Survival of the fittest
ABC talks coping mechanisms in a difficult retail environment
ABC Verdun has been in opera
tion for a year now. Although it was a year marked by the continually challenging economic situation in Lebanon, Frank Kuntermann, chief executive officer of ABC Group, feels there are several milestones to celebrate, all things considered. In this interview, Kuntermann discusses ABC Verdun’s performance since its opening in late July last year, and how the group is managing growth despite trying economic circumstances.
Were the projections or expectations you had for your first year of operation in ABC Verdun met?
First of all, we started in the middle of the year, and usually, you don’t do a forecast for the first few months—you do an expectation over a year and a half. So it is toward the end of this year  where we will touch base with our projection. But in general, there are several interesting points to look at.
For us, the first steps in Verdun are definitely encouraging: We opened earlier than planned and below the planned budget. The department store is leased out at 100 percent, and the mall is leased out at 84 percent. In another 10 months, we will be slightly above 90 percent [of mall leasing capacity], so this, from an industry standard, is good, because a mall always aims to be between 90 to 95 percent leased.
For the projections regarding the sales of our tenants and our sales, we did them roughly two and a half years ago, while today the retail [industry in Lebanon] is suffering, so we are below those projections.
But honestly, we are not really concerned—we are very cautious, we look at the expenses, watch out, etc. We watch out a lot for our partners because, you know, they invested and opened stores. People ask us if we revised the rent [agreements], but you don’t do that after only a few months—we have very long-term relationships with our tenants and like to work with people we know and trust, so we are very flexible with them and we support them.
How do you support your tenants?
There are many ways in which you can support them. You can support them with marketing, you can support them with events that we organize with them or for them, and you can give them incentives, such as one month rent-free. We try to be flexible in supporting them because after just one year it doesn’t make sense to re-discuss rent [prices] that were so recently agreed to.
We are below projections, but we are much above the [average] situation of the market. There is a saying in German which translates to: “There is one eye laughing and the other crying.” We’re not happy about the situation of the market. We’re not happy because our partners are suffering, especially the ones who are outside of ABC—today, retail on the street is very, very challenging. The very good thing is that we are building up traffic every month and the number of visitors is going up.
Did you notice an increase in footfall from the start?
What is very interesting—and this is not specifically Lebanese—is that people have a very hard time changing habits. I was talking to a lady who lives 500 meters away from Verdun, but still went to ABC Achrafieh. She told me she only recently went
“We opened earlier than planned and below the planned budget. The department store is leased out at 100 percent, and the mall is leased out at 84 percent.”
to ABC Verdun. And there was another lady from Ashrafieh sitting next to her who said it took her two years to stop going to Dbayeh and [instead] go to Ashrafieh. So we are really getting into the lives of people in Verdun, and what is very interesting is that through our CRM (customer relationship management) we can observe that once they start [coming], the frequency of their visits increases month after month. So it really builds up.
There was a peak in footfall in July because of all the tourists, and we broke the record for car entrances in July, when we had more than 100,000 cars that entered. It’s very interesting to see how it builds up, and July was by far the busiest month since we opened. Every month we are signing up new loyalty cards, which is surprising, since we [already] have the biggest loyalty system in the country. We welcome 12 million people [annually], and at the end of 2018, with Verdun, [this will rise to] 17 million people, more or less. So you can assume that people already know the mall, but no, we were discovering people that we didn’t know about, from Verdun, Jnah—people that are totally new customers, which is good.
In last year’s interview with EXECUTIVE, you mentioned your intentions of having ABC Verdun be a community mall …
This is the case. When we look at the profile of our customers, it is exactly the people from the community. Same for the profiles of the employees: We indirectly created about 2000 jobs—more than 400 directly ourselves—and 85 percent of them are from this immediate region, which is logical. One characteristic that is very interesting is the percentage of youngsters going there, which is very important.
More frequently than ABC Achrafieh?
Much more. Almost double.
Why is that, in your opinion?
We’re working on this. We don’t know if it’s a question of population structure or the fact that it is “the” place to hang out for youngsters. This makes us think a lot about services and concepts for the youngsters. For instance, we are working now on a concept for a space dedicated to teenagers, so they can do more than
“We indirectly created about 2000 jobs—more than 400 directly ourselves—and 85 percent of them are from this immediate region.”
sit and hang around. We’re learning with every month, and we have done some very interesting customer roundtables. We always do [roundtables] after six months to really get feedback from our customers. We discovered a lot of corrections to be made and came up with a list of 85 projects that were extracted from these discussions.
Can you give us an example of a project?
In the front entrance, for instance, we created a drop-off zone, or island. This was a result of customer feedback, when they said they don’t know where to stop when being dropped off. The percentage of female customers with drivers is much higher than in Ashrafieh.
So it’s very practical stuff, and I have to say, it’s quite different [from the other two locations], so every month we are learning what works and doesn’t in Verdun. Same for the tenants, where some are surprised at how well they are doing, while others are struggling and don’t know why, because elsewhere [similar strategies] work very well for them.
We are working on an I-Play [the ABC children’s play section], since three quarters of women in our customer roundtable sessions asked about it. We were surprised because we had planned it a bit further down the line, because we are watching out for expenses and investments— our group had heavy investments in 2016-2017 in terms of new offices, new logistics, the renovation of ABC Achrafieh, and now Verdun, all within a year and a half. But [if] the customers are saying they want it now, it should be now. So we are already working on it much earlier than planned.
Did cannibalization happen between ABC Achrafieh and Verdun, with both of them being in Beirut?
At the beginning, cannibalization was very little because people kept their habits. Today, it’s—depending on the type of product—between 6 and 9 percent. We had planned in our budget for a bit more, so it’s rather a good surprise.
It’s true that when you have cannibalization and a bad market, the mixture of both is challenging. When you are in a difficult environment, and you say, ‘Guys, this is tough, but on top of it I am going to remove 6-9 percent of everything because we opened in Verdun,’ it’s a challenge for people. But look, on a consolidated basis, we are experiencing double-digit growth because of all the investments we have done. On a like-for-like basis, it’s challenging. We need to be prudent in an environment like this, which is logical. We are not in a bubble.
How are you and your tenants incentivizing customers to keep spending in a difficult economic environment?
There’s three things: What our tenants do, what we support them to do, and what we do ourselves directly. For instance, we have been stronger this year on [promoting] sales. We started earlier and have slightly higher discounts because we noticed that people have a bit of cold feet when it comes to spending.
There is an evident problem of trust in this country. The government is still not formed, and the environment is tense. People are scared, so it’s true that in such an environment people try to make themselves feel at ease. What we observed is that the traffic is still there because people want to move—they want to see their friends, have coffee, or go to the cinema—but they watch their spending. They still move, but they spend less. This corresponds very well to the Lebanese mentality: People continue, they want to have fun and they want to be entertained, but they are smart people. They watch what they spend. I think it’s a very healthy reaction in the face of such uncertainty.
Summer 2017 to summer 2018 was really tough for the country, and it was the exact period in which we opened in Verdun. But in Lebanon, you need to be consistent and keep on with what you are doing and not pay attention to what is happening left and right. So it’s a challenging environment, but we are happy with these first steps and believe that 2019 is going to be better.
Out of all the mall elements in ABC Verdun, which are the ones that are attracting the most footfall?
F&B works extremely well in ABC Verdun. People were literally waiting for that and were very keen to have a nice pleasant environment where their kids can play while they enjoy a cup of coffee. It’s very interesting that they always mention their kids; it’s a very family-oriented area.
The big brands are doing well, but what is interesting for us is that the introduction of new concepts received very strong echoes. The first COS shop got a lot of response, and so did the makeup brand Kiko— [given that] they sell units at 70 cents and such, to do the turnover they did is quite impressive. People were waiting for that, but they
“The traffic is still there because people want to move—they want to see their friends, have coffee, or go to the cinema—but they watch their spending.”
want a smart price [to] quality relation[ship]. They want new stuff, known stuff, and smart stuff from a price point of view.