M.H. Alshaya Co. traces its roots back to the early 1890s, when it began trading with India. When the oil boom began, the company began building its financial empire, making significant inroads and fortunes by branching out beyond simple trade and successfully investing in real estate and hotels. Although known today mostly for retail investments, Alshaya’s role as a brand tour guide for Western companies began in 1965, when it opened a Sheraton in Kuwait City—a significant move, considering it was the first time the hotel company had opened a location outside the US. Today, when it comes to retail in the Middle East, there’s no bigger player than M.H. Alshaya. Just consider that in the small, oil-rich country of Qatar, on a peninsula in the Persian Gulf, you’ll find that staple of the American suburban mall—accessory stores targeting teenage girls looking for US$ 4 hoop earrings and $US 3 belly button rings. In fact, accessory store Claire’s operates six locations in Qatar and 25 in Kuwait.

Today the Kuwait-based company functions as an international franchisee, operating more than 40 of the most iconic retail brands, including Foot Locker, Mothercare, Debenhams, River Island and Boots. In all it has 1,400 stores in 16 countries. M.H. Alshaya Co. is the retail division of the Alshaya Group, which has roots in Kuwait and operates in other sectors, including the hotel and automotive industries.

Convincing Western brands to expand to the Middle East hasn’t always been easy. In a June 2008 interview with the Financial Times, Alshaya talked about the region’s link with conflict and extremism and said he was able to convince brands to open locations in the region by offering to shoulder the risk of expansion. “It’s hard work because this is a small market, and in the Middle East it’s always the [negative] stereotype,” he said.

By working deals with Western brands to franchise in the Gulf Cooperation Council (GCC), which refers to the Arab States of the Gulf—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates—Alshaya bore the development costs and risks. That’s been another key component of the company’s success, according to Thomson. “In the GCC countries, historically it has not been legally possible for a foreign company to operate without a local majority owning partner…Thus franchise has become the readily acceptable format for foreign retail brands to establish a presence in the region. Franchise also suits the franchisor very well in that the downside risk is minimal because the local franchisee provides most of the resources—financial, human and real estate,” he said. “The Middle East is perceived by those who do not know the area as politically high risk and franchise would be the only way of getting foreign brands into the region.”

Indeed, the region has been transformed by a breathtaking expansion of retail space over the last two decades. In the early 1990s, there were only about 5 million square feet of leasable space in shopping centers in the GCC. That figure swelled to 53 million in 2006 and is expected to top 130 million square feet by 2010, according to the 2006 report “The Middle East Real Estate Dynamic” by Retail International.

M.H. Alshaya’s reputation is no longer limited to expertise in Middle East retail. More recently, the firm has started opening franchise locations in emerging markets. When the Body Shop wanted to open up the market in Russia, M.H. Alshaya paved the way there and has also helped Western brands go beyond the oil-rich countries of the Gulf, recently opening retail stores in Turkey, Russia and Eastern Europe.

Alshaya told the Financial Times: “Whenever there is something that makes sense and we understand how we can turn it around or encourage it to take on more aggressive expansion…we will look into it.”

As the bloodletting in US and European retail markets continues unabated, with the scuttling of store openings and the continuing precipitous slide in consumer spending and confidence, it’s not hard to understand why Western brands would continue to expand in the Middle East, especially the Gulf region.

And that’s exactly what is happening.

Just recently, Alshaya told Gulf News, a major newspaper in the region, his firm would forge ahead despite the global financial crisis and open 450 new stores in 2009, mostly in the Middle East. He also said he’d been approached by international brands facing slower growth at home. “Others had not thought of going international and they are dependent on their home markets [but] now they are thinking of an opportunity in an emerging market,” he said.     

[15-Dec-2008]