he skeptics are starting to back down as international retailers, evidence of the government’... Paradise on Earth...
As the ads drawing on Egypt’s Pharaonic heritage suggest, Virgin is vying to position itself as an international powerhouse with a local twist. It’s a one-of-a-kind entertainment emporium featuring a 150-seat café jam-packed with Egypt’s best selection of English and Arabic books, CDs, movies, software and video games.
Virgin’s up-to-date inventory includes newly-launched items such the PSP (PlayStation Portable), the limited edition Harry Potter iPod and all the latest music and DVD releases.
"This is the only place in Egypt where you can get original PlayStation games," says Jean Claude Torbey, regional general manager of Virgin Megastores. But are consumers interested in and willing to shell out the extra cash to buy original products when the pirated versions are still readily available for only a fraction of the cost?
The entertainment giant is fully aware of the perils it faces in a market such as Egypt, where piracy is still rampant in everything from music and movies to software and video games. Retailers believe the intellectual property rights (IPR) law passed in May 2002 has done little to curb the illegal trade of music, movies and software. According to the International Intellectual Property Rights Alliance, piracy levels in Egypt, among the highest in the world, still remain at around 50% of copyrighted goods sold. In 2004, losses to American copyright industries alone due to piracy in Egypt were estimated at $72.5 million.
"We know that piracy is a problem," says Torbey. "It’s a criminal act, but here, it is not treated as such. Now that original products are available, the market has simply to be educated. No one has made any serious effort to do that yet. I think it is up to companies like ours to try and change the mindset in the Arab world. Once people become aware of what we have to offer and the damaging affect that piracy has on the local economy, I think they will value having an original product versus a pirated one."
"LE 150 for our newest releases and bestsellers is not an outrageously expensive price. I think that a large segment of the market can afford to pay that amount. Egyptians are educated people and an educated customer is much more important to us than a rich customer. We are a store for educated people, not rich people," says Torbey, undaunted by the fact that in the past music labels like Sony have had a go at the Egyptian market and failed at the attempt.
"Although we are a retailer, not a record label, we understand the music business well. I think it was a strategic mistake for Sony to pull out of the market," says Torbey. "They came into this market and tried to implement the same business model that they were using in the US and Europe. That was their mistake. They needed to adapt the business to the peculiarities of the market that they were operating in.
"It is impossible to have 250 million Arabs without a music and entertainment industry," says Torbey. "We believe that there is huge potential here. In Europe and the US the market has reached saturation. This is why you don’t see star systems anymore. You just have artists coming up and down every year. I think that we have a great potential for stars and artists, they just need an international system and international exposure in order to do a better job."
Virgin Megastore hopes to provide local talent with a new-style platform from which they can launch, promote and sell their work in a more professional and pleasant atmosphere.
With four years of experience in doing business in the Middle East (the first Virgin location opened in Dubai in 2001), Torbey feels that this is the right time to enter the Egyptian market. "We have now matured in our relationships with our suppliers to the point that we can influence the record labels and studios to come to Egypt with us. Without some kind of local representation, we could face problems with our supply chain."
The GM claims that suppliers including Prime Pictures, Sony BMG and Disney have already committed to opening offices in Egypt and that negotiations with record labels are still ongoing.
Torbey represents the Dubai-based Azar Group, which owns the franchise for Virgin Megastore (founded by brash billionaire entrepreneur Richard Branson) in the Middle East, with the exception of Lebanon. In Egypt, the group has partnered with influential local investors including Emad El-Din Adeeb (head of Good News), Ashraf El-Sherif (son of Shura Council Speaker and former Minister of Information Safwat El-Sherif) and Ashraf Abu El Makarem (owner of Carpet City), all of whom are eager to make the experiment work.
Torbey admits there are still a few kinks to work out before Virgin can breathe easy, including customs procedures. While customs duties on blank CDs have been reduced in an attempt to boost the local IT industry, imported music CDs have not been affected by any tariff reductions. Customs are still at 32%, in addition to a 10% sales tax.
"These rates are a bit too high," says Torbey. "Reducing customs on the empty CDs is actually going to help out the piracy trade more than anything else. We are now in the midst of discussions with the relevant ministries to see how some of these issues can be smoothed out. The problem is often just the process. We are used to doing business in Kuwait and the UAE, where you have young systems that are much faster. Here it takes a long time to get things done, but everyone has been very cooperative and we are very appreciative of the changes that are taking place around us. Things are moving in the right direction - two years ago we could not have been here."
The Azar Group is also the owner of the Middle East franchises of clothing retailers Zara, Massimo Dutti and Promod. According to Torbey, all three are on their way toward making their Cairo debut. As for Virgin Megastore? The group plans to open at least two more branches in Cairo along with locations in Sharm El-Sheikh and Alexandria within the next two years.
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