Egypt remains resilient amidst the crisis


June 14, 2020 | By Rupkatha B

Over 100-million population, that is growing. A market that witnessed waves of political and economic instability. A retail landscape now challenged owing to the COVID-19 pandemic. We are referring to Egypt – a sizeable retail market that is displaying signs of resilience despite the current challenges.

The current phase is one of the roughest in retail, agrees Ahmed Ragab, group CEO, Baraka Retail Group (BRG). “But it will eventually end, and I am positive about our ability as a market and as a company to absorb the crisis and emerge stronger. Currently, we are delving on two key questions – how will the business survive and emerge fitter from the pandemic.”

BRG operates six divisions – including fashion, jewellery, optics, make-up, furniture and concept stores. Currently, BRG boasts an over 22-brand our portfolio with a 100-plus store network.

Retail will emerge stronger

Ragab is not new to handling crises, having faced two currency devaluations and political crisis from 2011-15. “The political problem in Egypt, from 2011-13, was crippling. Many businesses had to close permanently. At that time, Egypt was the only market in the region that suffered owing to the political turmoil. In 2016, when we were about to launch our fashion division, the Egyptian Pound was devalued by 50% along with import restrictions,” he recounts.

“But, every time, we have evolved stronger from a crisis on the back of strong fundamentals and sense of resilience,” he stresses.

According to Ragab, one of the strengths of Egypt – compared to other GCC and the Middle East – is the size of the market. Also, the size of unorganised retail in Egypt is huge, accounting for 80% of the overall market. These factors make Egypt a rather resilient market to face and emerge stronger from a crisis.

Consumer confidence is hurt

Despite the positivity, when asked if consumer confidence has dented in Egypt due to COVID-19, Ragab says an emphatic yes.

“The longer the pandemic lasts, the deeper will be the impact on economies and consumer confidence will hurt further,” he observes. “During the first phase of lockdown around March-April, consumption was strong, as people were stuck at home and purchased online, mainly groceries and medical/essential supplies. They received their salaries and could spend. As we moved into May, the pandemic started impacting consumption as people lost jobs, and the economies were suffering.”

“Having said that, a large enough population usually facilitates businesses to adapt to the market needs and pivot accordingly, and quickly. Some businesses will get affected, but ones that survive and have the right strategies in place will be able to gain market share. As the market grows organically, businesses will too,” Ragan adds.

New normal with a new set of consumers

In the short term, like any other market in the region, Egypt dealt with a lukewarm Eid season – typically one of the busiest periods for businesses. “Indeed, Eid was quiet. Also, this is the first time that food and beverage (F&B) industry has been adversely affected,” Ragab states. “Through every other crisis, F&B has been the winning horse. It is affecting the entire retail landscape, as retail developments, especially the recent ones, are heavily geared towards F&B. How F&B will evolve, and recover is one of the biggest questions, as 20% of F&B concepts are going out of business every month.”

“Looking ahead, in the short term, we will co-exist with the virus amidst several precautionary measures. Eventually, as a cure is discovered, things will normalise; but it will be a new normal with a new set of consumers,” he adds.

Becoming self-sufficient

Ragab also points towards how the pandemic has brought to fore the importance of deglobalisation. “Economies have been severely affected due to lockdown, therein highlighting the importance of self-sufficiency. Markets dependent on local brands and consumers stand a higher chance of survival,” he emphasises. “Retailers who can quickly readjust to local demands will become stronger.”

In effect, are BRG’s franchised brands suffering more compared to home-grown ones?

“It’s the first time that the entire world is suffering together. Some local brands may run into cash flow issues and disappear, while others might find the right growth opportunity. Similarly, several international brands might thrive, while certain big names may have to shutter and go under administration. The way a brand can absorb the challenges and state of cash flow in a shrinking market are the differentiators, irrespective of size or franchised/home-grown,” Ragab responds.

When asked about BRG Holding’s plans around brand consolidation and increased focus on home-grown brands, Ragab says big investment decisions should not be taken in haste. “We will have to wait for the dust to settle down to be able to see clearly and focus on the emerging opportunities. We are revamping our infrastructure and training internally to be able to benefit from every possible opportunity.”

A different perspective on e-commerce

Talking about opportunities – e-commerce is one area that retailers are placing high on their agenda. Egypt isn’t much different. Consumption patterns in Egypt have changed, with people turning their focus towards online – much like anywhere else in the world. The global COVID-19 pandemic has resulted in a new wave of transformation in e-commerce in Cairo and across Egypt, indicates research firm JLL. Due to the temporary closure of shopping malls, during the lockdown, consumers got a taste of e-commerce, leading to an increase in demand for online shopping.

Also read: E-commerce set to grow in Egypt

However, Ragab feels that the contribution of e-commerce, as a game-changer, on overall retail is “overvalued and overestimated”.

“The pandemic did hasten the pace of e-commerce; we have also launched our online operations. But having an e-commerce platform was always part of the plan, we only hastened it. Brick-and-mortar will always be important. After all, in our region, e-commerce accounts for 2-3% of overall retail. Overinvesting in a channel isn’t prudent without understanding the long-term impact,” he opines.

However, brick-and-mortar retailers are leveraging technology to meet the changing needs of consumers by offering a channel-agnostic experience. As consumer confidence returns, the expected recovery of brick-and-mortar is high. Things like ‘revenge shopping’ is a possibility once the market revives.

Sustaining and thriving

Every industry across the globe is suffering from a decline in revenue, ranging between 30-and-90%. BRG has been fortunate as it has recorded less than predicted decline in revenues. “We had estimated a 90% drop in revenues in April, while the actual was 70%. For May, we estimated a 70% drop, but it stood at 30%,” Ragab shares.

BRG is following a two-pronged approach to sustain and thrive amidst the pandemic. “In 2020, our goal is to evolve stronger from the pandemic by managing our cash flow. It is also a golden opportunity to trim some fat and increase efficiency. Once we have survived the storm, 2021 will be about investing in the right opportunities. What those opportunities and level of investment will be is difficult to predict right now,” he concludes.

 

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