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By Hassan Hassan

The privatization of Omar Effendi has not been easy. A shroud of controversy has surrounded the sale of the storied (and until-recently state-owned) department store since it was put on the market in the late 1990s. After finally being sold last year, the 150-year-old department store chain is now undergoing renovations designed to return it to its leading position atop the nation’s retailing pyramid.

The most recent news: A deal to inject $40 million into new renovations, capping a highly controversial sale that played out like the corporate version of an Agatha Christie novel: with ministers under fire, rumors of ludicrously high and/or low bids, missed deadlines and even a mystery bidder who stepped out of the fog.

At the end of the day, Saudi Arabia’s Anwal Group offered LE 584 million in cash as well as assuming hundreds of millions in old liabilities and funding for early retirement programs, making an offer that was at least 60% higher than the next-best bid. The local press, of course, bellowed that the bid was still too low for one of the nation’s leading retail outlets. Outrage ensued on the front page and in the People’s Assembly as journalists and parliamentarians alike deemed the deal a rip-off.

By February 2007, the deal was finalized and Anwal began formulating plans for a serious revamp of Egypt’s top retailer.

After a period of protracted silence, Anwal’s Sheikh Jameel Al-Gainbit inked a contract with the International Finance Corporation (IFC), closing a deal for the $40 million in financing for the renovation of Omar Effendi.

Established in 1856, Omar Effendi became the largest department store in the country, with its 82 stores today considered landmarks nationwide.

If the first drama revolved around the sale of a national icon to a non-Egyptian — and the fate of Omar Effendi’s buildings, some of which were declared historic sites — the one that is still playing out has more to do with labor relations. Like many private- and public-sector workers weary of roaring inflation and stagnant wages, staff at Omar Effendi (and its suppliers and partners) feared not just cuts to wages and perks, but being declared redundant overnight.

Essam El-Din Hassan, Omar Effendi’s director of human resources and administrative affairs, says redundancies will be held to a minimum and the company will scrupulously adhere to the nation’s labor laws.

Since being bought by Anwal, Omar Effendi has signed two major deals: One was the company’s agreement to host i2 and Etisalat outlets within its stores, and the other is its agreement with the IFC for a cash injection.

“Omar Effendi is the first company outside of the financial sector that the IFC has participated in privatizing in Egypt,” says Michael Essex, director of the Middle East and North Africa division of the IFC. He believes Omar Effendi’s mission to help sell made-in-Egypt goods will have a serious knock-on effect promoting small and medium-sized enterprises.

As a private sector arm of the World Bank, the IFC attempts to promote open and competitive markets in developing countries, and with the loan it has granted, the IFC aims to help set Effendi on the right road to recovery.

“It is our belief that this loan will assist Omar Effendi stores in introducing commodities of better quality at affordable prices,” said Essex. He added that the cash injection will also help the myriad of supplier companies affiliated with the department store, and that the increasing volume of retail sales will usher a boom for both manufacturers and suppliers.

The IFC has also taken a 5% equity stake in the company, which, according to Essex is a show of solidarity to the brand.

Although the government will keep a 10% stake in the store, we can expect a complete makeover of the Effendi brand by a new team as it becomes fully privatized by the start of next year.

The $40 million from the IFC will help fund renovations at all 82 branches. Work has already started at seven outlets: Hegaz, Roxy, Adli Square, Dokki, Sayeda Zeinab, Talaat Harb and Mourad. By the end of June, renovations will have started in a further five branches, including Agamy, El-Abassiya, Giza and Maadi. Renovations are set to be completed in over 20 branches in Cairo and four in Alexandria by the end of September 2007. All branches will be renovated and in operation by March 2008.

The board of directors has confidence in the changes in the stores and refurbishments taking place. “There are three stages of renovations: the outside; the interior, including air conditioning and maintenance; and then we have the displays and the actual store,” says Arnaud Mailhe, CEO of Omar Effendi. “We are aiming to create an affordable department store with clothing at low prices. A good comparison would be Target in the United States or Alsterhaus in Germany.”

Overall renewal costs will range from LE 250-350 million, and total investments in displayed goods will equal an additional LE 150 million. A further LE 20 million will be allocated for branch automation, including LE 5 million for communication systems between branches. This is a state-of-the-art renovation that includes computer programs for warehousing and store management — purchased from the Celinde Company in France — as well as human resources and financial management software.

Mailhe notes that the goods for sale in the store will be 70% Egyptian made, with the remaining 30% being dedicated to partnerships with other brands, such as the Etisalat and i2 branches currently being set up in the stores. Some locations will also specialize in specific product lines, with certain stores focusing on more high-end products. What is clear is that Effendi will not aim to be a high-end department store along the lines of Beymen. Rather, the concept will be affordable goods, from apparel to electrical items, with a focus on locally produced goods.

Specific attention has been paid to the Abdel Aziz branch, which is considered both an architectural landmark and the cornerstone of the department store family. Deliberation over how it will be updated and refurbished to match other branches continues, but the branch will be dedicated solely to selling household products until the end of this year. Full renewal of the branch will not be completed until the end of 2008.

Sheikh Jameel also has plans for the expansion of the company’s human capital, and says that he will be “working to get excellent service from everyone working in the store.” He added that the company would be launching the Omar Effendi Academy, which would be teaching the ins-and-outs of the service industry. Training will be available to everyone, even those not working in Omar Effendi. Jameel is attempting to create a beit khebra — which roughly translates as “a house of experience.”

If Omar Effendi’s ambitious plans for modernization and growth go ahead as planned, its success will be felt across many segments of the Egyptian population. Consumers will have access to a better range of quality products, at prices that should stay low as both demand and production increase. The whole ecosystem of suppliers and partners, from manufacturers to importers and exporters, will benefit from a more dynamic, competitive retail economy.  bt