Innovation empowers Retail
In this exclusive interview with InBusiness.ae Mark Tesseyman, CEO, LIWA Trading Enterprises talks about the retail industry in the GCC and how Liwa is shaping its activities to develop this sector.
How is the retail sector evolving in the GCC?
For many years, the GCC retail sector performed very well thanks to the booming oil and gas industries. However what has happened to the market over the past 18 and 24 month has had a knock on effect for hit the consumer market. People have to define their own retail strategies off the back of these changes and innovation and speed of movement are more important than ever.
After witnessing a correction in sales in 2016, the GCC retail sector is expecting to grow in view of the prevailing market conditions. According to a recent study from Alpen Capital, the sector is expected to recover in 2018 and reach $313.2 billion by 2021 driven by a rise in population, international tourist arrivals and a surge in per capita income. On a global scale, Dubai is the world’s fifth top developing country for retail investment, according to the newest edition of A.T. Kearney’s Global Retail Development Index.
With digitisation, we also see important expansion in retail e-commerce with the UAE and Saudi Arabia topping the list amongst the GCC with the new big development in the sector. However, while e-commerce continues to grow, it is not yet fully established and used to its full potential – the level of penetration on e-commerce is still relatively low here. The reality of life is that people would still want to have both online and offline channels. There will always be a place for malls and physical bricks and mortar stores because people enjoy the shopping experience. It’s a social thing and more here in the region than any other part of the world.
What are the main challenges facing this sector today?
High rents and footfall are becoming an issue for retailers especially in Dubai where the city has one of the highest per capital retail spaces in the world. This has an impact on retailers’ profitability who therefore try to attract customers via promotions and events. The Middle East market is quite promotional driven compared to other parts of the world and retailers have to sell more units to try to maintain the cash margin position.
We are in a dynamic market and the majority of brands commit to their stock quantities at least 9 or 10 months in advance and this is a big challenge these days as we can’t predict what is going to happen with the market changes. There are always winners and losers so we need to try to identify indicators as early as possible and react accordingly.
For Liwa particularly, it’s even more difficult as we are predominantly a franchise business. We are not only at the behest of the market but also at the behest of the host brand in terms of how they are doing in a particular market. For this reason, franchising is sometimes more unpredictable than some other areas.
What are consumers in this region mainly attracted to?
One of the key aspects for the retail sector is to find a niche that resonates with consumers. At the end of the day, retailing has always been about innovation, bringing something new – and it has to be. People want to wear something different and the trends are changing. Retailing is a dynamic environment. However in recent years, the global store based retail market has been a bit static in terms of innovation and things that are really different. With new malls and brand concepts, the region has lead the way with newness. This is set to continue.
Consumers are more and more discerning with their spending and essentially looking for quality and good value for money. As a retailer you have to respond and listen to the customer.
The rise of digital and social media has also started to influence how people view retail. This does not necessarily mean e-commerce but a more connected society validates their physical purchases first, via handheld devices. This will be one of the biggest shifts in consumers’ behaviour that all retailers need to prepare for.
In essence, if you look average with an average consumer proposition you will get an average result.
How is Liwa trading staying on top of competition in the market?
A lot of reports talk about the saturation of the UAE market but we believe that if we have a great brand and product with a great value proposition, customers will come. It is important to target your market share. You can’t afford to be average anymore in terms of proposition otherwise you get what you deserve. We need to have extensive knowledge of consumer preferences in the region and adapt our product offering to the needs of the local consumer.
We have noticed that on occasion our traffic number deteriorated by 20%, however our conversion numbers have gone up and we are selling more units than we did before. This was possible thanks to the trading tactics we deployed to make sure we are converting people in a better way than a year ago where we were selling a couple of units per transaction. We have now doubled that and that’s how we managed to perform well in a very competitive market.
To stay on top of competition, you also have to deliver beyond customers’ expectations and this is the message we pass to our team all the time. The reason why our conversion numbers have gone up and why we are selling more units to customers is because our team focuses on treating everybody in a hospitable way when they come to our stores and customer service is key – that’s the only way to compete. As highlighted before, if your traffic is decreasing because the market conditions are tougher, you have to sell more units and you have to convert more people. That’s a real KPI that we drive at Liwa so that we can maximise our potential.
At Liwa, we have 3 core values which we believe are critical for a franchise business: Heritage, Relationship and Trust. We have to make sure that things are transparent. These are key for true partnerships and for both parties to grow together and be competitive in the market.
How do you ensure customer satisfaction across the different brands that you handle?
At Liwa, we look at the portfolio of brands and try to understand how they are doing strategically and in their home market. We then evolve a strategy and make sure we are hitting the right buttons for the consumers. We also need to understand consumer preferences and adapt our product offering to the needs of the local consumer. In that sense, their feedback is critical. None of this is new, however, you have to have a customer centre view point.
Is affordable wearing more beneficial than luxury brands nowadays?
With globalisation, the world became smaller. Everybody has a smartphone, travels frequently and compares prices. Consumers are nowadays more discerning with their spend. That’s why we see a shift to value and affordable luxury in the market. For instance, we have one of our brands Aspinal which is of great quality and design and has performed very well this year – over 60% upon last year. We also have Collezione at the value end over 20% positive on last year. The mass market mid-sector businesses are clearly where the pressure is.
Tell us about your latest partnership with Zippy?
We are committed to the kid’s sector because there is a high proportion of families in the GCC market (average family: 4/5 children). The children’s wear market is pretty robust especially in the value sector, and the UAE holds the biggest growth potential.
Zippy is a strategic addition to Liwa as it offers a value proposition to our kids brand portfolio and it is a brand new launch to the UAE market. The quality and design of the product is to a very high standard for great price offering products designed specifically for children’s needs at their different development stages. We have the master franchise for 4 countries in the GCC and are looking to develop them accordingly.
What sets ZIPPY apart is the innovation as one of their main drivers and this is what consumers are looking for nowadays. They have been investing in creating new products with the purpose of making the everyday life of every family much easier.
Zippy also has a distinctive store concept making the shopping experience easier and more interactive for the whole family. The combination of all these elements has developed a fantastic customer response since the opening of the store. The Dubai Mall flagship store is already generating more than double sales of the brand in place previously.
What are your plans for the next five years?
Because of the market conditions, there’s a lot of consolidation at the moment. Our plan is to concentrate on our core business and strive to work harder in that particular area. We are also looking into innovation with our own label with which we have already landed some exploratory work and we will continue to do different trials with that.
We are always exploring strategic brand partnerships and have live discussions with several brands currently.
With the rapid growth of e-commerce, you would expect us to expand our business in this area. We however think that what has been done by some of the businesses in the GCC is not necessarily the way it will be in the medium term. We think that there might be another formula, something different than the way people perceived it. We are looking into that in terms of how we think we can do it with our partners and we already have several strategic ideas. This could potentially be pure play e-commerce partners.
We strongly believe that we need to have a different approach to retail at the moment. We need to be very open-minded and prepared to explore all avenues of interest to make sure we can profit. Retail has always been about innovation and trying to do something different; it’s about finding that sweet spot and then going after it once tested.