls won’t change immediately the way Syrians shop. The very traditional souks, where bargaining is the most important activity, will continue to be the most essential trade centers. Instead, shopping malls target a wealthier clientele. In other words, the principal customers of the new commercial centers are the well-off Syrians who until recently have used (always and only) to going shopping to Lebanon if not to Dubai and the Gulf. According to Muhanned al-Mallah, general manager of Damasquino Mall in Damascus, “Since the withdrawal of Syrian troops from Lebanon, not a lot of people are going there. They are excited to find the kinds of brands that they once found in Lebanon right here!” In particular, customers in the 14-to-40 age range and belonging to the middle-to-upper class very rarely go to souks.    

3) Increased foreign investments. Thanks to high oil prices in the previous years, many Arab investors have decided to look for new investment opportunities in the pristine Syrian market while at the same time the Syrian government has progressively started to open up the economy. According to Simon Thompson, head of Retail Investment, “there were surplus funds from the wealthy Gulf states that enabled the major developers and retail franchises to look further afield to new markets, of which Syria was one”. The opening of the Syrian economy is connected with interest rates cut, licenses for private banks and the creation of the stocks exchange market. Syria still today is not a member of the W.T.O., although it submitted a request to start the accession process in 2001 (the country instead had been an original contracting party of the GATT, but it decided to withdraw in 1951 following Israel’s joining). But, a relevant step toward attracting foreign investments has been surely the development of regional free trade agreements, like, since January 1, 2005, the Greater Arab Free Trade Area (GAFTA), which eliminated customs duties between Syria and all the other members of GAFTA.   

At the same time still three main problems may partially affect and slow the growth of the Syrian retail sector:

1) Lack of diversification of brands in the shopping centers. In fact, the brands today present in Syria are not as many as in the other Middle East countries. And for this reason, wealthy Syrians or Syrians who have a member of the family living abroad still prefer going shopping abroad to Beirut or the Gulf where there is a bigger range of shops although this phenomenon is occurring in a reduced percentage in comparison to what had happened until few years ago. Nowadays, in Damascus there are just 100,000 sq. m. of G.L.A. for a metropolitan area with a population of 4,5 million (Amman has a population of 2 million and 200,000 sq. m. of mall space). This reduced amount of G.L.A. does limit at least for now the possibility of new entrants (additional foreign brands) to the Syrian retail market. In fact, in Syria, the private sector does not own sufficient land in order to develop shopping malls and, in the future, government-owned land has to be freed in order to develop new shopping malls.    

2) Lack of retail management expertise in the local market. In Syria, manifestly there is little local expertise. It is sure that Syrian companies will be forced to invest in retail management courses if they want to compete with the much more sophisticated firms coming from the Gulf. Shopping malls staffs need to be trained principally with reference to two subjects: English language and computer literacy. This problem could be solved with the participation and affiliation of the shopping malls to the Middle East Council of Shopping Malls (M.E.C.S.C.), which is an invaluable tool for its members because it regularly provides workshops that offer certificate programs focusing on different topics related to the retail sector. The membership to this council permits to raise ostensibly the standards of the performed activity.  

3) Still a lot of high taxes and a myriad of regulations for international brands. A clear example of the difficulties to operate in Syria is exemplified by the dispute regarding whether the French supermarket Carrefour is allowed to trade using its own name (Carrefour) or it has to be named Shahba Mall Hypermarket (Shahba Mall is the name of the shopping mall where the Carrefour supermarket is located). In general, high tariffs are still levied on many imports, and for some items tariffs can reach as much as 50 percent of the value. It is evident that these high taxes naturally impede the development of high-end shopping. Given these high taxes, it is easier to find middle range brands in Syria than the high-end ones, which after the taxes would be extremely expensive. According to Mr. Muhanned al-Mallah “you have to know shopping centers and be Syrian to be successful here”. This, evidently, means that to deal well with complex regulations international brands are really advised to implement a partnership with a Syrian partner.

Currently Damascus has seven already opened city shopping malls (big and small). Town Center (2004, 35,000 sq. m.), which is located in the southern outskirts of the city was, was the first store of this kind. Ski-land (2007, 10,000 sq. m.) is located along Airport Road and is a shopping mall and entertainment place with Syria’s first ice-rink. Cham City Center (2006, 8,000 sq. m.) is in the new developed area of Kafarsuseh and it displays international brands like Stefanel, Diadora and Azzaro. Damascus Boulevard (2,500 sq. m.) is situated near the Four Seasons Hotel and is dedicated for extremely rich shoppers. Queen Center is a very small commercial center located in Mezzeh and last, but not least, Damasquino Mall (2009, 24,000 sq. m.) is still in Kafarsuseh and has more than 70 shops. Its structure is very close to those shopping malls found in the U.S. or in the Persian Gulf because customers are encouraged to walk past every shop. Damasquino Mall has introduced for the first time in Syria brands like Nike, Lacoste, Clarks, Springfield, Lina’s CafĂ©, Second Cup and Dr. Ocean for Seafood. In addition to this, Damasquino Mall has a 4-D movie theater and a 4,000 sq. m. family entertainment center (Damasquino Mall adjoins Cham City Center, but the two malls currently targets different types of customers both in relations to age and social class). Further out of the city of Damascus there is Trans Mall (2008, 45,000 sq. m.) , which is operated by Aswaq Syria, the same group that owns Damasquino Mall.

The city of Aleppo is also building up many shopping malls. The first one was the New Mall in the Mogambo district. In May 2009, with an investment of $10 million, the Addoumieh Group opened Al-Mounchieh (4,000 sq. m.), which is the city’s third mall. The country’s largest shopping mall Shahba Mall (80,000 sq. m.) is located along the highway heading to Turkey (to the Turkish city named Gaziantep) from Aleppo. It has been developed with an investment of $50 million by a joint-venture between the Aleppo-based Sabbagh Group and the Jordanian Al Kurdi Group. It includes shops, restaurants and coffee shops, a 4-star hotel with more than 200 rooms, a movie theater, the first Syrian Virgin Megastore and a French giant hypermarket Carrefour.     
Current projects yet to be completed include in Damascus a shopping center at the Eight Gate complex, which is a multiple-use development (in construction) under the aegis of the joint-venture between the Dubai-based firm Emaar Properties and the Investment Group Overseas owned by the Syrian expatriate Mouaffaq Al-Gaddah. This development will include a shopping mall (55,000 sq. m.), a 5-star and 15-story hotel, more than 200 tourist apartments and a 30-story office tower. Still in Damascus is on construction with the support of the Syrian-based Urban Development Group, the Yafour Gardens project, which is a 60,000 sq. m. complex located along the highway to Beirut. This project is more related to condominium buildings, but in the complex there will be integrated a commercial center and a supermarket. Before 2013 is due to open along the outskirts of Damascus  strategically positioned on the Beirut-Damascus Highway, which is a key economic growth corridor the Sabboura project by the U.A.E. Majid Al Futtaim Group. This is a very ambitious project encompassing a mix of hotels, offices, homes, retail outlets and a shopping mall the size of the Mall of the Emirates in Dubai. The mixed-use project will have a built-up area of 1,500,000 sq. m. Sabboura Mall is set to be the largest in the Levant with a Carrefour hypermarket, a 14-screen movie theater and more than 350 leading retail shops. The Majid Al Futtaim Group is the group that in Dubai is behind two relevant projects: the Mall of the Emirates and Deira City Center. Sabboura should require, according to current projections, an investment valued around $ 2 billion. Instead, Qatar Investments Authority is involved with the investment in the construction of the QIA mixed-use areas in Damascus and Lattakia, while the Syrian-based conglomerate Toumeh International last year signed off for the Kafarsuseh tourism complex, which will include  a shopping mall (6,300 sq. m.) in Kafarsuseh, Damascus. Cham Holding is now finalizing the Damascus Hills project. This is a multi-use development that will cost more than $3 billion and cover more than 5,000,000 sq. m. with a big retail sector. It will be located in the northern outskirts of Damascus near to the highway heading to Homs. Concord Al-Sham International Investments Company, a consortium of Syrian investors who are bases in the U.A.E. is constructing the Dareyya development (150,000 sq. m.) with a nine-story mall and a 23-floor office block in Dareyya along the main Damascus-Jordan highway. Once completed, the project will include a hypermarket and more than 40 international and national brand outlets. The current price is around $80 million. Syria Holding is pushing the development of the Baramkeh area in central Damascus so as to create Abraj Syria, which is a mixed-use development. It will cost around $280 million and obviously it will include considerable retail space with a hypermarket. The same holding is also backing two other projects. The first one is Mezzeh Highway, a $70 million mixed-use development (49,000 sq. m.) with 17,400 sq. m. of retail space located along Mezzeh Highway in Damascus. The second is a build-operate-transfer contract (BOT) signed with the Aleppo’s City Council. The idea is to build and develop Aleppo’s Gate (300,000 sq. m.), a $60 development with included a shopping mall and a new transport hub for the city. In addition to all these projects, Syria Holding has finalized a deal with the Middle East hypermarket Spinneys in order to establish outlets in every of its retail developments.    

Sometimes things do not proceed very smoothly as it is happening now with the Hejaz Souks project. This development was targeted at modernizing the central district business of Damascus thanks to the construction of a five-story shopping mall and a rail link supposed to join the center of the city to the airport on an BOT basis. Since the beginning of the works for this project in 2004 little progress has been accomplished. Problems linked to urban management and opposition from heritage groups (N.G.O.s) have slowed the pace of the construction, which is supported by Syria’s largest holding company Cham Holding. But, this is one of very few delayed projects. In fact, the retail sector in Syria is profoundly changing and modernizing. On the one side, foreign and national retail companies are both more and more interested in the Syrian retail market, while on the other side the Syrian government authorities understand better the positive results that an improved retail sector may provide to the global Syrian economy. 

Summing up, it could be worth mentioning some data from the regional business publication Executive. According to this publication, Syria’s retail sector provide now jobs for 27 percent of the national workforce and produces 17 percent of Syrian G.D.P. In addition to this, another interesting indicator is that mainly for the presence of retail market space in Syria (retail space where there are low-end, middle-end and high-end products) nowadays 4.8 million day-visitors from neighboring countries (1.8 million from Lebanon) cross the border and enter Syria every year. These data exemplify one point very clearly: Syria’s retail sector is important and will in the next years continue to grow steadily.