Combine a real estate business with successful franchising

Combining its real estate development business with being a regional franchisee for major international brands has enabled MH Alshaya Group to build a successful two-fold business

Overview

MH Alshaya Group, a Kuwaiti-based company, launched itself onto the international market when in 2006 it brought UK-based beauty and healthcare retailer Boots and Sweden-based value fashions operator H&M to the Middle East. The company is also franchise partners with many international brands including Debenhams, TopShop, TopMan, Next, River Island, Faith, Peacocks, BHS, Mothercare, Footlocker and Laura Ashley.

The Group is organised into four divisions: automotive dealerships, hotel management, real estate ownership and management, and retail. MH Alshaya Group now operates over 1,700 stores across the Middle East and southern and eastern Europe.

Founded in 1890 as a trading company, the modern MH Alshaya Group was created in 1983 when it signed a regional franchise deal for UK-based baby and child retailer Mothercare. The creation of the Mothercare franchise package was aided by Franchise Development Services, a UK-based franchise consultancy company, which frequently uses the subsequent success of what MH Alshaya Group has achieved to demonstrate to other retail property owners how they can benefit from acquiring franchise rights and develop both within their own and other independent property owners territories.

Since 1983 MH Alshaya Group has continued franchising with Mothercare and has taken the brand into markets as diverse as Saudi Arabia and Russia. Additionally, over the years MH Alshaya Group has built up a stable of over 50 brand names.

The 2006 franchise deals with Boots and H&M marked a watershed for MH Alshaya Group. In the spring of that year it opened its first Boots stores in Kuwait and Dubai and has since grown to the present 30 stores, located in Kuwait, the UAE, Bahrain and Qatar. In September 2006 it opened its first two H&M stores on the same day at the Mall of the Emirates and another a week later at Ibn Battuta Mall. Since then it has opened a total of 19 stores in Bahrain, Kuwait, Oman, Qatar and Egypt and most recently in emirate Sharjah.

Additionally, in January this year the company has signed a deal with USA-based office goods supplier Office Depot and is set to open stores in Kuwait and Dubai, as well as announcing a deal with Harvey Nichols to open a department store in Kuwait.

Franchise and retail operations

Fashion and accessories: Mothercare began the while franchise experience for MH Alshaya Group and the retailer has been at the spearhead of the company's move into eastern Europe. H&M is the most recent addition in a list that includes Debenhams, Next and TopShop.

Footwear: A smaller part of the business, Milano and Faith will be joined by Payless ShoeSource this year.

Health and beauty: A slightly different operation for MH Alshaya Group, this category includes store chains The Body Shop and MAC with studio-style VaVaVoom and perfume brands.

Food: Stand-outs among its extensive food offering are Starbucks, PizzaExpress and in January 2009 upscale gourmet cafe Dean and DeLuca.

Optics: Another smaller sector for Alshaya, the latest addition was Vision Express in 2007.

Pharmacy: Boots may be the only operation under this banner but CEO Mohammed Alshaya believes snapping up the rights to the UK group has been a major coup.

Sports fashions: One of Alshaya's first USA deals, FootLocker has 12 stores regionally under the franchise deal.

New additions: In September Payless ShoeSource owner Collective Brands signed a deal to debut in Kuwait and Dubai this year, with further markets to follow, in a region which Collective Brands believes could handle 200 stores.

Furthermore in January this year Office Depot signed a GCC-wide franchise deal and expects to open four stores this year, two each in Kuwait and Dubai, with Saudi Arabia, Qatar, Oman and Bahrain further expansion markets.

Also in January, Harvey Nichols CEO Joseph affirmed expansion plans for the fashion department store group to include a new store in Kuwait in tandem with MH Alshaya Group.

Mall/shopping centre operations

MH Alshaya Group's franchise growth has not been hurt by its extensive real estate development and management programme, which has enabled it to create suitable outlets for its ever-increasing stock of major brands. However, the company's development arm has not taken on the major mall builders such as Majid Al Futtaim, Nakheel, Al Futtaim Group and Emaar but rather has quietly established its own niche.

The company's need for suitable properties has been to some extent sated by the massive scheme openings (especially in Dubai) where it has typically put in a host of brands. As the Middle East, Saudi Arabia aside, comes to terms with the drying up of a global real estate investment funds, MH Alshaya Group is considering a need to re-focus on neighbourhood malls and centre development in under-supplied areas if it is to maintain its target of 450 store openings in 2009.

Additionally, with a broad portfolio of store chains from which to choose, MH Alshaya Group has also been able to tie up high profile deals such as that with landmark residential scheme The Pearl, Qatar, at which it is providing all the retail for the project's shopping offer.

Current strategy

MH Alshaya Group's growth has been predicted on its obvious core markets - Saudi Arabia, Kuwait and the UAE, notably Dubai. Despite local differences MH Alshaya Group views the Middle East essentially as one market in terms of its cultural outlook but the company has also begun looking outside the Gulf and Levant, though in typically measured steps.

The company bought up the Russian business handling Mothercare, Next, MAC and Body Shop. "It is a good market but it will be a lot of work," reflects CEO Mohammed Alshaya. In another development in February 2008 the company took Next, Claire's, The Body Shop and MAC into the Zlote Tarasy development in Warsaw, Poland.

"We have shown that the size and scale matter," says Alshaya. "We started by approaching international retailers who we believe has the potential to growth, diversify and expand geographically. Most of our deals have come through opportunities. We look for retailers that we believe have a sound basis and where there is not too much adaptation required to the local markets."

Future plans

MH Alshaya's ambitions have expanded dramatically from its GCC powerbase. The group is also looking southwards to the enormous yet complicated Indian opportunity. "Obviously we have a strategy to be in India," Alshaya admits. "But we are waiting until we feel comfortable. For fashion it is about how quickly you can get the product from manufacture to sale. Our concern is how long goods from outside India take to get in to the country and the infrastructure to move it around."

The company opened a Starbucks and a Claire's in Egypt in December 2007 and also operates Milano in the country. Other North African countries will follow although no more have been added yet, Alshaya adds: "There are regional differences, in real estate, in purchasing power, we understand that. We will see how we fare in Egypt then take it from there, when we are comfortable."

MH Alshaya Group still sees further opportunities in the Middle Eastern markets too, with Jordan and Lebanon enjoying continuing growth, while Saudi Arabia remains economically dominant in a region suffering its first economic jolt since Dubai became a retail and leisure destination and put GCC on the world map.

The company has also bucked the trend by bringing its brands and franchises towards Europe from the east. MH Alshaya Group has chosen landmark schemes such as Warsaw's Zlote Tarasy and Istanbul's Kanyon Mall to announce its arrival and more is expected as the company acquaints itself with the idiosyncracities of these markets. MH Alshaya Group has also launched its own brands, notably VaVaVoom, Milano and some of its food offers and is promising more.

Franchising, however, is at the heart of the business and aside from its two recent USA deals with Payless and Office Depot earlier this year, MH Alshaya Group has also affirmed that it will open a Harvey Nichols in the final phase of Kuwait's The Avenues mall in spring/summer 2011.

To receive further information on how retail brands can be introduced to various shopping mall owners that are now willing to consider purchasing area or Master Franchise rights please call Marisa Aeschbach on +44 1603 620301 or email pa@fdsltd.com

MH Alshaya Group