"A store has to be much more than a place to acquire merchandise. It has to help people enrich their lives. If the store just fulfils a product need, it is not creating new types of value for the consumer. It’s transacting.” Words spoken by former CEO, J.C. Penney, Ron Johnson, which aptly describe the way retail business has traditionally been conducted in Pakistan.
It was a time when every neighbourhood had its own kiryana store (a small, enclosed shop, with rows upon rows of products piled right to the top). Families had fixed monthly grocery lists which were handed over to the shopkeeper who would then get all the items together, bag them, and hand a chit with the billed amount scribbled on it. Apart from the haggling (it was expected), the next customer decision was whether to pay in cash or have the amount put on a monthly tab and whether or not to have the groceries delivered. Product choices were limited and the purpose of the ‘shopping’ was to ensure there was enough rice, flour, sugar, salt, cooking oil, banaspati ghee, masalas and spices to last the month.
Naheed and Imtiaz supermarkets in Bahadurabad, and Agha’s, Motta’s and Paradise in Clifton, were among the few retail outlets where customers had the luxury to browse the shelves that were stocked with limited varieties of imported brands and/or local packaged goods. Other than that, shopping excursions were limited to Juma Bazaars or eagerly anticipated visits to Laloo Khait (now Liaquatabad), Empress Market or Jodia Bazaar – the wholesale hubs of Karachi.
So the story of retail remained until the turn of the Millennium.
Imtiaz Abbasi, MD, Imtiaz Super Market, remarks that it was the noughties that marked a significant shift in lifestyles, consumer preferences and buying patterns.
“Due to increased exposure, Pakistani consumers were more aware of what was happening internationally. Suddenly, even our most loyal customers, who had been coming to Imtiaz for generations, were no longer satisfied.”
Varied product assortments, greater convenience and accessibility, better merchandising, improved service and an enhanced store experience became the new retail rules to live by.
Quick to recognise this shift, local retailers began to invest in improving store layouts and broadening their product mix. There was also a renewed focus on customer service, rather than just relying only on price competitiveness. As a result, this growing, and as yet untapped, retail potential put Pakistan on the radar of global retailers, keen to enter this market.
Before exploring the trends redefining retail in Pakistan, it is important to understand how the retail landscape has evolved.
New dynamics
According to a research study conducted by Standard Chartered Bank last year, between 2011 and 2015, the size of the retail pie in Pakistan jumped from $96 to 133 billion, a 38.5% increase in four years. The current value of Pakistan’s retail sector is estimated to be $152 billion, as per Planet Retail (a global retail consultancy) figures. It is the third largest contributor to the economy (after agriculture and industry), accounts for 18% of the total GDP, and is the second largest employer (after agriculture), providing jobs to more than 16% of the total labour force. (NB: As most of retail in Pakistan is unorganised, and therefore undocumented, industry experts agree that the on-ground figures are much higher).
With an annual growth rate of eight percent, retail sales are expected to cross the $200 million mark by the end of 2018. The main factor fuelling this growth, apart from increasing urbanisation, is an improving employment-to-population ratio, which has led to higher disposable incomes, thereby expanding the middle class, which in turn, has increased consumer spending manifold (estimated at $293 million in 2017 and projected to cross $333 million by 2018). This is mainly because Pakistan has a young population (more than 73% of the 220 million residents are below 35 years of age) that is upwardly mobile, social media savvy, brand aware and on the lookout for quality products – and enjoyable experiences.
This is probably why the (traditionally dominant) number of new kiryana stores that have opened is less compared to the growth in the number of general and department stores, supermarkets and hypermarkets, between 2000 and 2016 (source: Retail Sector Report, Punjab Board of Investment and Trade). One possible reason is that young people are less keen to buy from street merchants, vendors and hawkers, and prefer modern, destination-oriented stores (For more, see box on Kiryana stores: a dying breed?)
The other trend disrupting traditional retail is e-commerce (Read our interview with Zain Suharwardy, MD, Daraz.pk). Although still at a nascent stage, internet retailing is expected to become a significant complement to brick-and-mortar grocery and non-grocery retailing in the coming years.
Given these dynamics, it is hardly surprising that the bulk of recent retail investment (local and international) has been in the development of two categories: shopping malls and department stores, boasting contemporary architecture and expansive multi-level formats.
The modern grocery retail market represents a key area of expansion, which is likely to attract more foreign retailers to Pakistan. The increased competition will boost the sector further and the entry of foreign players will force local retail giants to rethink, revamp and remodel their businesses.
Rise of the 'mall' culture
Dolmen Centre in Tariq Road (established in the 90s) was the first vertical shopping complex in Pakistan, built on a multiple floor layout.
“The concept of indoor, covered, air-conditioned shopping areas was alien in Pakistan. If you wanted branded products, Zainab Market or Panorama and Rex Centres were considered the
go-to places,” explains Jabir Hussain Dada, SEVP & Head of Business Unit, Dolmen Real Estate Management. This was the first time that organised retail started in Pakistan, with well-known local brands, such as Saeed Ghani and Liberty Books, opening there, along with several fashion brands.
However, the Centre did not turn out the way the Dolmen Group had envisioned it. Dada recalls that there were not enough local brands and those that were there, did not want to assume the risk of paying the high rentals that large retail spaces within Dolmen Centre demanded. “Perhaps the market was just not ready at the time and there wasn’t enough customer footfall to justify the high costs of operating within the Centre.”
It was not until almost a decade later that Pakistan had its first shopping mall, when Park Towers opened in Karachi, with McDonald’s being one of the first and most prominent brands to take retail space there. The mall quickly morphed into a social venue, where people went to be seen and enjoy the amenities (a glass capsule lift and escalators were a novelty), rather than to purchase items they needed.
The opening of Dolmen Mall Tariq Road in 2000, proved to be a game changer. Dolmen Group’s prior experience had made it clear that the only way to convince the big names to come on board as tenants was to ensure enough customer traffic. The two strategic decisions that paid off were the establishment of Sindbad’s Wonderland (rides for children) and a food court. Positioned as a family recreational spot, games and other activities were organised for children, while the food court offered family meal deals. Seeing that the mall was suddenly bustling with activity, even on weekdays, is what convinced retailers to invest in retail space there and in a matter of months, all available space had been rented out. The same business model was replicated for Dolmen Mall Hyderi, with food and children’s activities used to draw in crowds.
Over the next 15 years, a series of malls, mostly in Karachi, including The Forum, Millennium Mall, Atrium Mall, The Ocean Mall and Tower and The Place came up, completely redefining the shopping experience.