Despite unrest and revolution, the emerging markets of the Middle East and North Africa still hold appeal to retailers, but is it worth the risk?
Why are we talking about this now?
Emerging markets have attracted many British retailers over the last few years. The Middle East and North Africa have been increasingly popular destinations - not just rich Gulf states such as Dubai, but countries as diverse as Libya and Iran. However, a wave of unrest has swept the region as people demand political reform and an end to corruption.
Who has stores in the region and why?
Retailers such as Bhs and Mothercare were early entrants, originally opening in the oil-rich Gulf where wealthy local business families were keen to become franchisees. For the retailers it was a low-risk model.
As the ventures proved themselves, says MHE Retail chief executive George Wallace, retailers looked further afield for opportunity in countries where there may have been many more poor people but, as in the case of Egypt, a big population or, in Libya, a rich elite, and there would be demand for Western brands.
Marks & Spencer, for instance, opened its first Egyptian store late last year and already had a shop in Libya. Waitrose opened its first shop in Bahrain a fortnight ago. Debenhams has shops in Iraq, Iran and Egypt among other countries.
Have there been problems?
In some cases. M&S featured in WikiLeaks after an anti-semitic campaign against the franchisee, really the result of personal grievances between a local businessman and the Libyan prime minister. A diplomatic cable warned that the issue threatened relations between Libya and the UK.
Similarly, Sainsbury’s was forced to shut its shops in Egypt in 2001, incurring losses of £100m. Local activists had claimed that the retailer had links with Israel.
During the current unrest, Debenhams and M&S shut shops in Egypt - the latter’s Tripoli store is also closed. Trading at Waitrose’s Bahrain store has not been affected by the unrest there.
What is the outlook?
At the moment nobody knows how the revolutions will play out. Wallace says: “There will be confusion and uncertainty but the hope is they will evolve into more democratic countries with a wider spread of income. The parallel then might be with when the Berlin Wall came down and countries like Poland and the Czech Republic became more affluent.”
Only last week, trade and investment minister Lord Green led a trade mission to the Gulf including retailers such as Mothercare boss Ben Gordon (pictured).