Stiff Competition

Lebanese lingerie manufacturer says he plans to conquer the Middle East and then look to European markets

Women aren’t allowed to drive there. When they leave the house, they must be accompanied by a male relative. And in public they must wear the all-enveloping abaya at all times. But beneath Saudi Arabia’s socially conservative exterior flourishes one of the hottest lingerie markets in the Arab world – at least according to sales figures from Nai, Lebanon’s biggest lingerie manufacturer.

“Saudi Arabia accounts for between 12% and 15% of all our exports,” chuckles Roger Jammal, Nai’s owner and general manager. “After Lebanon, it’s the leading country in the region. It’s the richest country. It’s the biggest country. It has a lot of large cities.”

The sole owner, Jammal established the company with an initial investment $400,000 in 1998, after moving back to Lebanon from the United States. He knew lingerie, having represented many US brands in Span and the Middle East. Nai came into being as a wholesale exporter, but in the last few years has opened its own stores and franchises in the Middle East and Gulf. Today, the company is recording annual growth of 40% with revenues of $2.5 million dollars expected for 2006. In 2005, Nai recorded a net profit of around $170,000. The company employs around 65 staff and sells roughly 90,000 units a year.

The change from wholesale – he had been exporting to 13 countries – happened in 2001, when, due to what he saw were changing consumer habits, he opened mono-brand stores and franchises. “The consumer prefers mono-brands, rather than multi-brand mom-and-pop stores,” he explains. “Those are gradually disappearing and so if you are doing wholesale business you are dying with those stores.”

That said, Nai’s European business – in France, Spain, Italy and Greece – remains wholesale. Jammal admits that it takes longer to establish mono-brand stores in Europe and may explain why today Nai has its sights firmly set on further expansion in the Gulf and Middle East.

Regional focus

Nai inked its first franchise in Jordan and there are plans for two more as well as another in lingerie nirvana Saudi Arabia. It has also signed franchise agreements in Qatar and Bahrain, plans to establish a presence in the UAE and in Kuwait. It is also considering breaking into the Syrian market.

“Then, when in around two years we have the Middle East covered, in terms of franchises, we will move on Europe,” Jammal says. He acknowledges that the initial plan was to divide exports 50-50 between the Middle East and Europe, but says that the unexpectedly high growth of the Middle East lingerie market prompted a reshuffle of priorities. Asked if he maybe underestimated competition in Europe, Jammal responds: “Not really. We’re very competitive in Europe. But in Europe you need a different strategy. You need a greater financial investment. When I’m ready I know that I can easily break into Europe, especially the Nordic countries.”

In fact Jammal says he plans to open his first European Nai store in Madrid, his home for many years, this summer. He then wants to open another four before moving on to the rest of Europe.

“For the moment we are focusing on the Middle East because it’s a growing market, because of the disposable income generated by rising oil prices. It’s an incredibly big market. It’s growing by around 30% to 40% a year. And it’s easier to break into. I have a strong base here and a lot of connections, from the years when I was representing US brands.”

Jammal acknowledges, however, that even in the Middle East and Gulf the growing lingerie market is creating “stiff competition.” He says Nai represents around 15% of the Jordanian lingerie market, 5% of the Saudi and Kuwaiti markets, and 4% to 5% of the markets in other Arab countries. Nai’s Saudi retail lingerie market share will rise to at least 10%, he adds. His goal is a 10% market share in each of the Arab countries in which he has a presence.

Loyalty

In Lebanon, Nai, designs and manufactures its lingerie locally, plans to open another two stores in March, making a total of 11. Nai began selling its products in Lebanon in 2000 and opened its first store in 2001, following the decision to move away from wholesaling. Jammal’s domestic strategy is to open as many stores as the market can accommodate, accompanied by a heavy dose of marketing, and paying strong attention to product-to-price ratio and product diversification.

He expects competition in the Lebanese market to grow. “The lingerie market is growing worldwide,” he observes. “We’re going to have more companies coming in to Lebanon.”

However, he is not concerned with competition from the lower end of the market, like that from China. “We can’t compete with the high-production, low-price system. We have better quality, at a good price. In Lebanon, we can’t produce a million pieces and sell them at a 2% profit. We compete above that line of business, with something creative and special.” A pair of Nai pyjamas costs around $30.

If Nai is going to retain, let alone increase, the number of customers, it’s going to have to ensure loyalty. “We have fidelity cards,” said Jammal. “We have promotional items. We offer a lot of gifts.”

Bad business environment

By 2010, Jammal plans to have 50 stores across the Middle East. “Our Middle East strategy is open, open, open more and more stores,” he says. But he stresses that he will judge growth by sales at each store, not just the number of stores opened.

For the moment, 70% of Nai’s revenue is generated by domestic sales. Of the 30% that make up exports, only 5% are sent to Europe. “I think the Lebanon market has reached the point of saturation,” he says. “Our percentage of exports will be much higher in the next five years.”

Domestic market saturation notwithstanding, sales at each of Nai’s Lebanon stores are growing by 40%-45% a year, Jammal claims. He estimates Nai’s Lebanon market share at 15%-20%, and is aiming for 25%. For Nai, competition in Lebanon comes from household brands like LaSenza, Etam, and K-Lynn. “I can’t tell you who our main competitor is,” he admits. “We don’t have a lot of transparency in this country so I can’t tell you what’s going on.”

Not surprisingly Jammal admits to finding doing business in Lebanon very frustrating. “To begin with, the syndicates here aren’t very good at promoting our products outside Lebanon,” he complains, alleging that some of his competitors are “exempted” from paying tax. “Some companies are transparent and pay taxes. With others, the tax inspector won’t even step through their doorways, and they probably sell more than us. Let’s not get into the political issues, but that’s the way it is. You pay a price here for being transparent. It would be nice if all companies here were transparent and we could compete.”

It’s an attitude that has bred a degree of cynicism. When the issue of paying facilitation fees at the Port of Beirut, he has firm views. “I say to my forwarders, ‘Tell me how much it’s going to cost, but don’t ever then come back and ask me for a dime because some guy wants a bribe. If you have to pay it you pay it from your own pocket. I hired you to take care of my container. If you can’t clear my container, that’s your problem. You’re incompetent’.”

And competence is something that Jammal values. “It’s not easy to find competent labour in Lebanon. They say people don’t have jobs. When we look for employees, all kinds of employees, we can’t find them – and we pay well. Other manufacturers in other fields are having the same problem.

“The reason is we’re concentrating everything in Beirut. We’re not creating industrial areas outside Beirut. We’re bringing people into Beirut instead of keeping them in their own villages. We should be creating industrial areas in the South, in the Bekaa, in Akkar. The salaries would be lower. The industrial cities would cost less than in Beirut, and we’d be more competitive. I would love to move my factory to the Bekaa. Give us a tax incentive to move there. There’s so many things you can do.”

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