Visions of community

Q&A with Frank Kuntermann, deputy CEO of ABC Group

E   You say that the ABC Mall in Verdun is seeking to be a community mall, starting with the priority hiring of local staff who can walk to work. You are well aware of the challenges that exist in the neighborhood relating to traffic congestion and parking. What is your recipe for organizing parking and charging parking fees in the community mall?

The problem is that you see a lot of abuse when [parking is offered] free of charge. The question is: how much [in terms of an hourly or daily fee] is enough to discourage abuse, and how much is low enough [for people to not be discouraged from using the facility]. This is a huge discussion, almost [like] a Byzantine discussion on the gender of angels. The legend says that while the Ottomans were besieging [Constantinople] the people there were talking about the gender of the angels. I think what was found as a solution [for parking] is acceptable, but we need to take into consideration that being a community mall means serving the community, and we need to listen and see if we will [need to] adapt.

E   What else are you adapting?

We are adapting our offer to bring more medium brands with a lower price level. We are likely to review [the brand mix] later on, if we believe it becomes a problem. We need to listen to [the people].

E   No supermarket as an anchor?

No, the strategy of [having] no supermarket is still the same [as with the other two ABC Malls]. It was also a long discussion. We believe it is a different motivation to shop, and that people who want to have a quiet time to go for a coffee or do some shopping should not bump into people with [supermarket trolleys].

E   Anything else about the mix of products and brands?

The brands are very similar [as in the two other ABC Malls]. Within the department store, we will still have the same positioning. [The orientation] will be what we call medium-premium, not premium, and fashion-forward with a strong component of French brands. Historically, when the first ABC department store opened in Bab Idriss (near the center of Beirut), it was the first department store in the Middle East, and they brought in exclusively French brands, lingerie, perfumes, toiletries, etc.

E   Any new brands or consumer electronic stores?

Electronic no. There are ongoing discussions, but nothing is confirmed. In terms of new brands, we have a few new brands arriving because we wanted to have a new component in our offer compared to the other ABC [Malls]. We have, for instance, a Calvin Klein as a standalone store. It will be the first Calvin Klein standalone store in the Middle East. Dubai will be after. There will be [other] new concepts in restaurants and perfumery, which will make it a bit different, but overall the positioning will be sophisticated but reasonable [in price].

E   Do you have community participation in the form of a community board or through regular meetings to address community concerns?

We had very intense [community consultations] during the preparations, and I have raised the question of whether we should give [these consultations] a regular rhythm. The question is in which form and how people would be part of it.

E   How large is your catchment area?

This is [also a] Byzantine discussion. We had very contradictory studies on this. It all depends first on how you include the southern part [of Lebanon]. Do you consider the mall to be half-way between western Beirut and Tyre? Some people consider the time of transportation, others take the kilometers for saying that the catchment area can go up to there or there. We had very contradictory figures, which at the end of the day, we didn’t use because they were not coherent. The catchment area is western Beirut and part of the southern part of the country, halfway up to Tyre, where it makes sense for people to [comfortably drive to Beirut].

 We have, for instance, a Calvin Klein as a standalone store. It will be the first Calvin Klein standalone store in the Middle East 

E   What can you tell our readers about your approach to the concept of an Arab mall and Arab department store?

The first thing is that from a design point of view, it’s extremely Lebanese, in its visual fluidity. Fluid, simple, architectural and transparent – this is for me the Lebanese identity. We integrate – and we should do it more intensely – by giving more space to Lebanese designers. There’s talent everywhere; fashion and jewelry is what everyone talks about, but [there are examples of other crafts] that you would not find anywhere else.

E   How can you promote this?

In jewelry, it is pretty easy; [we have both established jewelers and new, young ones]. In fashion, I would be very favorable to have some kind of Lebanese designers’ corner. [We have a small one], and I think we could intensify it. There is an amazing substance of creativity, and we should be even more Arab and Lebanese in this sense. We want to be modern, creative, and we have to “Lebanize” our offerings more strongly. At the same time, we don’t want to be luxury.

E   You’re placing great emphasis on culture and integration with the community. On the other hand, aren’t you engaged in an activity – retail – where there is intense competition in Verdun, given that it is a district where a business structure is already established?

Your question is about the impact on business in the neighborhood. The first thing is that some retailers decided to [pull over and work with us]. [One local store], with whom we have been working in the Ashrafieh mall, decided to leave [a nearby mall] and come with us. He said, ‘I want a modern retail environment, service and parking for my customers, so I [will] move over [to ABC].’ It is true that existing mall operators in Verdun are being challenged by the arrival of ABC. But challenges are a part of life and part of business. People are going to move, and thus, operators [of retail spaces] will have to reinvent themselves. They will have to find and take advantage of their location. 

E   What about small stores in the area?

First, we don’t go into the utility store business, so we are no competition to the [dekaneh] or mom-and-pop store. Second, we open doors to local retailers on conditions that are not the same as for the big groups.

E   Did you entice some of the more desirable large stores away from nearby locations by giving them special deals?

We contacted all of them. Putting the project through was a tough challenge because people today are thinking twice about putting capex (capital expenditures) on the table. Some brands, including major brands, have said, ‘We are not coming in now, we will come in in one year because this year, we have no capex.’ You can feel that the [economic] environment is difficult, and yes, there have been very tough negotiations.

E   So, you’re saying that you are flexible when it comes to negotiating with a potential lessee?

Yes, these days you have to [be].

E   Are you satisfied with the outcomes of all these negotiations?

We are satisfied in that we have leased 85 percent [of the mall’s GLA space], and that the department store is leased nearly 100 percent.

E   Mall operations in the Middle East have seen many developments with varying architectural accomplishments, but also  malls which have been fairly dysfunctional in terms of noise reduction, access options, air flows and overall design and efficiency. Does ABC have aspirations on regional terms, and did you ever consider doing an IPO and getting listed somewhere?

We thought about it and have been contacted by people who said they love the way in which we run malls and asked if we would run their mall. Inquiries came even from some exotic countries. We are not ready for that, but [we are approaching this possibility] in several steps. The first step is that we would transform a family company into a corporation. This involves processes with long-term outlooks and structure. We are a developing people. I’m just about to create an internal think tank.

It would definitely make sense for the only Arab department store concept to go elsewhere, into another country. If we did something like that, it would have to be really Lebanese. Running malls for other people is an option, but it would have to be in the Arab world as you have Lebanese talent were speaking Arabic is an asset. The thing is that running a mall that is not your own is not easy when you have a very special concept on how a mall should be designed and operated.

 We are satisfied in that we have leased 85 percent [of the mall’s GLA space], and that the department store is leased nearly 100 percent 

E   So you would favor a sort of joint venture where you are part owners of a mall?

And also, owners of the concept. When you have a community concept and see how such a concept [needs to be implemented gradually], you cannot just take on running a ‘box’ in the middle of nowhere. The conditions would have to line up, but I think ABC is slowly growing into the position of a company that is ready to move outside [of Lebanon].

E   What do these aspirations mean in terms of board structure and corporate governance?

First of all, the board has been renewed quite heavily and we have people with international exposure within the board. One comes from Geneva, the other from Dubai and from America. We also have local personalities who bring a lot of added value.

E   Do you have non-executive directors on the board?

It is a bit more complicated. We have the chairman of the board, which is [former Tripoli MP] Robert [Fadel]. He is still executive [director]. The plan is for [him at] some point in the future to become non-executive. [In terms of] organization of the board, we work through committees and follow the [standard] recommendations of the International Finance Corporation.

E   So what you are saying is that you’re in the process of creating a capacious board and upgrading its structure, in addition to which you are creating an internal think tank. What can you tell us about this project and what it is going to be its budget?

We are planning to launch the think tank in the second quarter. It is a very exciting project. First of all we will use it in our talent development program [by including some of our young talents in this think tank]. We have [involved] an academic who has a PhD in innovation and gives us an outside view. We are thinking about how we can completely rethink the future of the company and what the department store of tomorrow is going to be like. We could go in many directions, from buying studies, to getting in professors from around the world on special topics, or sending the young talent on fact finding trips abroad. All of this has to be put into a budget. We are working now on our ideal [scenario]. Then we will see what the gap between the ideal world and our reality is and will try to bridge it, as always in life. No company has done this kind of thing in Lebanon, but the board was very open to undertaking such an exercise.

E   Any numbers on ABC turnover that you can give me?

We don’t publish them. It is a policy which I asked about. One day [transparency] will be the direction, and people will have to change their habits. The whole company is progressing very rapidly and the subject of publishing the numbers will one day come back onto the table. Also, in regard to your question of an initial public offering there is no project for an IPO. The company [has been] changing completely in the past three years already. We are here (points to the new head office villa where the interview is being conducted) in a totally new environment, and in six weeks we will open a new logistics organization with top notch structure.

E   Can you dare a guess at the valuation for the company?

We’ve done this exercise recently. I can’t give you a value because we’re challenging this figure.

E   But when you live in Beirut today it’s almost synonymous to say “go to the mall” and “go to ABC.” Shouldn’t ABC be able to assess the value of its brand equity, after having invested so much into it over the past 15 years?

There is the technical value and the brand equity. If the brand would one day be for sale, I think someone with the means [to buy] would put a lot of money on the table only for the brand. But, I have no clue about how much.

E   Surely you must have an idea how much the enterprise is worth between hard assets, soft assets and equity?

As I told you, we have done the exercise recently but are challenging the logic of this exercise. The question is not that easy to answer. The question of  good will is really the central question. As the brand is nearly 100 years old, some Lebanese might put a [very high] figure on top of what is the value of the company, but I don’t know. If we have a more established valuation, we will talk about it on the day that we have a valuation that makes sense to us.

It just gives one the feeling that as a company in the 21st century global economy, you still have a 19th century corporate habit as far as valuation.

That’s quite true, and it’s the same when it comes down to publishing figures etcetera. But, as the saying goes, Rome wasn’t built in a day. We’ll get there.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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