Jarir says re­tail slump may be near end­ing

Kuwait Times - - BUSINESS -

RIYADH: The slump in Saudi Ara­bia’s re­tail sec­tor may be close to end­ing as con­sump­tion starts to sta­bilise after shrink­ing be­cause of low oil prices and gov­ern­ment aus­ter­ity poli­cies, the chair­man of one of the king­dom’s big­gest re­tail chains said. “We think the sharp de­cline is fun­da­men­tally over, or will be over by the end of this year,” said Muham­mad Alagil, chair­man of Jarir Mar­ket­ing Co, which fo­cuses on sell­ing con­sumer elec­tron­ics, books and of­fice sup­plies.

Next year, the com­pany may be able to grow both profit and sales at rates in the high sin­gle dig­its or low dou­ble dig­its, he added - though much of that growth would come from open­ing new stores rather than in­creas­ing busi­ness at ex­ist­ing out­lets.

Saudi Ara­bia faces its most dif­fi­cult eco­nomic times in a gen­er­a­tion as the gov­ern­ment cuts spend­ing in or­der to curb a huge bud­get deficit caused by shrunken oil rev­enues. The re­tail and whole­sale sec­tors, in­clud­ing restau­rants and ho­tels, shrank 0.6 per­cent from a year ago in the sec­ond quar­ter of this year. Jarir’s net profit edged up 0.7 per­cent from a year ear­lier to 220 mil­lion riyals ($58.7 mil­lion) in the third quar­ter as its sales dropped 1.0 per­cent to 1.52 bil­lion riyals. Alagil said low oil prices were hurt­ing his stores’ busi­ness not merely in Saudi Ara­bia but also in other Gulf Arab economies.

“If it falls 15 per­cent in Saudi, it is fall­ing 10 per­cent at our stores else­where in the Gulf,” he said in an in­ter­view at the Reuters Mid­dle East In­vest­ment Sum­mit. Alagil said there was un­cer­tainty in the Saudi re­tail sec­tor be­cause of cuts to the al­lowances of pub­lic sec­tor em­ploy­ees an­nounced last month and the risk of more aus­ter­ity steps to fol­low. Au­thor­i­ties have said they plan to in­tro­duce value-added tax, at a rate of about 5 per­cent, in 2018.

“It is very dif­fi­cult to be clear about how much the im­pact of th­ese steps will be. No­body is re­ally sure.” Re­flect­ing that un­cer­tainty, Jarir’s share price has plunged 45 per­cent this year to 87.00 riyals, a level which Alagil de­scribed as ex­ces­sively cheap. He said he didn’t ex­clude the pos­si­bil­ity of a share buy-back, although that would de­pend on the board’s de­ci­sion.

Alagil said there were sev­eral rea­sons to think the worst of the slump was end­ing. One rea­son was that many peo­ple had be­gun dip­ping into their sav­ings to sus­tain spend­ing. Also, con­sumer spend­ing by many mil­len­ni­als - young adults in the late teens, 20s or early 30s - was re­main­ing quite strong be­cause they had lit­tle debt or fam­ily obli­ga­tions.

While Jarir’s sales of of­fice sup­plies fell at an­nual rates of 20 to 25 per­cent ear­lier this year as com­pa­nies cut back, es­pe­cially in the em­bat­tled con­struc­tion in­dus­try, the pace of de­cline has slowed sub­stan­tially, Alagil added. If con­sump­tion stays slug­gish next year, it could trig­ger a shake­out in the re­tail sec­tor that al­lows Jarir to gain mar­ket share, he said; the com­pany plans to open four new stores in Saudi Ara­bia and two in Kuwait next year, and is stick­ing to a pre­vi­ously an­nounced plan to have 60 stores by the end of 2018 compared to 44 now.

“Be­cause a lot of peo­ple think the sit­u­a­tion is bad, it is an op­por­tu­nity to push the en­ve­lope for growth,” Alagil said, not­ing that the 1980s, an­other pe­riod of low oil prices which hurt the Saudi econ­omy, was a time of growth for Jarir. — Reuters

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