By Neil Halligan
With interests in retail, luxury property and even poultry, Lals Group has come a long way since 1979, when it opened its first supermarket in Ajman. Chief executive Jayant Ganwani says that while the retail industry in Dubai has had a slow first quarter, Lals Group has its eyes on the rest of the Gulf.
You never know where the next bright idea will come from,” Jayant Ganwani says during our meeting and he’s basing that on his experience as CEO of Lals Group, a Dubai-based conglomerate.
Ganwani says during the 36-year history of the company, it has branched into new fields and new areas, some unexpected and some unsuccessful, but throughout the story there’s always a theme of expansion.
It started with just one supermarket in Ajman in 1979, after Ganwani’s father Lal, a former managing partner with the supermarket chain Choithrams, decided to branch out on his own. After opening a new store every month for the first 20 months, he was soon joined by his brother in-law Lachmandas Pagarani, then CEO of Choithrams, to form a joint venture, Al Maya Lals (in 1982), a company that, according to Ganwani, always looked to diversify from food retail, and soon had operations in FMCG (fast moving consumer goods) distribution and non-food as well.
An amicable split in 2003 saw the start of Lals Group, which embarked on a phenomenal growth path in the non-food retail sector to amass a total of 130 stores, spanning from Saudi Arabia to Oman, recording just over $400m in sales last year.
With plans to expand considerably in the coming years on its retail offerings, the group has continued to diversify, most notably with the move into building luxury real estate in 2012, when Ganwani says he sensed the recession was coming to an end.
Together with his friend Raju Shroff, from the Regal Group, he is building a 1.5 million sq ft of luxury residential development through their joint venture, Signature Residences.
The first is 118 in Downtown Dubai, which Ganwani describes as “probably the most unique development in that part of town”.
“It’s a single apartment per floor, and only 27 apartments in the whole building,” he says. “It’s extremely high-end and very strategically located close to Dubai Mall. We believe there is a customer out there that wants space, and he wants quality. So each apartment is about 610 sq m in size. There are two duplexes in the building that are 1,200 sq m in size,” he says.
Exclusively marketed by Sotheby’s in Dubai, each apartment will be sold for no less than $5.5m.
“It’s something that has received extremely high interest. We haven’t yet started aggressive marketing, but we are inundated with enquiries in terms of people looking to buy,” he says.
And those interested in buying will have an opportunity to view a ‘show apartment’ by September this year.
“What we’re trying to do is create a nice show flat for people who can come and kick and feel what they’re going to buy, because Dubai unfortunately has a little bit of a lag in terms of people’s experience that what they’re promised they don’t receive. I think we want to break that mould a little bit and basically put our money where our mouth is,” he says.
About 40 percent of the project was already built at this stage, and it’s expected to be fully completed by June next year.
At the other end of Dubai, alongside Sheikh Zayed Road, Ganwani says they’re looking to create the type of building that has been missing from JLT-Marina area.
“We’re building a tower that’s facing the Emirates Golf Club on Sheikh Zayed Road. It’s a 45-storey tower which has about 80 luxury residences and a 207-key Taj Rivanta Hotel [in the lower storeys]. We think that JLT’s attraction to Indian companies bodes well for a well-known luxury hotel like the Taj and we should be able to do good business with the business tourists coming in,” he says.
“It’s a true five-star in JLT that in our opinion is missing and that’s what we want to provide there,” he adds.
The feedback and the interest in both projects indicates to him that they’re on the right path, and while Ganwani says it would be risky to take on new projects until these two are complete, there’s certainly potential for looking further afied.
“We have… [plans] to expand our landbank here locally and I think the opportunities will come in the next few months for us to find a couple of good projects that we could develop here. We’re pragmatic. It’s easy to become over-optimistic and not know the issues that can pop up. One step at a time,” he adds.
The core business, however, remains retail and through its many franchises and own retail brands, Ganwani says Lals Group is in decent shape.
“We believe that we’ve understood the GCC market reasonably well, and that’s where our USP is, in terms of being able to offer the right merchandise at the right price. Expansion in this part of the world is easier than going into a new territory,” says Ganwani.
“What companies like us do is look for franchise retail as the first solution and if you can’t find an opportunity in the kind of segment that you’re looking at, then you start to look at creating your own. A company that can blend both franchise and non-franchise retail has better staying power because you’re able to control your destiny better than a pure franchisee model, per se,” he adds.
Homes R Us, which will account for 45 percent of its retail business this year, is one such in-house brand, as are Passion (a women’s fashion label) and Style Studio (fashion for men, women and children).
The success of Homes R Us, despite only being established in 2003, has encouraged Ganwani to lead a major expansion drive in Saudi Arabia, followed by Kuwait, Egypt and possibly Iran, if the sanctions are lifted.
“Homes R Us is our main focus this year, with plans to go into Saudi Arabia. We’re already in Qatar, Bahrain, Oman and the UAE. Saudi is this year and we’re looking at Kuwait. In time to come, we’ll look at Egypt and we’ll look at - when there are no more restrictions - Iran, because I think the brand has huge brand equity in those markets and they’re not present there,” he says.
In Saudi Arabia, which has a population of 28 million, Ganwani says the firm has plans to almost double the amount of stores it has in the group.
“Saudi can easily take twice the number of stores that we have in the UAE in the first three years of operation. But we are a little bit conservative in the way that we do business, so we’ll go in with a store in Riyadh and a store in Dammam and test-market those businesses. Based on the learnings, we will expand into Jeddah and then the smaller cities,” he says.
“2015 will be a watershed year because we open in Saudi, but 2016 will be the year of expansion in earnest, where we expect the business to double, given the expansion that will take place in Saudi Arabia. We have 12 stores today, and Saudi has the capacity for at least 20 stores in the next three years,” Ganwani adds.
Homes R Us is just part of the retail expansion story for Lals Group in the region, he says, with a three-year plan to double the stores in the GCC
“We see an opportunity of 50 additional stores in the next two years in terms of Saudi Arabia. With Carters and Osh Kosh, our children’s wear brands, we see an opportunity for another 24 stores in that market. If Saudi pans out, I think in the next three years we should add 130, up to about 250 stores,” he says.
The Japanese store, Daiso, is another brand in the Lals Group portfolio.
“We’re extremely happy with the way the brand has been embraced by the consumers from Dubai Mall to the standalone store in Ajman. You have a consumer that comes back three times a week because we tend to bring a new product every week to the store.
“You will find stuff in Daiso that normally you would never go out looking for, but when you walk in you say ‘that’s exactly what I was looking for’. And I think this is where the staying power of that business has come from,” he says.
The Daiso brand came through Lamcy Plaza, one of two malls developed by Lals Group, which was the first mall to stay open all day when it first opened in 1992.
The group also developed the Arabian Centre in 2005 in Mirdif, and despite a recent growth in larger malls, Ganwani says there’s still demand for the smaller centres — something the firm is actively looking to explore.
“What we see are far too many super-regional malls being built by all the big developers — Emaar, Nakheel, Dubai Holding — they’re all looking at building huge malls, as well as community malls in their development. There are plenty of independent neighbourhoods where I think there are still opportunities for the 20,000 to 30,000 sq m community centre, maybe not in Dubai — Abu Dhabi, the northern emirates and that’s where we are now looking,” he adds.
It was through Arabian Centre that Ganwani says the company stumbled upon another lucrative business venture, Fitness 360, through an empty unit it took over in Arabian Centre.
“Within a couple of weeks of us announcing, and starting to sell memberships, we had a number that was beyond our own estimates and we suddenly realised that the fitness industry had opportunity,” he says.
That was 2010 and now Lals Group has other outlets in Mazaya Centre, International City, J3 Mall, Al Wasl Road, Al Ain, Fujairah and Ras Al Khaimah.
“We have plans to grow that number by at least three to four gyms every year in the UAE,” says Ganwani, with Sharjah and Abu Dhabi identified as locations.
Ladies-only gyms are in huge demand in Saudi Arabia, he says, so much so that the group is developing a franchise model for other markets.
“We have been approached by a couple of people to take our ladies-only Fitness 360 concept into Saudi Arabia. We are preparing ourselves for a franchise model and hopefully that’s something we can look at with the people from Saudi and the other GCC countries,” he says.
Overall, the retail business has been very good, says Ganwani, but says he expects 2015 to be flat in terms of business growth.
“2014 was the best year on record for us, both in terms of the growth we saw and in terms of the growth in population, which resulted in numbers that were extremely healthy. We saw somewhere around November last year, when the oil prices started to decline and the Ukraine crisis started to hit the Russian tourism arrivals here, we started to see a slight slowdown in the demand patterns,” he says.
The slowdown has continued in the first quarter, and on average Ganwani says similar businesses will have suffered a drop of “high single-digit on like-for-like on last year”. The figures are worse if the business is luxury, he adds.
“If you are in luxury, it would be my view that you would be about 20 percent down on last year,” he says, despite the fact that more and more people have been moving to the region.
Ganwani says he expects retailers to experience more challenges, particularly as Ramadan moves further out of the summer months. He says retail — in general — will witness a drop in revenue in the years to come.
“2015 in my opinion and 2016 to some extent, we expect there to be a 10 percent decline in the expenditure for most retail houses in the mid-market consumer segment. On the luxury end, I think there will be an even deeper erosion in their sales,” he adds.
Aware that cycles come and go in particular segments of the business, Ganwani feels that exploring the possibility of an IPO isn’t worth pursuing at the moment for Lals Group.
“When businesses are growing at very high digit numbers like our business, it’s hard for any reasonable investor to value us because there will be an expectation mismatch. When you’re growing at 35 percent to 40 percent in particular segments, I don’t think that’s the time to consider a flotation or a divestment, even a small stake,” he says.
“What you want to do is grow your businesses to a mature level where they are growing 10 to 12 percent per annum and then find either a strategic or financial investor that comes in and builds far better corporate governance than we believe we have, because we’re too close to our businesses,” he adds.
Ganwani says with the Saudi expansion plans this year and next, the growth will continue to be strong and thoughts of an IPO, or bringing in a financial or strategic investor, will have to wait.
“My father and I always have a very strong belief, if the number is right, we’re always willing to do a deal,” Ganwani says.
Lal Ganwani, he says, is still very much involved in the business, particularly in the strategic decisions, or helping to solve problems. “He’s got a knack of resolving things and calming me down, which is extremely helpful,” he says.
The business opportunities and expansions will continue, he says, with a deal on new retail brands and concepts due to conclude in the next three months. And diversifying into new areas will undoubtedly continue.
“You never know where the next business opportunity comes from. If you’d ask me would I ever conceive in my wildest imagination that we would be producing the best-known eggs in the UAE, the answer is ‘no’. But the landlord of Lamcy said to us I have a poultry farm [Al Jazira Poultry Farm] that I am not using — are you interested in it?” says Ganwani, adding that a new farm due to open in Al Ain in the near future.
“Overall, our ethos has been do businesses that make sense and don’t get emotionally attached to anything. Business is always business,” he says.
And the expansion will always continue for Lals Group, as Ganwani looks for that next opportunity.