Sur­vival of the fittest

ABC talks cop­ing mech­a­nisms in a dif­fi­cult retail en­vi­ron­ment

Executive Magazine - - Hospitality & Tourism -

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 [2018] 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.

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