Mall talk: Arabian Centres CEO Khaled Al Jasser

Saudi Arabia’s retail sector is gradually growing up, with an increase in malls and the imminent approval of cinemas. As CEO of Arabian Centres, Khaled Al Jasser is at the forefront of the revolution. He talks expansion, entertainment and employment
Al Jasser says innovation is a key pillar of Arabian Centres’ growth strategy, as it targets second-tier cities in Saudi Arabia.
By Neil Halligan
Fri 03 Feb 2017 01:30 AM

The retail industry in Saudi Arabia has been relatively slow to embrace the Western model of malls. But since the turn of the century, sprawling shopping centres and superstores have been gradually replacing traditional ‘baqala’ neighbourhood shops.

At the heart of Saudi Arabia’s retail growth has been Arabian Centres, the kingdom’s largest mall operator, with 19 shopping centres in highly-populated cities. The retail space equates to 1 million square metres of gross leasable area (GLA) under management — about 10 percent of Saudi Arabia’s organised GLA.

A subsidiary of Saudi conglomerate Fawaz Alhokair Group, Arabian Centres was launched in the retail real estate business in 2002, and now has over 3,800 retail outlets including 530 international and local brands, as well as family leisure offerings.

Fawaz Alhokair Group is also the largest franchise retailer in the Saudi, MENA, Central Asia and the Caucasus regions with 2,100 stores across 100 shopping malls in 17 countries.

The annual footfall of 132 million gives Arabian Centres a healthy business that allowed it to embark on a significant expansion programme in 2015 that had the aim of doubling the subsidiary’s GLA to 2 million by 2018.

In order to meet that target, the company has ten malls in the pipeline, ranging in size from 45,000 sq m to 165,000 sq m, in cities such as Jeddah, Riyadh and Dhahran.

In March last year, the group appointed Khaled Al Jasser as CEO to spearhead Arabian Centres’ next phase of growth. At the time, group chairman Fawaz Alhokair said Al Jasser would be able to use “his track record in leading several institutions towards growth and success to help Arabian Centres unlock further opportunities for growth in Saudi Arabia”.

That track record is in banking. Al Jasser has served as the CEO of Sharia financial solutions provider Bank Albilad and executive vice-president of Riyadh Bank. So what does a banking background bring to the retail industry?

Arabian Centres' malls include 3,800 retail outlets covering 530 global and local brands.

“I think it brings a lot of added value, in terms of sales, efficiency, the way we look at numbers and how we analyse them,” Al Jasser tells Arabian Business. “It brings a lot of efficiency, accuracy in the analytics of all numbers and how we could see whatever we have in terms of numbers in the Arabian Centres and convert them to be more efficient and profitable.”

As someone with an acute sense of business, Al Jasser concedes that the retail market, like the Saudi economy, is not performing as well as it has previously. But he insists Arabian Centres’ malls are still doing well.

“It’s a bit tough these days, but at the end of the day whenever there are challenges there are also a lot of opportunities that we could embark on,” he says. “It’s not looking as bad as everybody thinks it is; at least in our Arabian Centres malls we see a lot of things are not as affected as the other malls or street shops, so we are very happy with the results.”

Luxury, however, has suffered more than the other segments of the industry, he says.

“With the slowdown of [the] economy, the slowdown in luxury [has been] higher, but in the medium brands it’s not as bad,” he says. “There is a drop in the market and that is due to the economic situation as a whole, and the drop in oil prices, it's affecting the general spending of government.”

All malls in the kingdom are about to experience a significant change as authorities work on issuing entertainment licenses that will finally legalise cinemas. Under the Vision 2030 plan, which will see the country diversify away from oil, the government has established the General Authority for Entertainment to oversee all active entertainment activities.

Arabian Centres already has successful operations in the family entertainment industry, in particular the edutainment concept KidZania, and will now look to capitalise on what will be a significant growth area for the malls industry. So much so that all of the new malls being built by Arabian Centres are being designed to include cinemas.

Al Salaam Mall is one of five Arabian Centres' properties in Jeddah.

“It is new. It has been only a few months since the government has announced that it will allow cinemas in the country and that is probably one of the options most of our new malls will be equipped with — the facility to entertain.”

While the ultimate aim will be to operate the cinemas under its own company, Al Jasser concedes that Arabian Centres may have to bring in an existing cinema operator in the early stages.

“All options are open, and at the minute we are getting our license. I’m sure there will be lots of options. We could do it in-house, but definitely we will need an expertise to do it in the first phase,” he says.

While the licensing process is unchartered territory, Al Jasser is confident authorities will finalise it in the near future.

“The government is very keen to do it and they have appointed a minister to run that [entertainment]. We are waiting for them to give us the green light,” he says.

“Our malls are ready, and even in the old ones we could convert some of the facilities to host them.”

Al Jasser says there is undoubtedly a demand for cinemas in the kingdom.

“There is a huge, huge demand. People are desperate to see [them open], especially locally. You know that whenever Saudis go to Bahrain or Dubai, they go to these places a lot. I’m sure the demand is there. We are hoping that it will [be] done very soon.”

Khurais Mall is at the centre of two major residential districts in the Saudi capital, Riyadh.

The government has also allowed for 100 percent ownership for foreign retailers. Again in line with the Saudi Vision 2030, the move is aimed at attracting regional and international brands to Saudi Arabia to help create jobs for citizens. It does come with certain caveats, however. Foreign firms will have to invest at least $53m in the first five years after obtaining a licence, have minimum capital of $7.9m and operate in at least three existing international markets.

While only a select few will be able meet the criterion, he says it is a welcome move.

“It’s good, healthy competition, because you will bring quality to the market, bring expertise. Competition will also be good for the customer’s sake, because at the end of the day the customer looks for the sale and the service. When you have international competitors that are competing with the locals, I think it will bring a lot of added value to the market as a whole,” Al Jasser says.

It will also open up more opportunities for Saudis to work in the industry.

A report by McKinsey & Co entitled ‘Saudi Arabia Beyond Oil’ identifies retail as one of the industries with the most job prospects for Saudis. It predicts that retail and wholesale trade have the potential to employ as many as 800,000 additional Saudi nationals by 2030.

The retail industry has been expanding at an average 12 percent per year over the past decade, with the number of Saudis working in the sector doubling between 2010 and 2014. Saudi women, in particular, have contributed to this spurt in numbers, growing from 10,000 in 2010 to 120,000 in 2014.

Al Jasser says the impact of Saudisation on the industry has been extremely positive, particularly for Saudi women.

Now a popular destination in Jeddah, Aziz Mall blends shopping, dining and entertainment in one venue.

“I think Saudisation has been very effective, especially with the ladies. We have hired a lot of ladies and sales have gone up in the fashion arena [as a result],” he says. “I think it’s time to give them the chance; train them and they will do a good  job. The operation has been successful. Definitely, everything is a little bit difficult because it’s something new, but from what we have seen, the results are very promising.

“A lot of people were reluctant to start with but… a lot of stores who have hired ladies have seen their sales go up by 20-30 percent, because ladies are more comfortable with ladies.”

Convincing Saudis to spend locally is another challenge for mall operators like Arabian Centres. Tourism experts Saudi Travellers Agency revealed last year that the kingdom’s citizens spend $7.4bn abroad annually — one of the highest levels in the world.

Keeping that spend inside the country won’t be easy, Al Jasser admits, but he says the local offering is improving.

“I used to shop overseas when there was nothing in the kingdom, but nowadays most of the brands are here,” he says.

“Definitely, you would probably see a slight difference, but a lot of people are now shopping in the country, especially when you [consider that when you] go and shop in Europe or somewhere else, you have to bear the taxes (VAT), exchange the taxes at the airport and go through the hassle of all of these things.

“If you have these products and services in Saudi Arabia, you will see a big shift in trends and people will shop locally, especially with the big malls that are now bringing all the new brands and the high-end brands. I think people are changing to shop locally. It will not eliminate [shopping abroad] 100 percent, but I’m sure there will be a big shift.”

Al Jasser says Arabian Centres has no plans to expand outside the kingdom, insisting that Saudi Arabia — with a population of at least 30 million people — is a big enough country to fulfil its growth expansion plans.  The company’s malls are concentrated in Dammam, Riyadh and Jeddah, with new additions in Makkah and Madinah (both top religious tourism destinations) and Qassim.

“We are looking at the options of going to the north of the kingdom, in Tabuk, and in Abha, which is the southern part of the kingdom,” Al Jasser says. “We will go to wherever there is a concentration of people, and where there are opportunities, and where we think the business model will work.”

Haifaa Mall is continuously enhancing its tenant mix with new retailers and international brands.

While Al Jasser claims financing the expansion plan is not a concern, he says there are plans for an initial public offering (IPO) in the future — most likely as soon as this year.

“[There is] no issue with financing. As a matter of fact, we have a big syndication that is already applied there and the funds are ready and we’re ready to move,” he says. “[Even so], we are seriously looking at it [an IPO] and we have gone through a lot of studies. We’re almost done, but we’re waiting [for] the right time to deploy it.”

Saudi Aramco’s planned IPO for 2018 — in what would be the biggest in history — could affect the timing of any IPO by Arabian Centres. “Definitely you have to be very careful when you launch it, but I think there’s a big demand for a company like ours,” he says.

With the largest population in the GCC and the modernisation of society, Arabian Centres is in a unique position in the kingdom’s evolving retail sector.

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