19/10/2014 21:48 AST
Saudi Arabian retailer Jarir Marketing Co plans to invest SR1.1 billion ($293 million) over the next five years to roughly double the number of its stores in Saudi Arabia and the Gulf, its chairman said.
The kingdom's largest listed retailer aims to open six new stores on average each year, seeking to increase its bottom line 15 per cent or more annually, and believes growth could hit 20 per cent next year.
"As a general rule, we want to double our store number every five years, and we think the market can support it in Saudi Arabia, the Gulf and eventually in North Africa, starting from Egypt," Muhammad Al Agil told the Reuters Middle East Investment Summit.
"In order to do this expansion over five years, we expect to invest SR1.1 billion. More than 100 million of that is going to be spent outside Saudi Arabia, including Egypt."
Jarir is one of the stock market's most direct plays on Saudi Arabia's rapid population growth and rising incomes, which is why its shares are up 75 per cent since end-2012 compared to a 40 per cent gain for the main market index.
The company, which sells books, office and art supplies, computers and some other electronics, has grown from a single store in a Riyadh street in 1979 into a chain with 36 stores. Thirty-one of them are inside Saudi Arabia with the remainder in Abu Dhabi, Kuwait and Qatar.
"We have more than 25 stores in the pipeline. We are expanding our stores and we are opening between four and eight stores a year, averaging around six stores a year. This will bring us to more than 60 stores by end-2018 in Saudi and in the Gulf states of Kuwait and Qatar," Al Agil said.
"When we open stores every year, this gives us 18 per cent sales space growth, which translates into 10-15 per cent sales growth, depending on location.
"Adding the existing stores which are still growing at 8-10 per cent, this will give us between 15 and 20 per cent growth - for instance next year we think growth will be above 20 per cent," said Al Agil, who co-founded the chain with his family.
The population of the six-nation Gulf Cooperation Council is projected to climb 30 per cent over a decade to more than 50 million in 2020, according to the Economist Intelligence Unit. At present most of the 20.3 million citizens of Saudi Arabia, the largest Arab economy, are under the age of 30.
Saudi labour reforms over the past three years have helped tens of thousands of young nationals secure jobs in the private sector, raising household disposable income.
"In general there is room for growth in the sector, coming from population growth, better education, higher disposable income plus general economic growth," Al Agil said.
EGYPT, LABOUR REFORMS
The Jarir chairman said his company had started buying real estate to expand in Egypt but would not open more stores in the most populous Arab country for three years, since at present expansion in the rest of the Gulf was much easier.
"In Egypt, we already have two stores. We have started just preparing real estate - we bought two locations in Cairo and we hope to add more, but we don't expect to open before three years.
"The Gulf is easy and we ship from Riyadh so it is low-hanging fruit - the Gulf is equal to the Saudi market in total, which means we have major expansion with no difficulty.
"But if we go to Egypt, we have got to have a warehouse, separate people...which is fine, but right now it is very easy for us in the Gulf. We open in Qatar like we open in Jeddah."
Some other companies in Saudi Arabaia say they have suffered in the past two years from the labour market reforms, which have made it harder and more expensive to hire foreign workers, in order to pressure firms into hiring more Saudi citizens. Some employers complain that some of the Saudis are unproductive and unwilling to work.
Reuters
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