AFTER YEARS OF BATTLING with a retail sector that was handcuffed by one protectionist policy after another, Egypt is officially open for business — and customers are hitting the nation’s newest upscale shopping venues in droves, snapping brands including Mango, Tod’s, Benetton and Zara that were previously available only abroad or by catalog order (with shockingly high import duties). Stunned by what analysts have described as dormant purchasing power, international retailers are in turn tripping over themselves to make up for lost time in an untapped market hungry for a wide array of products in both the luxury and upper-mainstream markets.

In the past six months, Egypt has witnessed a retail boom of significant proportions as the Mangos and Zaras of the world slowly make their way to Cairo. Compared to the Egyptian retail sector of just five years ago, today’s market is vastly developed. The long-awaited arrival of CityStars’ parade of mass market global fashion emporiums and the opening of the exclusive Beymen department store at the Four Seasons Nile Plaza have created a market buzz that has the nation’s affluent — what retail experts categorize as A and B-plus consumers — grabbing their checkbooks and rushing out to shop like never before.

The consumer boom has caught investors themselves off guard. “We knew that there was demand, but the market response has completely surpassed anyone’s expectations,” says Nora El-Kot, the manager of Charles and Keith, a Singapore-based upscale shoe franchise that recently opened at CityStars.

In the last few days of Ramadan, typically a peak shopping week as Egyptians prepare for Eid El-Fitr, the newly opened apparel shops at CityStars saw more sales than their business plans and feasibility studies could have possibly projected, spurred not just by apparently unspent cash, but also by what some shoppers have said are shockingly competitive prices.

The United Colors of Benetton, which came to Cairo via a Syrian-owned regional franchise, chose these peak shopping days to make its Egyptian debut. Thousands of shoppers flocked to purchase men’s, women’s and children’s apparel, standing patiently in long queues at checkout counters while busy sales associates brought in from Syria for the opening struggled to keep up with the unexpected pace. Many products sold out before they could be restocked.

According to El-Kot, in the days leading up to the Eid some stores even had to close for a few hours in the middle of the day to restock. Elhamy El-Kerdany, CityStars’ general manager for operations and tenant relations, claims that mall traffic on the second day of the Eid reached a record 78,435 people.

Omar Mohsen

“On average we usually get 42–50,000 people, peaking at around 55,000 on the weekends, but the 78,000 was unprecedented. It was like an Ahly and Zamalek football match, a huge number for this market, and it was no doubt boosted by the opening of our new international shops,” El-Kerdany says. The second most popular mall destination in Cairo, Maadi City Center (Carrefour) receives anywhere between 18,000 and 19,000 visitors per day and is often packed to capacity on weekends and holidays.

“We are not complaining, the consumer interest is marvelous for business,” says El-Kot, who represents a new breed of savvy investors who were not previously involved in the retail business, but saw a golden opportunity once the ban on the import of ready-made garments was lifted in January 2004. “The changes in the law have made this sector quite interesting to anyone looking for a good investment. Some of the old players in the market are now losing ground because they have not been able to catch up to the changes. There is definitely a lot of new blood in the market,” says El-Kot, who plans to open additional Charles and Keith outlets in Cairo, Alexandria and Sharm El-Sheikh.

When investment banker Ola Dajani was studying for her MBA at Columbia University she was already itching for a career change. So in addition to the finance and international business courses, she decided to study a bit of marketing and retailing.

“I was really inspired by classmates who told stories of how they left successful careers in advertising or banking to follow their true passions. I had always been passionate about fashion, but I had never really thought about translating it into a business,” says Dajani.

Omar Mohsen

Dajani returned to Egypt after graduating in 2003 and found herself turning down job offers in banking and finance. Six months ago, she and her husband, Hisham El-Khazindar, the co-founder and managing director of Citadel Capital, a leading Egyptian private equity firm, set up Oryx Fashion Holdings to invest in apparel and accessories retailing in Egypt, the Middle East and North Africa.

Last month, Oryx made its Egyptian fashion retail debut with a bang, bringing to Cairo an upscale Turkish import called Beymen. Dajani and El-Khazindar have partnered with Hisham Talaat Mostafa, CEO and managing director of the real estate and tourism companies of the Talaat Mostafa Group, and Cem Boyner, CEO of Boyner Holding (the owners of Beymen), to open a 6,000-square-meter high-end, designer brands department store at the exclusive Four Seasons Nile Plaza. Hisham Talaat Mostafa’s other holdings include the Four Seasons hotels in Egypt (owned with Prince Al-Walid bin Talal, one of the world’s richest and most powerful individual investors), while Boyner is the largest non-food retail group in Turkey. Each high-powered party has an equal 33 percent share of the $5.7 million investment.

It isn’t easy for a novice Egyptian company to break into the upscale apparel market. Dajani explains that by the time Egyptian import and corporate laws caught up with the rest of the world, most of the franchises for both the upscale and popular mainstream brands had already been awarded to companies in the Gulf, who are given the rights to either the entire Middle East or a bundle of countries that include Egypt.

The franchisee for Benetton Egypt, for example, is Syrian; Mango’s owners are Lebanese, and regional rights for Virgin Megastore, Esprit, Massimo Dotti, Promod and Zara all belong to a group based in the United Arab Emirates.

“We are actually very late in the game, that’s why Beymen was a great opportunity for us,” says Dajani. “As an Egyptian company I cannot go to Dolce & Gabbana in Italy, for example, and say, ‘Give me the rights to sell your products in Egypt.’ They wouldn’t go for it. Any such products that were available on the market before were smuggled in. We had to go through an established operation like Beymen, which has been a landmark in Turkey since the early 1970s. They already have the know-how and supply chain relationships. Because of their large purchasing power, they are not bound by the same restrictions that we would have as an Egyptian company trying to test the waters with something new,” she adds.

Omar Mohsen CityStars smashed attendance records during the Eid.

The flamboyant Cem Boyner, who was in town for the official opening of Beymen Cairo, can barely contain the excitement he feels about opening his first Beymen outside of Turkey. As the CEO of a family business that began 200 years ago with wool trading in Turkey and grew into a huge conglomerate with an annual turnover of $600 million, he is confident that his latest venture will be a success. With close to 400 stores in various formats and sizes in Turkey, Azerbaijan, Georgia, Russia, the Czech Republic and Germany, Boyner knows retail.

“I would say that our biggest move outside Turkey thus far has been the opening of a 6,500 sqm mass market Boyner department store in Moscow last year. But for our upscale format, Beymen Cairo is a really big step for us. We are also interested in further investments in Egypt like perhaps a Boyner department store in one of the big malls, but we should not be trigger-happy. We have to take things one step at a time,” says Boyner.

Boyner admits that the decision to open in Cairo and not what some might consider the more logical choice of Dubai was one based on subjectivity rather than cold, hard facts. “Everybody has the same data, but they can look at the results and interpret them in different ways. Dubai is a sure bet, there is no chance of failure there, but I also think there is no chance of a big success, either. By going there we would just be following what everyone else is doing. Coming to Egypt was a gut choice. We have good friends and very close relationships in the country, which is in many ways like my second home,” says Boyner.

The opportunity for a Beymen in Cairo first presented itself in the form of a small 600 sqm boutique in an upscale mall on the same premises Beymen now occupies at the Four Seasons.

Mango is among the international brands now flocking here.

“Just because it was Cairo, I was very interested. “After talking to Hisham Talaat Mostafa and his people we decided to take the entire 6,000 square meters for ourselves,” says Boyner. The owners opted for a department store rather than a mall. Specialty malls that aim to attract designer boutiques, such as Giza’s First Mall, have proven more difficult to sell, Boyner and his partners claim.

“Individual fashion houses did not want to take the risk of coming to Egypt alone,” says Dajani. “Up till now, neither the numbers nor the hassles of doing business here made this an attractive market for them.”

“For many foreigners, doing business in Egypt is not only a venture, it’s an adventure,” Boyner says. “For us, unlike Europeans who would consider this a joint adventure, it is a simple joint venture. I find that there are many similarities between Egypt and Turkey. We have gone through a very serious economic and political liberalization program that has now fully integrated us with the global economy and political system,” says Boyner. “We had lots of serious social, political and economic issues to sort out. We had too much government intervention everywhere, but the transformation did happen. Turkey has been integrating with what I call the ‘first league’ of the world very fast. I can see Egypt is following in our footsteps. Sometimes, we face issues here and I say, ‘Hey we went through that two or three years ago’,” he adds.

Although Boyner has no qualms about doing business in Egypt and is certain that there is a large enough luxury goods market to sustain a Beymen store, there are those who are skeptical about the future success of such high-priced retail formats. The question is: What percentage of the Egyptian population can afford a Fendi handbag or Prada boots? According to Beymen’s owners, a higher one than you might initially think.

“We may not see the purchasing power clearly in Egypt because to this day, the money was spent outside. Now that some of these luxury goods are available here, we will get people to shop at home. It’s good for us and for the Egyptian economy because the hard currency will not leave the country,” says Boyner. “Today there is a global trend toward upscale goods and Egyptians who are very well traveled have no doubt caught on to it.”

Mohsen Allam

Boyner calls the new phenomenon the “democratization of luxury,” meaning that you don’t have to be very affluent to aspire to owning a piece of designer clothing or a designer handbag.

“I think even the less affluent these days will have one branded belt or bag in their wardrobe. On the other side of the spectrum, you will no longer see a rich person dressed from head to toe in Versace or Armani. They can wear non-designer clothes and pair them with only one exclusive item, be it a pair of shoes, a watch, whatever. This concept grows our target markets. Someone who shops at Mango, for example, can also shop at Beymen and vice versa. We have merchandise in the store starting at $5 and going up to $3,000. We try to make sure that everyone who comes in will be able to buy something in a Beymen bag if they so please,” says Boyner.

Beymen is also banking on tourists. “If we provide the higher end tourists who come to stay at the Four Seasons with the same kind of merchandise that they are used to buying in Paris and London, they will also spend their money here,” says Mostafa, who found himself on the defensive with reporters who attacked the project as being too elitist for a country where the vast majority of the population has trouble meeting their basic needs for food, clothes and shelter.

“We had to make the decision early on whether or not we wanted this kind of investment. If we would have said no, the money would have gone to Dubai, which is definitely not in our best interest,” said Mostafa.

All the new retail projects, not just Beymen, target a very small percentage of the market, the A and B-plus consumers (4.9 percent of the total population, or approximately 3.55 million people). Even with such a small percentage, the numbers are not insignificant.

Omar Mohsen

But 3.5 million is still much larger than the entire population of Dubai and almost as large as the population of Lebanon, the region’s two largest retail hubs.

“There have been a lot of cultural as well as economic changes in the country recently that will also contribute to the success of the international retailers,” says El-Kot. “Young people today between the ages of 18–30, who are the core target market for the majority of the new retailers, are much more fashion savvy and well traveled than they used to be 10 years ago. They also have a larger disposable income since many of them work in multinationals and have relatively high paying jobs in comparison to their counterparts a generation ago. Fashion needs have changed for this group. They will go to great lengths to acquire the right kinds of clothes and shoes. Unfortunately, the local industry has not been able to meet their demands,” adds El-Kot.

The result has been that they either shop when they travel, give money to a friend to shop for them while they travel or they purchase illegally imported clothing in the country from private homes or small boutiques. These items are usually sold with their original tags ripped off. They come from unknown sources, allowing their sellers to charge ridiculous prices. With little or no overhead, these makeshift retailers enjoyed phenomenal profit margins, but their days in business appear to be numbered as more and more legitimate retailers stake their claims.

According to El-Kerdany, the CityStars general manager, the addressable markets are definitely large enough and continuing to grow larger.

“We are just beginning and can definitely sustain a lot more than what we already have in all retail sectors,” he says. CityStars has currently opened 260 shops of the 340 available in phase one of the project. According to El-Kerdany, less than 15 percent of the shops remain vacant. “We could have easily filled them but we are restricted by a particular merchandising mix. We are just waiting for specific types of tenants to come, but it will not be a problem.”

CityStars’ phase two (an additional 200 shops including a department store) will start leasing this month. “We will not duplicate what we already have. I think we may go for more of an upscale feel to the place,” says El-Kerdany, who claims not to be worried about the competition, namely Majid El-Futtaim’s Almaza City Center, located in very close proximity to City­Stars with a scheduled opening in 2006.

While the law allowing clothing imports has been in place for more than a year, it is by no means smooth sailing for the importers quite yet. Cumbersome procedures, a 40 percent customs duty on ready-made apparel and a 10 percent sales tax are still in place, making the picture much less rosy than the retailers would like. They are, however, still willing to wade through the remnants of a closed system in the hopes that Egypt will continue along its path of liberalization and remove the remaining obstacles.

“The government tried to delay the decision for as long as possible in an attempt to protect the local apparel industry,” explains El-Kerdany. The stalling was an obstacle for projects like CityStars, which were formulated on the assumption that they would be catering to the needs of international retailers. Ten years in the making, the Saudi-owned destination postponed its opening at least half a dozen times in anticipation of a change in the law.

“There was no way that local retailers could absorb the 160,000 sqm of leasable area that make up the first phase of the project,” explains El-Kerdany. Not only were CityStars investors frustrated, but consumers who had been promised a new type of shopping experience in Cairo also lost faith. When the mall finally opened in late 2004, the shop facades looked nicer and the layout of the mall was different from the ill-planned mazes Egyptian shoppers have come to know in other local facilities. Noticeably absent were the multinational brands consumers had been promised.

“It was too soon after the change in the law. Once the legislation was in place we were able to officially lease the space to international retailers but they couldn’t open overnight. We knew people would be disappointed, but we had to open anyway,” says El-Kerdany.

Beginning with Mango in July 2005, there has been at least one new international store opening at CityStars every month. The list of shops now raking in the cash includes The United Colors of Benetton, Sisly, Esprit, Charles and Keith, Levis and Virgin Megastores. Coming before the end of the year are Morgan, Guess, Sarar (a Turkish menswear brand), Spinny’s hypermarket, Women’s Secret and Energy/Miss Sixty.

“Mango was taken as the case study. Once they proved it could be done, the ball really started rolling,” says El-Kerdany. “They went through all the obstacles and tested out the new regulations for the first time. It was a tough experience because a lot of the regulations were not clear, but we learned from it and now we are passing that experience on to our other tenants as they open,” he adds.

“Our original opening date was in the summer,” says Dajani. “We were delayed because of customs issues. Every single item that you import has to come with a certificate of origin, it has to be inspected to make sure that it complies with Egyptian standards, you have to put new Arabic labeling on the products, all these procedures take time and effort. It is good being the first of our kind because we don’t have a lot of competition yet but we are the ones that have to test all these bureaucratic hurdles. We are sailing through uncharted waters, but it is getting easier. Today is better than two months ago, which is better than six months ago,” she adds.

It is mid-November and El-Kot is still awaiting the arrival of her full fall collection. “We never expected that things would be as quick as they are in the Gulf, but this is a start. There are other shops who are still selling summer collections because their winter stock has not yet cleared customs, but I think the more shipments they bring in the quicker it will become,” says El-Kot.

In most cases, the 40 percent customs tariff is not yet reflected in the price of the merchandise. “Prices here are more or less the same as they are in the Gulf where there are no customs,” says El-Kerdany. “Rents and other overheads here are much lower than they are elsewhere, which helps to balance out the equation a bit,” he adds.

Most retailers are also willing to forgo profit margins for larger volumes. “Our shoe prices for the summer collection ranged between LE 140 and LE 275, which is very competitive. We did not, of course, factor in the 40 percent customs because we don’t want our prices to go any higher. We are not a designer brand, we are a brand for the masses, so prices should not be higher,” says El-Kot.

“All our prices are on par with London, but London prices are the most expensive in Europe,” Boyner says of Beymen. “We are 5-10 percent more expensive than Italy and a little more expensive than France. For now we are swallowing the 40 percent customs, otherwise prices would be ridiculous and we would not sell. Our clientele could just as easily buy from abroad.”

Although he claims that he has received no promises of any nature from the government, Boyner has faith that customs duties will go down in the near future. His bet might be worth following: Minister of Trade and Industry Rachid Mohamed Rachid and Minister of Tourism Ahmed El-Maghrabi were on hand as Prime Minister Ahmed Nazif cut the ribbon at Beymen’s opening.

“I don’t deal with governments, even in Turkey. Everywhere we go we are a government-proof company. We have not met with any government official to try and understand what the future will bring, but we understand that Egypt is on the road to liberalization and integration with the world economy and that is enough for us for the time being. Our local partners are very well informed people and we have tried to understand from them what the local trends are in terms of political decisions. We don’t have endlessly deep pockets, but we do believe that the prices we have now are the right prices and we will keep them that way for some time.”

But how long is “some time?” According to Boyner, if his volumes are high enough he may swallow the customs tariff forever. “We would need to make in excess of $6,000 per square meter per year to compensate. Of course I don’t expect to achieve that in the first year. Initially I would be happy with $4,000 per square meter, but we will just have to wait and see how it goes.”

“It took a real leap of faith on the part of the Turks to come here. Had they been English or American, I don’t think that they would have had this much patience,” says Dajani. She claims that the response to Beymen has so far been much better than anyone expected. “We had a soft opening for two weeks prior to our official opening date on November 16th and during that time we did triple the sales that we expected. During one day we were the highest selling Beymen store within the whole group.”

While it’s still too early to measure the impact that the opening up of the Egyptian retail sector has had on the local economy, industry and consumer trends, one area where there has been an obvious change is customer service.

With the introduction of the multinational retailers, a new caliber of sales associate has come into being. They are better educated, more presentable and, in some instances, foreign. Most retailers have brought in sales staff from Lebanon (Mango), Syria (Benetton) and Turkey (Beymen) to get them through their launch periods and help train local sales staff.

“Turkey was lousy at customer service 10 years ago. It was actually Beymen that introduced policies like taking back merchandise with no questions asked. It was a breakthrough at the time. It was so powerful that they changed the consumer law in Turkey accordingly. We changed the culture in Turkey and I think we can do the same here. It is all about competition. If I am providing a certain level of customer service, my competitor has to do the same or else he will die,” says Boyner.

“When we allow the multinationals in we will have competition not only in terms of prices and quality but also in customer relations. The learning curve will improve for the locals,” says El-Kerdany, who now personally monitors the sales staff for all his tenants. “If there is a problem we will report it to the manager. This concept did not exist before.”

“Good salespeople are very difficult to find in Egypt. I can get you a good sales manager but not a good salesperson,” says Dajani. “This is why we are now seeing the qualified ones being snatched up by competitors. If you go to Mango today you will see a different sales team than two months ago because they have been head-hunted,” says El-Kot.

Cultural attitudes associated with the appropriateness of a well educated young person from a reasonably good social background working in a shop are also starting to change. University students are for the first time considering employment in the multinational retail sector as summer jobs.

“Mindsets will change. Retail will begin to be viewed as a career,” says Dajani. “Right now we are in the process of hiring our own local buyers who will work within the Beymen system. It is not an easy job because no one has the experience. The few that we could find have lived abroad all their lives so they don’t really understand the market here which is why I have had to get involved myself,” she adds.

“I think universities should start thinking about altering their curriculums and offering courses in retail. We need merchandisers, buyers and warehouse, logistics and operations managers particularly now that we will have shops with multiple branches,” says El-Kot. “When people come to realize that there are career opportunities in retail they will not be so reluctant to start as a sales person and work their way up to managerial positions. It’s a completely different world out there today,” she adds.  et