Emerging trends in Mena retail

It has been a busy year in the Middle East and North Africa retail sector, with a number of players making news.

Saudi consumer electronics retailer eXtra went public in a 396-million Saudi riyal (Dh397 million) offering in December. Qatar-based grocery retailer Al Meera has snapped up a few local competitors and formed partnerships with British stationer WH Smith and French grocery giant Casino Group, among others.

Lebanon's Azadea Group will become the first overseas partner to franchise Asda's fashion label George; similarly, British supermarket chain Tesco is expanding its F&F fashion line to the Middle East in 19 outlets, in partnership with Saudi Arabia's Fawaz Abdulaziz Al Hokair Group.

Dubai-based luxury retailer Chalhoub Group announced sales growth of 35 per cent for the year, driven by Saudi Arabia, the UAE and Qatar.

Taken together the evolution and progress of these companies reflect the Middle East retail market as a whole: rapidly consolidating, gaining in sophistication and becoming ever more connected to global competitors and peers.

The sector will continue to grow, though performance will vary by market, with the Gulf countries surging ahead of those in the Levant and North Africa that experience econ-omic turmoil in the wake of the Arab Spring.

New real estate developments are on the horizon for Abu Dhabi, Qatar, and Oman, and analysts are calling for increased investments in Iraq as well.

Four capabilities

To keep up in this dyn-amic market, retailers will be seeking growth in all its forms, solidifying their positions in the current markets and expanding further across the region. There are four capabilities that will help them maintain their competitive edge.

The first is format innovation: Retailers continue the long-term task of exploring store formats that will enable them to penetrate new geographies and consumer segments. Carrefour and LuLu, for instance, are experimenting with convenience formats developed for smaller communities and neighbourhoods.

But the growth in online channels is and will remain the big story in retail, with some categories, such as electronics and books, more affected in the near term than others. To capitalise on this trend, retailers will need to go beyond the basics, such as easily navigable websites and liberal return policies, and develop new capabilities that enable them to innovate and gain competitive advantage.

The second capability is what we call ‘curated merchandising' — the ability to place the right product in the right store at the right price. To get the most out of their stores, retailers will need to tailor them to better reflect local tastes and preferences.

This localisation effort leads to a better shopping experience, increasing traffic, revenues, and loyalty.

Customer experience

The third capability revolves around the customer experience, which is driven by multiple levers: the layout and the look and feel of the store; product assortment, pricing, and stocking; and interaction with employees. The first two drivers can be fairly easily copied, but high-quality service is hard to replicate and can be a true competitive advantage.

Finally, forward-looking retailers are focused on social media, which is likely to become the next generation of e-commerce engines and a powerful new sales channel. In a 2010 survey by us, 27 per cent of consumers said they would purchase goods through social networking sites, and 10 per cent said such transactions would likely be incremental to their regular shopping. Although the long-term revenue prospects in social media are appealing, the direct revenue it generates will be only a small fraction of sales for many retailers in the near term. However, to prepare for the future, retailers should be thinking about capabilities they will need to commercialise social media.

They should be monitoring the social conversation around their brands and using social media as a channel for building customer intimacy, understanding, and loyalty. Further, they should be considering how to make the leap from getting customers to "like" them on Facebook to getting them to make repeated purchases. The specific capabilities that retailers develop to address these four areas — format, merchandising, experience, and social media — will differ among companies.

Not every capability is suitable for every retailer; each company must consider how it can take best advantage of its unique strengths.

The writers are with the management consultancy Booz & Company.