Competition Heats Up in Childrenswear in the Middle East
The Children’s Place, the largest specialty childrenswear retailer in North America, has announced it is entering markets in the Middle East. What has drawn the player to the region and how will its arrival affect the competitive landscape?
The Children’s Place, which accounts for 5% of the US childrenswear market, has signed a 10-year franchise deal with Dubai-based Apparel Group to open stores in Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman. The first Children’s Place stores are expected to open in the United Arab Emirates and Saudi Arabia in September 2012, with a number of stores to follow across the region.
As of April 2012, The Children’s Place operated 1,062 stores in the US, retailing fashionable childrenswear for newborns to 14-year-olds. According to the retailer, its prices offer substantial value compared to its competitors.
Plenty of potential in childrenswear
Many consumers in the wealthier countries of the Middle East are adopting increasingly westernised lifestyles, with men for example wearing formal suits and shoes in a work environment and jeans and T-shirts for casual gatherings. Women, meanwhile, are more focused on fashion when at home, with children also increasingly being dressed in fashionable clothing. This shift towards Western fashions, coupled with the development of shopping centres bringing wider availability of Western fashions, is driving apparel sales. As a result, the wealthier countries of the Middle East offer strong growth opportunities, with apparel in Saudi Arabia, for example, predicted a 4% value CAGR to 2016.
However, while opportunity in apparel as a whole is considerable, the potential rewards are even greater within childrenswear. To take Saudi Arabia as an example again, childrenswear is predicted a 7% value CAGR to 2016, much stronger than the growth for the apparel market as a whole, which is itself healthy. At a time when the US in comparison is predicted 1% average annual value growth to 2016 in both apparel and childrenswear, it is easy to see why The Children’s Place has been tempted to try its hand in the region.
Lots of children and an underdeveloped market
While the increasing westernisation of clothing choices is in part responsible for boosting apparel sales, it is not the principal driving factor behind sales of childrenswear. Instead, what is creating the vast potential in childrenswear is the large number of children, coupled with an underdeveloped childrenswear market.
Largely because of a general disposition towards larger families, in Saudi Arabia 31% of the 27 million population is aged 0-14. In comparison, 0-14-year-olds make up 20% of the population in the US and just 17% in the UK.
Not only does Saudi Arabia have a high percentage of children, but its childrenswear market is largely underdeveloped. This is also true of many of the countries in the region, although not the United Arab Emirates which has shaped itself as a holiday and shopping destination. To date, the UK’s Mothercare is the only specialist childrenswear retailer to have truly established a presence in Saudi Arabia, holding 7% of the market. Branded competitors include Zara, which has 1% of the market, Bossini and Esprit, although none of these are exclusively focused on the childrenswear market.
Mothercare has the most to lose
Given its position as market leader, the retailer with the most to lose from The Children’s Place targeting the Middle East is Mothercare. To date, the brand has to a large extent had the lucrative market to itself. Mothercare already has 290 stores across the Middle East and Africa and is thought to be planning on opening 20-30 more stores this year.
As well as leading the way in Saudi Arabia, Mothercare is also in a position of strength in the United Arab Emirates, holding 8% of the market. However, because of the more developed retail environment in the United Arab Emirates, the brand faces a much higher level of competition there, with Baby Shop and Pumpkin Patch both holding a bigger slice of the market.
The expansion of The Children’s Place will most certainly be unwelcome news for Mothercare, which is forecast 10% growth in the region a year. More than half of Mothercare’s sales are generated overseas, with its international business performing well while its UK division has struggled of late. However, the retailer does have the advantage of being first established in the region, while The Children’s Place still faces the task of establishing itself in consumers’ shopping repertoires.
More players are moving in – and tailoring their offering
However, while Mothercare will certainly be taking a great interest in the arrival of The Children’s Place, although the largest it is by no means the only player targeting the potential rewards of the Middle East. In fact, the childrenswear competitive environment in the Middle East is fast becoming more crowded as brands realise its potential.
Clothing brand George at Asda, for example, revealed plans to invest in the region earlier this year, and its childrenswear offering will form a key element of that move, while in 2011 the new childrenswear brand FG4 was created especially for the Middle Eastern market. FG4 offers European designs but uses lighter weight fabrics that are more suited to the climate in the Middle East. The brand caters for 0-14-year-olds and plans to open 40 outlets in Saudi Arabia by mid-2012, using empty Adams outlets vacated after the brand’s global owner Barrowdrive Ltd went into administration in 2008.
Any childrenswear brands entering the region, The Children’s Place included, would be wise to take a leaf out of the book of FG4, and tailor their offerings specifically to the hot climate – above all else parents want children to be comfortable in their clothes, meaning lightweight but fashionable garments will certainly be an attractive proposition.
Consumers look for value for money
With all of this activity in childrenswear, what is certain is that parents in the Middle East will soon have much more choice with regard to where they buy their children’s clothes. Despite the fact that the region has a reputation as a hotspot for designer brands, and there are many consumers with plenty of money to spend, price is expected to influence where parents opt to shop.
The Middle East, and Saudi Arabia in particular, is expected to see strong economic growth over the forecast period, leading to rising disposable incomes. However, this is not expected to result in consumers becoming less price-sensitive over the forecast period as they are expected to maintain a strong focus on value. In addition, low- and lower-mid income consumers are likely to become more significant as customers, with these consumers being strongly focused on price. It is also likely that the increased competitive activity will see the leading players focusing on gaining and retaining share by engaging in ongoing price competition.
Pricing strategy of primary importance
Who will come out on top in the battle for childrenswear share in the Middle East over the long term remains to be seen. However, what is certain is that to retain its leading position Mothercare and any other brands eyeing the region must think long and hard about their pricing strategy in this increasingly competitive marketplace as the latest entrant, The Children’s Place, has already stated its intention to base its offering on fashion, quality and – perhaps most importantly – value.