Tesco, the world’s third biggest retailer, has sealed a deal to open 19 of its fashion stores in Saudi Arabia as it looks to boost its overseas profits amid declining retail sales in the UK.
The UK’s biggest retailer will debut its F&F stores in the kingdom under a franchise deal with local conglomerate Fawaz Abdulaziz Al Hokair & Co, which counts Zara, Marks & Spencer and Gap in its brand portfolio.
“The franchise model is a natural extension of the work we have been doing to turn F&F into a truly global fashion brand,” said Jason Tarry, chief executive of F&F International.
“We have in a very short time created a market-leading fashion brand in Central Europe, now worth over £400m. Now we have the opportunity to grow our brand further.”
The deal marks Tesco’s GCC debut, following on the heels of rival retailer Asda, which last year said it planned to launch its discount fashion brand George in a stores across the Middle East.
Tesco has been hit hard by the UK’s economic woes, posting one of its worst Christmas performances in years on Jan 12. The firm said its 2.3 percent decline in like-for-like sales in the six weeks to Jan 7 was below expectations and “disappointing”.
The grocer gets around two-thirds of its revenue from its domestic market but is looking to grow its business overseas. Tesco operates in 13 international markets, including Thailand and China, and has said it plans to focus on improving returns on capital in foreign markets.
The supermarket in December was forced to abandon plans to launch in India after the Asian state revoked its decision to open its retail market to foreign investors.
JP Grobbelaar, director of retail consultancy at property firm Colliers, said the extension of Tesco’s fashion brand in Saudi would offer a welcome boost to the UK chain.
“I believe Tesco entering into the Saudi market can only been seen as a very good thing, both for Tesco from an extension perspective and from a Saudi retail market perspective, in terms of the expansion of the number of brands,” he told Arabian Business.
“It’s good to have that extension and good to have that fresh blood in the market.”
Saudi Arabia, the wealthiest Arab state, sees retail accounts for more than 17 percent of its total GDP. The kingdom said last year it expected retail spending to top SR256bn ($68bn) by end-2011, making it more than twice the size of the UAE market.
A report by Business Monitor International said retail sales per capita in the kingdom continued to move upwards during the downturn, and were likely to reach SR15,274 ($4,078) by 2015.