Iraq is a Significant Market Waiting to Happen
Iraq is an excellent example of a unique Emerging Market with many special considerations. This is the largest country, in population, of those visited.
We approached the entry into Iraq with some trepidation. An assessment of Iraq is made more complex because center of the market, in terms of population, is in Baghdad.
We chose to arrive in Erbil, the capital of Kurdistan, and assess the situation for an entry to Baghdad. Advance information about the PC market, including the location of shops in Baghdad, was received from the Iraq Embassy in Washington, DC. They also cited a place to stay for journalists. This provided the basis for travel plans after the entry into Erbil.
The prospects for going to Baghdad declined when 12 days before the possible entry, the recommended hotel was bombed. Further discussions with individuals on the flight into Erbil painted a poor security picture in Baghdad. There was less concern about bombing and more on kidnapping. The budget for this reporting did not support ransom expenses.
Shortly after arrival in Erbil, once the situation was assessed in Baghdad, it was decided not to go. All attention turned to collecting information at this entry point. On the flight in an Iraqi native but US citizen provided some early hints on where to go and what to see. Once at the hotel this was confirmed. Everyone cited the Majidi Mall as a must see.
In spite of being late it was decided to make an evening trip to the Mall. This had risks but by all indications it would be safe. Taxi transportation was readily available at the mall so the prospects of getting stranded were low.
To say that I was surprised at this mall is an understatement. Modest by US standards it nonetheless was of high quality, fitted with first class stores, had a play area for children, a partially completed food court and, and most important, a hypermarket called City Centre. The mall was packed, festive and many were taking pictures. Parking was available and security everywhere. But in the mall it was like a different world – being place shifted out of Iraq.
The City Centre hypermarket was similar to a WalMart SuperStore – a one stop shop. This market comes from a company in Kuwait. We spoke with a manager in the computer department. There were 8 notebooks and 1 netbook on the open display. The prices were quite reasonable and in $. The netbooks have been selling very well. There are also PC accessories using LG products. We were surprised to see an iPhone for sale at $975. My Blackberry connection was refused – no data services in Iraq – which left me perplexed on how an iPhone could work here.
City Centre was an oasis. We needed to learn more.
This market spawned a number of questions. During the visit to Kuwait a City Centre hypermarket was found. We were able to interview a store manager very familiar with Erbil store and market.
“When the mall was opened on 31 December 2009, it was impossible to get in, there were too many people. For City Centre this was our first venture outside of Kuwait. It took 4 years to go from concept to operations. The market is virgin ground – everything is new. For example, the road in front of the store was not even completed until 6 months before the opening. We had to train all the staff, establish routes of product entry and delivery, and operational procedures.
This mall is a shock to Iraq. They have never seen anything like this and did not know what to do. For example, we brought credit cards to the market – another new factor in Iraq. We felt it essential to have adequate parking.
Currently the sales are down since opening but this was expected. We are making our numbers. Each month the sales are above the last month and this study rise is a good sign.
The supply of goods to the store is a major issue. Everything must come over land by Turkey. Sometimes it can take 3 months for products to show up. Turkey has levied a 25% customs duty on all goods but Iraq has no customs operations.
City Centre sees important potential in Iraq and we will be opening another even larger market in Sulaimaniyah. Yet, our plans for Baghdad are on hold. The land is in place and we are ready to act to open a store there. But the continuing security situation precludes further work. We had expected that once Sadam Hussien was captured that the violence would subside but this has not happened. The potential of a Baghdad market is reinforced by individuals who come from throughout Iraq, including Baghdad, on the weekend to shop at the Erbil mall, is an indication there is a demand.
Yes, we know that Carrefour is coming to Erbil. But we believe they are late and have made a poor tactical decision with the location and inadequate parking.
We should not focus exclusively on the Majidi Mall in Erbil, however, as there is a significant on-street retail presence of PC shops and systems builders. We visited 5 stores on one street not far from the center of the city. These focused on netbooks and notebooks. Only one of the 5 cited building systems. One of the merchants stated that the mall was impacting his business. Most of the PC accessories including those in City Centre were LG.
Iraq is a market waiting to happen. With a population of 30m and an adult literacy rate of 74.1% there is the potential for significant IT and computer use. There are 5 universities in Baghdad and 9 in the Kurdistan region. It is important to note that the major computer shops in Baghdad are around one of the Universities.
Iraq is second only to Saudi Arabia in proven oil reserves with 112 billion barrels. It is estimated that with the recent opening of the oil fields to foreign companies it can earn $200B a year. The PPP is only 7.7, which is a clear indication that the wealth of the oil production has neither started and/or its flow to the public impeded.
We regard Azerbaijan as a reasonable proxy for Iraq. It has a PPP of 20.1, which is an indication of the spreading of its oil wealth. Our on street view showed the distinct contrast between both Azerbaijan and Iraq in terms of wealth at the consumer level. If the oil wealth is distributed in Iraq and Kurdistan it could fuel a significant rise in consumer spending.
The critical issue to the emergence of Iraq as a consumer power is political stability. It is assumed with political stability the violence will subside. This is clearly possible, as seen in even the recent past, and the populace wants it. This issue remains – WHEN?
As with other countries Iraq mirrors some of the disruptions in the PC market:
- Mall outlets and large managed retail will set the price and product availability expectations of the market.
- The buyer preference will be with mobile systems.
- System builders are on the decline.
But what is unique about Iraq is:
- Product logistics to deliver to retail outlets.
- Buyer personal security.
Iraq is a market waiting to happen. City Centre was first and is waiting to reap the rewards of that position.