GS holds the mid­dle ground

Le­banon’s GS looks to ex­pand in a dif­fi­cult econ­omy

Executive Magazine - - Contents - By Thomas Schellen

On the clouded hori­zon of Le­banese re­tail in 2015, the next quar­ter’s big­gest bang in fash­ion re­tail may well be a new store in the, re­cently of­ten ma­ligned, Beirut Cen­tral Dis­trict. Come this spring, Hamra Shop­ping and Trad­ing Com­pany (HST), best known for its re­tail brand Grand Stores (GS), will open a new re­tail space smack in the cen­ter of down­town Beirut, fac­ing the Souks and 200 steps from the se­cu­rity cor­don around Ne­jmeh Square.

With about 2,400 square me­ters (m2) in sales area, the new GS multi­brand store will be the com­pany’s largest. “This project con­sists of four floors, each com­pris­ing around 600 m2, and it will be our flag­ship store, tak­ing us to the next era as a com­pany and as re­tail[er] in Le­banon. We are designing and plan­ning and work­ing [so that] this store [can] re­ally ce­ment our pres­ence in the re­tail mar­ket in the re­gion,” says Jamil Rayess, cur­rent helms­man of fam­ily owned HST.

Costs for get­ting one of HST’s stores up and run­ning in Le­banon, ac­cord­ing to Rayess, range be­tween $1,000 and $1,150 per square me­ter, giv­ing the project an in­vest­ment di­men­sion in the neigh­bor­hood of $2.5 mil­lion. In the con­text of the HST port­fo­lio of over 30 multi and mono­brand stores be­tween Tripoli and Saida, this new space will add about one fifth to their ex­ist­ing re­tail sur­face, which Rayess metic­u­lously cites as 11,221 m2 at the end of 2014.


Of course the new GS store in down­town, even as HST’s largest project ever, amounts to a nice, rather than over­whelm­ing, splash in the ur­ban storescape when com­pared with the tens of thou­sands of square me­ters in new fash­ion re­tail sur­faces that have come to mar­ket be­tween 2003 and 2014 in prime ar­eas, namely in shop­ping malls and the Beirut Cen­tral Dis­trict.

No­tably how­ever, this na­tional ex­pan­sion in gross leasable area for prime re­tail has not been as smooth as de­picted in shop­ping malls’ pro­mo­tional brochures or the mus­ings of ex­perts like Simon Thom­son, founder of the Lon­don based con­sul­tancy Re­tail In­ter­na­tional, who 10 years ago pre­dicted the “re­gen­er­a­tion of Beirut as a sig­nif­i­cant in­ter­na­tional re­tail des­ti­na­tion city ca­pa­ble of com­pet­ing with the likes of Dubai.”

Es­pe­cially in down­town, where fash­ion mon­gers made it their am­bi­tion to make lo­cal and vis­it­ing shop­pers wear down their heels in ex­ten­sive strolls around Foch-Al­lenby and Minet El Hosn, this ex­pec­ta­tion has fal­tered time and again and re­tail­ers have of late ei­ther moaned over bad busi­ness or al­to­gether re­fused to dis­cuss sales re­sults when queried by Ex­ec­u­tive.

Asked if he wasn’t con­cerned about the weak econ­omy in gen­eral and turned off by the pur­ported ane­mia in the


down­town re­tail en­vi­ron­ment, Rayess has two an­swers. On the econ­omy, he says, “We have never made any plan for our com­pany based on a neg­a­tive sce­nario for the coun­try, be­cause to do so would be self de­feat­ing and mean that we would be stand­ing still.” HST in­stead ap­proaches the fu­ture by “plan­ning on [a] day-to-day ba­sis, hop­ing that things will [get] bet­ter,” he en­thuses.

As for down­town’s trou­bles, he com­ments that the neg­a­tive per­spec­tive “is not all true. I may not have the same pres­ence in this area as some of my com­peti­tors in terms of size,” he

con­tin­ues, “but I have two re­tail shops in the cen­tral dis­trict. I have been in this area for 11 years now and can say that it is not all bad. There are a lot of re­tail­ers that are not sat­is­fied but there are sev­eral re­tail­ers that are sat­is­fied and are grow­ing their pres­ence in this area.”



An­other facet of the com­pany’s con­fi­dence in the Le­banese mar­ket is a strat­egy mix that is built upon HST’s iden­tity of be­ing a Le­banese re­tailer whose source of suc­cess is the im­port­ing of well es­tab­lished but not ex­trav­a­gant for­eign la­bels. Ac­cord­ing to Rayess, HST was es­tab­lished un­der this for­mula by his fa­ther 40 years ago and has de­vel­oped its mid­dle of the road ap­proach into an art form, tuned to the Le­banese taste. It can com­pete with lo­cal out­lets of in­ter­na­tional mono­brand chains, whether they are re­cent ar­rivals to the Le­banese mar­ket, such as H&M and Marks & Spencer, or have been present for years, such as Mango and Zara.

The strat­egy mix in­volves mar­ket­ing, pur­chas­ing, pric­ing and po­si­tion­ing. The fairly ag­gres­sive mar­ket­ing ac­tiv­ity en­tails di­ver­si­fied out­reach ac­tiv­i­ties rang­ing from com­mon tools, such as dis­counts and sea­sonal cam­paigns, to in­stru­ments that are sparsely used in Le­banon, such as an in store mag­a­zine and a mo­bile app.

Pur­chas­ing and ex­clu­sive fran­chise rep­re­sen­ta­tions are the next build­ing blocks in the busi­ness for­mula. This in­cludes fran­chise part­ner­ships with four brands — Tim­ber­land, Spring­field, Geox and Bossini — which HST of­fers in mono­brand stores and a much larger port­fo­lio of about 100 brands which the com­pany’s team of buy­ers ob­tains from for­eign sup­pli­ers. Sold in GS stores, this port­fo­lio con­sists of 90 per­cent ex­clu­sive rep­re­sen­ta­tions, Rayess says, and 13 to 14 pro­fes­sional buy­ers in the HST team are con­stantly on the road to source col­lec­tions from trade fairs and sup­pli­ers “all around the world.”

Although the HST prod­uct port­fo­lio in­cludes two house brands where items are pro­duced by con­trac­tors in China, Turkey and Le­banon, th­ese brands are used to fill sup­ply gaps and their con­tri­bu­tion to the bot­tom line has been shrink­ing to the point that they re­cently ac­counted for less than 2 per­cent of turnover. “We are deal­ing with our house brand not to max­i­mize mar­gins but for a dif­fer­ent phi­los­o­phy: we some­times fall short of a spe­cific prod­uct, an item that was en vogue but which we were un­able to ac­quire from one of our sup­pli­ers. In such cases, we take this prod­uct and tell our con­tract man­u­fac­tur­ers to pro­duce it for us,” Rayess says.

Pric­ing is main­stream and con­ser­va­tive but ori­en­tated to match the pric­ing in the home mar­kets of the man­u­fac­tur­ers whose brands are in the port­fo­lio. This trans­lates into a pol­icy of com­bin­ing price com­pa­ra­bil­ity with lim­it­ing dis­counts.

Ded­i­cated bar­gain hun­ters can find prod­ucts such as a pair of Geox shoes at this or that Beirut re­tailer, but when it comes to com­par­ing prices dis­played at an HST store with those shown in­ter­na­tion­ally for the same prod­uct, cus­tomers who go to the — to­day very small — trou­ble of check­ing those prices on­line will rarely en­counter a sig­nif­i­cant dif­fer­en­tial in fa­vor of buy­ing out­side. This is be­cause Rayess tends to price a Tim­ber­land prod­uct ac­cord­ing to the US mar­ket and a Spring­field prod­uct ac­cord­ing to the Span­ish mar­ket, etc.

He says, “Let me not en­ter price de­bates with my cus­tomers, who can con­front me right there in the store with what my prod­uct costs in an­other mar­ket. So let me price it right ac­cord­ing to the price in the coun­try of ori­gin of this prod­uct. Most of the times, the coun­try of ori­gin is where the prod­uct is sold at its cheap­est when com­pared with the re­main­der of the mar­kets.”

This cor­re­lates with a long­stand­ing prac­tice to stay away from the Le­banese mar­ket’s flashiest sales

meth­ods. “In the his­tory of HST or GS or any of my brands, we never did 70 per­cent dis­counts. I price my prod­ucts so that the low­est I can go in terms of dis­counted prices is 50 per­cent,” Rayess ex­plains. With mark­downs from the regular re­tail price be­ing limited in this way, the com­pany seeks to en­gen­der cus­tomer loy­alty and avoid a be­hav­ior where cus­tomers de­lay pur­chases in or­der to wait for the big­ger dis­counts.

On the ac­count­ing side, the com­pany has a pol­icy of aim­ing for sta­ble earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion (EBITDA) mar­gins. “We are try­ing to work with an EBITDA of 10 per­cent, some­times suc­cess­fully so, some­times less. Less suc­cess­ful means [achiev­ing] EBITDA [that is] lower by half a [per­cent­age] point,” Rayess says.

Re­fus­ing to dis­close data on the turnover and bot­tom line of the HST re­tail busi­ness in Le­banon and other coun­tries, he only vol­un­teers the in­for­ma­tion that “our com­pany and its af­fil­i­ates have been grow­ing ev­ery sin­gle year since 1974, with year on year growth in terms of turnover and gross prof­its.”


The com­pany has set its same­store turnover growth tar­gets for 2015 at 6 per­cent, and ex­pects new points of sale will add to over­all growth in gross rev­enues. Th­ese new points of sale in­clude not only the up­com­ing flag­ship fa­cil­ity in down­town Beirut but also new stores in Iraq, of which one is sched­uled to open in June in Suleimaniya, and Jor­dan, where a 500 m2 store in Am­man’s Ab­dali dis­trict is planned to launch at the end of the year.

Iraq, with five stores, and Jor­dan, with three stores at end of 2014, are the two re­gional mar­kets where the ex­pan­sion of HST has been suc­cess­ful. But the com­pany is still re­cov­er­ing from its ex­po­sure to Syria where it be­gan an en­thu­si­as­tic roll­out of stores in 2008. Open­ing six stores in three cities be­tween 2008 and 2010, the de­ci­sion to close all out­lets and put ac­tiv­i­ties on hold had to be made in 2011, the Syr­ian con­flict thus hav­ing a “big” im­pact on HST, Rayess ad­mits.

Rayess, who stepped up to the po­si­tion of gen­eral manager at HST in 2010, nonethe­less em­pha­sizes that he still at­tributes great po­ten­tial to the Syr­ian mar­ket. He is not de­terred by the chal­lenges of op­er­at­ing in a dif­fi­cult and ex­tremely com­plex en­vi­ron­ment and still has dreams, such as de­vel­op­ing a fully fledged fash­ion brand.

This ven­ture, to be cre­ated by HST with full brand phi­los­o­phy, pack­ag­ing and ev­ery­thing else, has been on the drawing board “for a good while,” ac­cord­ing to Rayess. It has moved be­tween pipe­line and drawing board with­out hav­ing been sched­uled for im­ple­men­ta­tion due to the fi­nan­cial re­quire­ments of in­vest­ing sev­eral mil­lion dol­lars and be­cause of the even greater chal­lenge of build­ing a team that can de­velop and run such a brand.

Once the fam­ily run com­pany es­tab­lishes it­self re­gion­ally, it may con­sider a public list­ing, says Rayess, not­ing that “We are a fam­ily busi­ness of the 21st cen­tury, so we are not look­ing specif­i­cally for any of our chil­dren to take over or hold the reins.”

All things con­sid­ered, this leaves HST look­ing like a firm that is not out to rein­vent fash­ion or over­throw the global or­der of re­tail, but a com­pany where con­ser­va­tive and am­bi­tious el­e­ments are in a bal­ance. Their cor­po­rate pas­sion is con­veyed by Rayess as not be­ing fo­cused on the amount of cash that can be gen­er­ated from a cus­tomer. “I never look at peo­ple this way. I al­ways look at what they are wear­ing and I al­ways feel a sense of pride if an item they are wear­ing was pur­chased from one of my stores. I don’t care whether it is a small bracelet or the most ex­pen­sive suit I carry. I look at them with sat­is­fac­tion be­cause I was able to have them en­ter my stores and pur­chase a prod­uct.”


HST is set to open a flag­ship store in down­town Beirut

HST’s choice of brands is de­lib­er­ately mid­dle of the road

Newspapers in English

Newspapers from Lebanon

© PressReader. All rights reserved.