What’s in store?

65 years on, Pakistan is on a path to greater progress. With big brands opening shop and a growing affluent middle class, analysts say the country holds immense scope for growth in the retail sector

Image Credit: Corbis
Top brands are making their presence felt in malls

“Is that Pakistan?” asked an astonished member of the international press, as images from Karachi Fashion Week dropped onto the newswires. Backless gowns, sequined mini skirts, sculpted, bronzed and bare shoulders featured at the shows as tall, leggy models with kohl-rimmed eyes and pouty lips strutted down catwalks. As creations from Pakistani designers and international labels were exhuberantly displayed, it’s hard to believe that the country’s insurgency-riddled northwestern regions lie merely two hours away from this thriving cosmopolis.
As the world deals with the continued fallout of the global financial crisis, Pakistan is enjoying a retail boom. Recent years have seen a steady trickle of neon billboards advertising top international brands, from Levi’s, which opened its first Karachi store in March to other high street favourites such as Mango, Mothercare, Splash, Charles & Keith, Lifestyle, Nine West and Debenhams, which was officially launched this month. Global brands want a slice of the lucrative retail pie, estimated by the Ministry of Finance at $42 billion (about Dh154 billion).
Pakistan has a society that is younger than many others in Asia, including neighbouring India, research firm Euromonitor said in its June country profile. The nation’s urban population has nearly trebled in the past 30 years and continues to grow. With its economy pegged at $210 billion, many analysts see Pakistan as offering a large and concentrated consumer opportunity and as a potent force to be reckoned with in the future. Among them are Goldman Sachs’ Jim O’Neill, the man who coined the term BRIC. Goldman included Pakistan in its list called the Next Eleven (N-11), economies expected to become some of the most important sources of global growth. This was in 2005 and so far Pakistan hasn’t disappointed.
“The opening up of western culture to the masses through media outreach and cable television has caused a change in the brand aspirations of the Pakistani middle-class, especially in the urban areas. The recent arrival of brands like Debenhams and Hyperstar show that the Pakistani upper and middle class have a culture of consumption with brand aspirations to match the West,” says Aameer Karachiwalla, Senior Executive Vice-President, Head of Retail Bank, United Bank Limited, which is the country’s largest investment bank.
“There is a wave of consumerism in the country that has never been seen before,” adds Menin Rodrigues, marketing guru and the President and CEO at Shamrock Communications in Karachi, who has consulted to Coca-Cola Pakistan, GlaxoSmithKline, Kodak, Mercedes-Daimler-Benz, Microsoft Pakistan and Motorola. “This is despite the fact that buying power is weak among the urban population,” he adds. “Retail shopping has come to Pakistan in a big way; there are about 30,000 stores that serve about 55 per cent of the population. The retail sector in Pakistan has been growing at 5.3 per cent in real terms for the past five years, much faster than overall economic growth during this period. Another factor for foreign brands entering Pakistan is because there is no restriction on foreign direct investment in the retail sector, wholly or partially.”
Early entrants are Germany’s Metro Cash and Carry (MCC) and France’s Carrefour. MCC came to Pakistan in 2007 and has ten stores in Karachi, Lahore, Faisalabad and Islamabad. Hyperstar, Carrefour’s joint venture with the UAE’s Majid Al Futtaim Group, opened its first store in Lahore in 2009 and plans to extend into every major city.
Debenhams, too, is eyeing a presence in other cities, its Senior Business Manager for International, Lucy Haine, tells GN Focus. “Pakistan is a fantastic opportunity for Debenhams with a high population and growing affluent middle class. The country is becoming more and more fashion-orientated with the traditional salwar kameez taking on Western trends, colours and trims,” she says.
It is this affluent and growing middle class that these brands are pinning their hopes on. “Pakistan, as a market, holds immense scope for growth especially in the retail sector,” says Vinod Talreja, CEO, Babyshop. “According to the Economist Intelligence Unit 2010 forecasts, Pakistan’s retail sales volume growth is estimated to reach 8.6 per cent in 2014.”
Talreja points to the availability of disposable income today. “This makes it possible to escalate customer spends on non-essential commodities, previously seen as luxury items,” he says.
On the other hand, Abdul Majeed, Managing Partner, Kahf International asserts, “There has never been dearth of money in Pakistan — the only difference is that there was no accessibility to brands.” Kahf has been the official dealer for Rolex in Pakistan since 1948 but has recently brought back Cartier and added Longines and Calvin Klein to its portfolio. “Thirty years ago people were buying Cartier watches but today we are not just catering to the very wealthy but to the upper middle-classes.”
With 34 per cent duty levied on luxury goods, a Cartier can set you back by Rs2-3 million, yet Majeed is only seeing an increase in sales and plans to introduce many more luxury brands into the market.
As in the case of most emerging markets, there are still challenges to be overcome and mind-set seems to be the biggest. “In Pakistan, most purchases are still made from neighbourhood mom and pop stores and retailing remains highly fragmented,” says Talreja. “There is also the lack of quality local workforce to provide service to customers, as training and expertise is limited in the retail space. Having said that, last year saw an increase in consumer spending power, along with an aspiration value attached to the convenience and ‘luxury’ of large format stores seems to be attracting consumers.”
Karachiwalla says the biggest challenges include safety and security of business operations; tackling energy shortages; political volatility within the country and finding locational advantage. It is also essential that growth goes beyond the major cities. However, it does seem that a portion of Pakistan’s economy remains undocumented, which allows for the urban-rural income gap to be more pronounced.