International clothing brands are flooding into the country and that means trouble for some local retailers
With almost 20 store openings under his belt in countries from Kuwait to London, retail manager Marco Roshdy thought he had seen it all.
That was until the he raised the curtain on Egypt's first outlet of H&M, a popular Europe-based clothing chain, in June 2008.
Roshdy remembers the store's opening at Cairo's CityStars mall as a week of sheer mayhem, with customers crowding over clothing racks, forming endless queues outside the fitting rooms and buying pile upon pile of clothes.
"People were waiting for H&M to open here. They were missing out on a lot of fashionable clothing available abroad," says Roshdy.
Long an afterthought for international clothing retailers, Egypt has become one of the hottest fashion markets in the developing world. During the last three years, stores like Promod, Zara, French Connection and Next have set up shop here, with firms eager to capitalize on an increasingly brand-conscious -- and wealthy -- population.
That, however, has spelled trouble for some local clothing chains, which have struggled to combat the cachet of foreign-made labels.
"There was a thirst for international clothing brands in Egypt," says Esam Hafez Ibrahim, country manager at Azadea, a Lebanese market research company that finds branch locations for over 40 fashion brands, including Zara, Bershka and Pull and Bear.
"The Egyptian customer had a need for specific style and taste, and there was nothing in the local market to satisfy that need," says Ibrahim.
The influx of foreign labels has spelled trouble for local brands like Wave, a clothing retailer with 15 stores across the country.
The company's brand manager, Zeinab Turman, says customer numbers have dropped by 30% to 40% in the past three years, partially due to the surge of international labels.
"All local brands have been affected because [of] oedit el khawaga (foreigner complex). For a lot of people, wearing an international brand is very important."
The country's relationship with brand-name retailers is relatively short. Until 2002, Egypt had banned major imports of clothes and other textiles.
But lifting the import ban did not result in a sudden influx of international labels, as many had assumed.
Faced with startup costs between LE 10 and 20 million, international brands were hesitant to open doors in a decentralized and untested market that lacked shopping centers.
Further trade liberalization under the auspices of the World Trade Organization was introduced in 2005, but global clothing retailers still appeared to be waiting for something more.
That all changed a few months later with the opening of the capital's cavernous CityStars mall, at the time the largest shopping center in the Middle East. The congregation of 550 stores under one roof helped the retail sector reach a critical mass.
It was, in the view of retail experts, the missing piece of the puzzle.
These days brand-name stores fill shopping centers from New Maadi to Sixth of October, where the 100-outlet CityScape Mall is slated to open in July.
"Three years ago, Egypt had no fashion retail," says Roshdy, who manages the H&M store.
"It was all local brands and people used to shop abroad. But recently, brands are starting to think of Egypt as a potential market."
The expansion has been driven by growing affluence in Egypt's upper classes. Tarek Selim, an economics professor at the American University in Cairo and advisor to the Egyptian Competition Authority, a state-run operation established to prevent industry monopolization, says brand-name clothes have become a status symbol.
"Although the rich are low in number, their incomes are high, and they like differentiating themselves from the rest by wearing brand names," says Selim.
Local clothing retailers also face an uphill battle when it comes to price.
Despite the fact that their merchandise is not subject to import taxes, which can add up to 30% to a garment's price tag, they have trouble keeping pace with international giants who can leverage economies of scale.
"Because they're mass producers, the international brands could produce up to a thousand pieces of the same item. We only produce a quarter of that," says Turnman.
According to Selim, for the sake of the economy, local brands should not fall through the cracks.
To stay afloat amidst the surge of high-end imports, he says local brands should gear their stores towards the middle and lower classes to create differentiation and options within the market.
But for obvious reasons, that idea is not popular among retailers.
"If we change our entire strategy then we lose our identity, and we cannot change that just to accommodate the market," says Turman.
Ibrahim warns that the success of retailers like H&M, which sees up to 20,000 shoppers each weekend day, will only encourage more companies to test the local waters. He thinks that eventually, Egyptians will be choosing almost exclusively from foreign brands.
Local retailers, however, believe their brands can survive the onslaught.
"In the last five years, the market has changed. There are more malls and more exposure," says Turman.
"But not every local brand has to fail. We're still here and we're going to stay."
By Passant Rabie
© Business Today Egypt 2010
