Al KhafjiShoppingMall CompleteDraftReport

Feasibility Study for Establishing a Shopping Mall in Al- Khafji
Kingdom of Saudi Arabia

Sept ember 2006

Fahed S. Al Dhowayan & Partner Co.

Feasibility Study for Establishing a
Shopping Mall in Al-Khafji

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Draft Report

Table of Contents

1 Executive Summary................................................................................................................... 6
2 Introduction ............................................................................................................................... 9
2.1 Overview of the Project.............................................................................................. 9
2.2 The Projects Objectives............................................................................................. 9
2.3 Methodology of Work ................................................................................................ 9
2.4 Structure of the Report ............................................................................................. 11
2.5 Project Shareholders (owners)................................................................................. 12
3 Overview of Saudi Economy................................................................................................... 13
3.1 Country Overview.................................................................................................... 13
3.2 Macro Economic and Demographic Analysis.......................................................... 14
3.2.1 Saudi Economy in Brief ............................................................................... 14
3.2.2 Gross Domestic Product (GDP) ................................................................... 15
3.2.3 External Trade Statistics............................................................................... 17
3.2.4 Oil Production The Driver of Saudi Economy.......................................... 20
3.2.5 Population..................................................................................................... 23
3.2.6 Real Estate Sector in Saudi Arabia............................................................... 24
4 Why to Invest in the Eastern Province .................................................................................... 31
5 Market Analysis and Research Findings ................................................................................. 35
5.1 Introduction .............................................................................................................. 35
5.2 Shopping Malls Market Research ............................................................................ 36
5.2.1 Available Facilities and Services.................................................................. 36
5.2.2 Rental Fees Analysis .................................................................................... 39
5.2.3 Promotional Tools ........................................................................................ 41
5.2.4 Supplementary Service and Utilities ............................................................ 43
5.2.5 Turnover Rate and Contract Period.............................................................. 44
5.2.6 Visitors Mix.................................................................................................. 44
5.2.7 Competitive Advantage................................................................................ 45
5.2.8 Obstacles Facing the Shopping Malls .......................................................... 46
5.2.9 Recommendations for establishing a Modern Shopping Mall ..................... 46
5.3 Shopping Outlets Market Research.......................................................................... 48
5.3.1 Rental Fees Analysis .................................................................................... 48
5.3.2 Method of Payment ...................................................................................... 49
5.3.3 Breakdown of Shopping Malls Visitors by Nationality.............................. 50
5.3.4 Expansion Plan............................................................................................. 51
5.3.5 Potential for Investing in Al-Khafji City Center .......................................... 51
5.3.6 Expected Area to Rent.................................................................................. 53
5.3.7 Suggestions and Recommendation............................................................... 54
5.4 Consumer Market Research ..................................................................................... 55
5.4.1 Shopping Patterns......................................................................................... 56



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5.4.2 Criteria for the Selection of a Shopping Mall .............................................. 58
5.4.3 Promotional Media ....................................................................................... 59
5.4.4 Share of Heart............................................................................................... 60
5.4.5 Preferred Banks ............................................................................................ 60
5.4.6 Launching Al-Khafji City Center................................................................. 61
5.4.7 Suggestions and Recommendations ............................................................. 62
6 Proposed Marketing Strategy .................................................................................................. 63
6.1 Positioning Strategy.................................................................................................. 63
6.2 Services Strategy ...................................................................................................... 64
6.3 Pricing Strategy ........................................................................................................ 70
6.4 Promotion Strategy................................................................................................... 73
7 Anticipated Sales Revenues .................................................................................................... 77
8 Technical Study....................................................................................................................... 79
8.1 Mall Location ........................................................................................................... 79
8.2 Detailed Description of Mall Facilities .................................................................... 79
8.3 Civil Engineering Work ........................................................................................... 80
8.3.1 Total Construction Built-up Area................................................................. 80
8.3.2 Project Cost .................................................................................................. 83
8.3.3 Land Cost...................................................................................................... 83
8.4 Utilities ..................................................................................................................... 84
8.5 Manpower Requirement ........................................................................................... 84
8.5.1 Organizational Structure.............................................................................. 84
8.5.2 Human Resources Required ......................................................................... 87
8.6 Mall Security ............................................................................................................ 88
8.7 Fire Precautions ........................................................................................................ 88
8.8 Environmental Aspects of the Project ...................................................................... 89
8.9 Implementation Schedule ......................................................................................... 92
9 Financial Study and Project Profitability Evaluation .............................................................. 93
9.1 Total Investment Cost............................................................................................... 94
9.2 Project Financing and Capital Structure................................................................... 95
9.3 Anticipated Sales Revenues ..................................................................................... 96
9.4 Operating Expenses .................................................................................................. 98
9.5 Projected Income Statement ................................................................................... 101
9.6 Projected Cash Flow Statement.............................................................................. 103
9.7 Profitability Analysis.............................................................................................. 105
9.8 Feasibility Indicators .............................................................................................. 106
9.9 Sensitivity Analysis................................................................................................ 107



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List of Tables

Table 2-1: Break-down of Sample Size (Proposed and Actual)....................................................... 10
Table 3-1: Saudi Economic and Demographic Indicators................................................................ 15
Table 3-2: Saudi Total Imports during (1998-2005) ........................................................................ 17
Table 3-3: Saudi Total Imports during (1998-2005) ........................................................................ 18
Table 3-4: Rental Yield Rates comparison in 2005.......................................................................... 28
Table 4-1: Available Sectors Investment Opportunities .................................................................. 34
Table 5-1: Comparison between the Major Shopping Malls in the Eastern Province ..................... 36
Table 5-2: Comparison between the Surveyed Malls in terms of Customer Services Provided...... 38
Table 5-3: Average Rental Fees in SR for Outlets, Food Courts and Kiosks .................................. 39
Table 5-4: Advertising Tools Used by the Shopping Malls ............................................................. 41
Table 5-5: Promotional Facilities Provided by the Surveyed Shopping Malls ................................ 42
Table 5-6: Preferred Methods of Payment ....................................................................................... 50
Table 5-7: Breakdown of Visitors by Shopping Mall and Nationality ............................................ 51
Table 5-8: The Most Preferable Banks by the Respondents. ........................................................... 60
Table 6-1: Proposed Tenants Mix................................................................................................... 65
Table 6-2: The Proposed Service Hours for the Mall....................................................................... 68
Table 6-3: Average Rental Fees in SR............................................................................................. 71
Table 6-4: Proposed Rental Fees Structure for Al-Khafji City Center ............................................ 72
Table 6-5: Recommended Promotional Media and Messages ......................................................... 74
Table 7-1: The Projects Anticipated Sales Revenues ..................................................................... 78
Table 8-1: Total Built-up Area for Shopping Outlets ...................................................................... 81
Table 8-2: Total Built-up Area for the Food Court .......................................................................... 81
Table 8-3: Total Built-up Area for the Hyper Market ...................................................................... 81
Table 8-4: Total Built-up Area for the Amusement Center ............................................................. 81
Table 8-5: Total Built-up Area for the Parking Area ....................................................................... 82
Table 8-6: Total Built-up Area for the Services Area ...................................................................... 82
Table 8-7: Total Built-up Area for the Other Unspecified Area ...................................................... 82
Table 8-8: Summary of Total Built-up Areas................................................................................... 83
Table 8-9: Breakdown of Project Construction Cost ....................................................................... 83
Table 8-10: Cost of Projects Land .................................................................................................. 83
Table 8-11: Cost of Human Resources Required............................................................................. 87
Table 8-12: Project Implementation Schedule ................................................................................. 92
Table 9-1: Total investment Cost ..................................................................................................... 94
Table 9-2: Capital Structure of the Project....................................................................................... 96
Table 9-3: Average Rental Fees for the Mall Facilities ................................................................... 96
Table 9-4: The Projects Anticipated Sales Revenues ..................................................................... 97
Table 9-5: The Projects Expenses ................................................................................................. 100
Table 9-6: The Projected Income Instatement................................................................................ 102
Table 9-7: The Projected Cash Flow Instatement .......................................................................... 104
Table 9-8: Results of Project Sensitivity Analysis ......................................................................... 107



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List of Figures

Figure 3-1: Saudi GDP and its Growth Rate during (1998-2005).................................................... 16
Figure 3-2: GDP per capita during the period (1998-2005) ............................................................. 17
Figure 3-3: Top 10 Importing Countries to the Kingdom................................................................ 18
Figure 3-4: Top 10 Exports Markets for Kingdom .......................................................................... 19
Figure 3-5: Saudi Trade Balance during the Period (1998-2004) .................................................... 19
Figure 3-6: Crude Oil Production and Daily average during the period (1998-2004) ..................... 21
Figure 3-7: Saudi Oil Production, Exports and local Consumption during the Period (1998-2004) 22
Figure 3-8: Oil Prices in Real and Nominal terms ........................................................................... 22
Figure 3-9: Number of Population in Saudi Arabia ......................................................................... 24
Figure 3-10: Number of Population in Saudi Arabia classified according to gender ...................... 24
Figure 3-11: Real Estate and Construction Contribution to GDP during the period (1998-2004)... 27
Figure 3-12: Market Share of Real Estate Developers..................................................................... 29
Figure 5-1: Relative Importance of the Promotional Tools Used by the Studied Malls .................. 41
Figure 5-2: Visitors Mix of the Surveyed Malls .............................................................................. 45
Figure 5-3: Breakdown of Shopping Malls Visitors by Nationality............................................... 50
Figure 5-4: Willingness of the Surveyed Tenants to Invest in Al-Khafji City Center ..................... 52
Figure 5-5: The Outlets Motives to Open a Branch in Al-Khafji City Center................................ 53
Figure 5-6: Shopping Patterns .......................................................................................................... 56
Figure 5-7: Preferred Time of Shopping. ......................................................................................... 56
Figure 5-8: Shopping Company ....................................................................................................... 57
Figure 5-9: Criteria for the Selection of a Shopping Mall................................................................ 58
Figure 5-10: Promotional Media ...................................................................................................... 59
Figure 5-11: The Most Preferable Banks by the Respondents. ........................................................ 61
Figure 5-12: The Respondents Motives for Launching Al-Khafji City Center................................ 61
Figure 8-1: Location of the Proposed Project................................................................................... 79
Figure 8-2: Proposed Organizational Structure................................................................................ 85



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1 Executive Summary
Fahed S. Al Dhowayan & Partner Co. is a Saudi limited liability company established as a
continuation to Saad Bin Mahammad Al Dhowayan Company with 32 years of experience in
trade and construction sectors in the Kingdom of Saudi Arabia (KSA), the Company plans to
construct Al-Khafji City Center (the new mall) that will be the first shopping mall in Al-Khafji city
with a total area of 40,080 square meters, including the hypermarket and the amusement park.
Al-Khafji city is located within the Eastern Province, and this specific province was chosen by the
Company to construct the mall for its main characteristics that include:
Strong and dynamic economy
Unique and strategic location
Social and political stability
Modern and developed infrastructure
Attractive investment climate
Expanding market
Vast natural resources and raw materials
Sectors investment opportunities

Positioning strategy for Al-Khafji City Center is concerned with identifying and maintaining the
favorable image needed to occupy a distinguished place in the customers mind and to be apart
from its potential direct competitors as well.
The malls service strategy is to have a variety in tenants mixture and highly emphasize on
providing excellent and distinguished supplementary services that are bundled with core services
through facilitating the use of core services and enhancing its value and appeal, search for
competitive advantage, and differentiate service offerings over competitors.
The most appropriate pricing strategy to be adopted by the malls management is Rapid
Skimming Pricing Strategy.
Taking into consideration the pricing strategy and objectives of the mall, the rental fees for Al-
Khafji City Center were estimated using the following equations:
Rental Fees for Shopping Outlets,
Restaurants and Cafes, and Kiosks
= Average Market Rental fees 55%

Rental Fees for the Hypermarket and the
Amusement Park



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Further, the rental fees for the mall are calculated as follows.
Rental Fees / m2
Facility
SR USD
Shopping Outlet 1,131 301
Restaurants and Cafs 1,691 451
Hypermarket 468 125
Amusement Park 495 132
Kiosk (Per Year) 32,175 8,580

The mall will enjoy 80% occupancy rate of the shopping outlets in the first year and then increase
by 5% per year to reach 100% occupancy rate by year 5 of the project life.
Overall cost for capital expenditures is estimated at USD 15.0 million. Total investment is
estimated at USD 15.7 million, out of which USD 3.9 million to be injected by the shareholders,
with the remaining balance of USD 11.8 million to be financed in a form of a 10-year loan.
It is expected that the total cash inflows during the first year are estimated at USD 1,052,906 and
will reach USD 2,745,030 during the 10
th
year of operation. Net cash flows during the first year
are estimated at USD 1,052,906 and will reach USD 1,567,426 during the 10
th
year of operation.
The net residual value for the project is estimated at USD 8,776,018.
The Project will be profitable and generate enough cash flow to cover loan amortization even under
the worse case scenario. Under the base case assumptions, the internal rate of return is 22.73% and
the net present value at a 10% discount rate is USD 4,443,101. Under reduced profitability and
output scenario the Project remains profitable.
During the first year, the net profit margin is expected to be 1.5%, 25% during the second year and
will reach 54.94.2% during the 10
th
year of operation.
The Return On Investment (ROI) for the first year will be 0.28% and will reach 9.31% during the
10
th
year of operation.
The contribution margin during the first year is estimated at USD 2,579,309 (94.82% of sales
revenues), and will amount to USD 3,811,406 (94.34% of sales revenues) during the 10
th
year of
operation.
The break-even point during the first year is estimated at USD 2,677,292 (98% of sales revenues),
and will amount to USD 1,631,394 (40% of sales revenues) during the 10
th
year of operation.
The Company will payback its investment within the 7
th
year of operation.
The table below summarizes the main scenario indicators:
Indicator Value
Internal Rate of Return (IRR) 22.73%
Present Value (PV) USD 8,368,672
Net Present Value (NPV) USD 4,443,101



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Indicator Value
Net Profit Margin Year 1 1.50%
Net Profit Margin Year 10 54.94%
Return on Fixed Assets (ROA) Year 1 0.28%
Return on Fixed Assets (ROA) Year 10 22.74%
Return on Investment (ROI) Year 1 0.28%
Return on Investment (ROI) Year 10 9.31%
Contribution Margin Year 1 USD 2,579,309
Contribution Margin Year 10 USD 3,811,406
Contribution Margin Ratio Year 1 94.82%
Contribution Margin Ratio Year 10 94.34%
Break-even Point Year 1 USD 2,677,292
Break-even Point Year 10 USD 1,631,394
Break-even Point Percentage of Sales Revenues Year 1 98%
Break-even Point Percentage of Sales Revenues Year 10 40%
Profitability Index (PI) 2.13
Payback Period (PP) Year 7
It is assumed under the stress scenarios that changes in revenues and total investment costs incur as
shown in the following table:
Feasibility Indicators
Item Change (%)
IRR NPV (USD) PI
-10% 16.98% 2,489,723 1.63
Revenues
+10% 28.70% 6,396,479 2.63
-10% 27.64% 5,469,200 2.55
Investment Cost
+10% 18.79% 3,415,436 1.79



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2 Introduction
2.1 Overview of the Project

Fahed S. Al-Dhowayan and Partner Company have perceived the enormous need for establishing a
shopping mall in Al-Khafji district in compliance with state-of-the-art shopping malls. Currently,
there are no shopping malls operating within Al-Khafji city. Therefore, those citizens who are
willing to enjoy the experience of real shopping need to leave Al-Khafji and go for shopping malls
either in the Eastern Province or Kuwait to satisfy their shopping needs and buy the required
commodities.
To seize such a promising opportunity, a contract was signed between SAD and Elite Consulting to
carry out a feasibility study to assess the viability of commencing the first shopping mall in Al-
Khafji (Al-Khafji City Center) with a total area of 40,080 square meters, including the
hypermarket and the amusement park.
2.2 The Projects Objectives
The main objective of this consulting assignment is to help the owners of the project to make the
right decision of establishing a shopping mall in Al-Khafji district and provide them with more
insight of the viability of the investment; through studying and analyzing the shopping malls
industry in the Eastern Province and identifying the shopping patterns and trends of Al-Khafji
citizens. Additionally, all technical aspects associated with the project, investment and operational
requirements, as well as the financial analysis that identifies the feasibility of the project will be
completely investigated.
2.3 Methodology of Work
Elites teams of consultants have professionally adopted a practical methodology of work to
successfully prepare the market study, in light of the stated projects main objectives. The
following paragraphs give a detailed insight of the main steps of the methodology undertaken in
preparing the market study.

a) Market Researches
With the aim of getting properly the required data and information, three market researches
were carried out targeting the main market players in the shopping malls industry. The first
research covered a sample of 69 of Al-Khafji residents, who will be potential targeted
customers for the project at hand. The selection of respondents in the survey of residents was
based on random sampling; however; an attempt was made to include respondents belonging to
different income levels and nationalities keeping in view the characteristics of potential
customers.



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The second research included 42 outlets in the four major shopping malls operating in the
Eastern province. Finally, the third research targeted the four major shopping centers in Al-
Dammam and Al-Khobar, namely: Al-Rashid Mall, Mall of Al-Dhahran, Al-Dammam Marina
Mall, and Al-Shatea Mall.
Major steps were executed during the market research and are as under:
1) Questionnaire design;
2) Sample size design;
3) Data collection;
4) Quality control measures;
5) Data entry and verification; and
6) Tabulation and statistical analysis.
A brief description of each task is as follows:
Questionnaires designing: Draft questionnaires were administrated and developed by
Elites consultants for the 3 types of market researches. Then, they were thoroughly
reviewed by the projects manager to ensure a successful achievement of the main
objectives of each of the three researches, as planned.
Sample size: It was agreed between Elite consultants and the projects representatives on
the sample size to be selected along with the actual number of targeted parties surveyed
as shown in the table below:
Table 2-1: Break-down of Sample Size (Proposed and Actual)
Sample Size
Category
Agreed Number Actual Number Surveyed
Visitors 50-75 61
Shopping Malls 4 4
Outlets 50 42
Data collection: Structured personal interviews with targeted parties were conducted as
part of the process of gathering data and information needed for market study purposes.
Quality control measures: Quality control measures were adopted to ensure high quality
of collected data. These mainly included:
- Scrutiny of filled-in questionnaires by supervisors.
- Random spot checks by the projects manager.
Data entry and verification: The scrutinized data from questionnaires was entered into
computers using a custom-made data entry program in SPSS and excel. The entered
information was verified against the information in the questionnaires. Any entry errors
detected were immediately corrected.



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Tabulation and analysis: The field questionnaires were entered into the computers and
analyzed by using SPSS program.

b) Desk Research
The secondary information and data required to achieve the objectives of the study were
collated from its official sources operating in the Eastern Province. The secondary sources
include governmental agencies such as Ministry of Planning, Department of Statistics, Ministry
of Industry and Commerce, Chamber of Commerce and Industry, Saudi Arabia General
Investment Authority (SAGIA) and other trusted on-line statistical directories. The following
summarize all the information gathered from the secondary resources:
Overview and historical statistics on the Saudi Economy.
Background information on Al-Khafji District.
Investment incentives in the Eastern Province.
2.4 Structure of the Report
The report has been divided into seven chapters. Brief introduction of each chapter in the report is
given below:
Executive Summary
This part provides brief facts on the main findings of the market analysis, technical study and the
major financial indicators extracted to assess the economic feasibility of the proposed project.
Introduction
This chapter provides the projects background, objectives of the project and the adopted
methodology undertaken to execute this assignment.
Economic Background to Saudi Arabia
This chapter provides a summary of the Saudi economy, key economic indicators and main
productive economic sectors.
Market Analysis
This chapter provides a detailed and comprehensive analysis of findings raised from the three
market researches conducted, proposed marketing strategy and anticipated sales revenues.



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Technical Study
This chapter provides a detailed technical analysis of the project in order to determine all types of
costs incurred in connection with this intended investment.
Financial Analysis
Detailed financial study to evaluate the feasibility of the project based on a set of financial
indicators. This section will include the cost of investment, labor, maintenance, management,
research and development, annual operating costs, income statement, cash flow statement,
sensitivity analysis and all required profitability indicators.
2.5 Project Shareholders (owners)
Fahed S. Al Dhowayan & Partner Co. is a Saudi limited liability company established as a
continuation to Saad Bin Mahammad Al Dhowayan Company with 32 years of experience in
trade and construction sectors in KSA. The companys main activity was in the field of building
materials' trade for a period of 27 years, with branches in all of the Eastern and Central regions of
KSA, and considered as a main provider of building materials imported from Italy, Spain, Britain,
Germany, Lebanon, and USA. The company had various real estate investments and other
business investments. After the death of the founder (the late Saad Al Dhowayan), " Fahed S. Al
Dhowayan & Partner Co." replaced the later company.
Upon emergence as a new company, there was a need for restructuring and developing the line of
business to grasp the emerging market opportunities and cope with changing market trends. A
Business Plan was prepared for that purpose, the company now is engaged in investment in
different sectors and in and real estate sector, in particular. Moreover, the company made other
investments through partnerships and contributions with other investors, and the last of these
partnerships was buying Al-Khafji land. During that period, the company's board of directors
assigned Mr. Abdullah Al Dhowayan, one of the partners, to prepare a mechanism for investing
independently in the area of real estate. This mechanism was based on in depth market study and
viable areas of investment ascertained from the previous experiences of others. This report was
presented and finalized in cooperation with the company's consultants, a strategic plan was
prepared as a part of this report under which the decisions on line of business based on logical
analysis from marketing and financial aspects was taken effectively.
The company has bought a large scheme in the heart of the city of Al-Khafji (Jawharat Al-Khafji)
for an amount of SR 114 million which has been a property of the company. Abdel Latif Hamad &
Partners Co. is responsible for marketing and development of shareholding while the French Bank
is the lead finance institution. The company is currently preparing for a mega real estate project in
collaboration with several investors and major regional companies as per their specialized field of
services.



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3 Overview of Saudi Economy
3.1 Country Overview
The Kingdom of Saudi Arabia (KSA) could be described as a land of vast deserts and little rainfall.
Huge reserves of oil and natural gas lie beneath the countrys surface. KSA was a relatively poor
nation before the discovery and exploitation of oil, but since the 1950s, income from oil has made
the country wealthy. The religion of Islam developed in the 7
th
century in what is now Saudi
Arabia. The KSA was founded in 1932 by King Abdul Aziz bin Saud and has been ruled by his
descendants ever since.

Kingdom Geography
KSA is located in the Arabian Peninsula in south-west Asia. Its boundaries are as follows: Kuwait
from the northeast, Iraq and Jordan from the north and north-west; and the east is where the
Arabian Gulf, Bahrain, Qatar, and the United Arab Emirates; on the south the Sultanate of Oman
and the Republic of Yemen; and the west is the Red Sea and the Gulf of Aqaba. The countrys
border with the United Arab Emirates is not precisely defined. The capital and largest city is
Riyadh.
Occupying about 80% of the Arabian Peninsula, the Kingdom's area is 2,250,000 square kilometers
(about 864,900 square miles). Its western coast stretches for 1,800 kilometers, and its eastern coast
for 500 kilometers. The Kingdom's terrain ranges from high mountainous areas in the south-
western region to wide valleys in Najd. The Kingdom comprises the largest desert in the world,
covering an area of 600,000 square kilometers.
The central region consists of an eroded plateau, mostly arid and hot in the summer and cold in the
winter. The western region is mountainous, except for the coastal plain bordering the Red Sea. The
southern region is also mountainous and receives enough rainfall to support agriculture. Finally,
the eastern part of KSA is flat and sandy, bordering on the Arabian Gulf and possessing most of the
countrys vast oil resources - perhaps as much as twenty-five percent of the whole world's proven
reserves. Geographically, KSA is divided into four (and if the Rub al-Khali, Empty Quarter, is
included, five) major regions. The first is the Central region, a high country in the heart of the
Kingdom; secondly, there is the Western region, which lies along the Red Sea coast. The Southern
region, in the southern Red Sea-Yemen border area, constitutes the third region. Fourthly, there is
the Eastern region, the sandy and stormy eastern part of Saudi Arabia, the richest of all the regions
in petroleum.



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3.2 Macro Economic and Demographic Analysis
3.2.1 Saudi Economy in Brief
KSA is the largest free market economy in the Middle East and North Africa (MENA) region
holding 25% share of the total Arab GDP. The kingdoms geographic location provides easy access
to export markets in Europe, Asia and Africa. It has a continuously expanding domestic market
(annual population growth of about 3 percent), which is adding to a young population with strong
buying power.
The investment climate in the Kingdom reflects traditions of liberal, open market private enterprise
polices and its new foreign Investment Law allows 100 percent foreign ownership of projects and
real estate. The kingdom has an impressive record of political and economic stability and has a
modern world-class infrastructure.
There are no restrictions on foreign exchange and repatriation of capital and profits. It has a very
stable currency and has no foreign exchange curbs, and companies are allowed 100 percent
repatriation of profits.
Over the past three decades the Saudi economy has witnessed a considerable transformation in
economic, social and urban aspects of life. The transformation was brought about by extensive
government investment within the framework of five-year development plans to lay down the
social and physical infrastructure of the country. This includes the construction of bridges, dams,
three major international airports, numerous regional airports, up-to-date seaports and marine
terminals, an efficient network of roads, electricity, desalination plants, and advanced
telecommunication systems.
Over the course of the last ten years, the country has embarked on economic reforms and taken
several steps to encourage private and foreign sector investments and privatization of state
enterprises. The accession to WTO is the crowning achievement of this continuing effort and
enforces the liberalization of the major sectors on the kingdom.
Substantial funds were also spent on education, health and vocational training programs as well as
on projects involving the building of schools, colleges, universities, and general and specialized
hospitals for the civilian and military sectors. In the industrial sector, huge funds were invested in
establishing industrial estates in major cities, including the two advanced industrial towns of Jubail
and Yanbu. These were designed to accommodate heavy industries such as the basic
petrochemicals projects, the iron and steel plants and the giant oil refineries set-up by the
government in partnership with international corporations and the Saudi private sector.
An extensive pipeline network crossing the Kingdoms Eastern, Central, and western regions has
been constructed to transfer crude oil and gas to the oil refineries and petrochemicals plants in
Jubail and Yanbu as well as to the marine terminals in the two industrial towns for exporting oil
and gas products overseas. KSA is pursuing the following two principal economic goals:
Economic diversification through the development of industry, agriculture, mining, and other
non-oil sectors to decrease the countrys dependence on oil.



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Encouraging the private sector to play a major role in the kingdoms economic development.
The banking system has continued to perform well according to international standards, reflecting
its strength and soundness. As for technological development, banks raised the number of their
Automated Teller Machines (ATMs), Point of Sales (POS) terminals and ATM cards, reinforcing
banking awareness among the public and contributing to the decline in the use of currency in the
total money supply. The interest rates on domestic currency deposits have also decreased. The
robust growth in the private sector has been accompanied by the number of factors that have
enhanced confidence in the national economy and should continue to have a positive impact on
private sector growth. Table (3-1) shows the main economic and demographic indicators about the
Kingdom:
Table 3-1: Saudi Economic and Demographic Indicators
Year 2000 2001 2002 2003 2004 2005
GDP @ Constant prices (Million USD) 169,238 170,165 170,382 183,432 193,094 205,750
GDP Growth (%) 4.9 0.5 0.1 7.7 5.3 6.6
GDP per Capita (USD) 8,268 8,111 7,928 8,330 8,571 8,903
Exports (Million USD) 77,688 68,155 72,658 93,493 126,334 19,056*
Imports (Million USD) 30,278 31,265 32,376 37,015 44,864 59,568
Trade Balance (Million USD) 47,410 36,890 40,282 56,478 81,470 -40,513
Population (Million) 21.5 22.1 22.7 23.3 24 24.6
Consumer Price Inflation (%) n/a -1.1 0.2 0.6 0.3 0.4
Exchange Rate 3.75 3.75 3.75 3.75 3.75 3.75
Sources: Ministry of Economy and Planning
Saudi Arabian Monetary Agency (SAMA)
Economic Intelligence Unit (EIU)
*Oil Exports are not included

3.2.2 Gross Domestic Product (GDP)
The overall Saudi economy has been enjoyed a rapid growth during the last three decades due to
the diversification of economy away from expanding in oil production to an extent. The GDP has
an impressive growth records, it rose from USD 39,583 million in 1970 to USD 138,058 million in
1980, registering a growth rate of 249%. The GDP keeps on its incessant growth to reach USD
169,238 million and USD 205,750 million in 2000 and 2005 respectively.
Figure (3-1) below shows the GDP and its growth rate during (1998-2005):



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-0.7%
4.9%
0.5%
0.1%
7.7%
5.3%
6.6%
0
50,000
100,000
150,000
200,000
250,000
1998 1999 2000 2001 2002 2003 2004 2005
-2%
0%
2%
4%
6%
8%
10%
GDP (Million USD) Growth Rate

Figure 3-1: Saudi GDP and its Growth Rate during (1998-2005)
As noticed clearly in the figure above, Saudi GDP has been grown in a steady trend and no peaks
and valleys were noticed. The GDP value reached USD 205 billion in 2005 with a growth rate of
6.6%, as against 5.3% in 2004. The noticeable growth in GDP has been driven by the expansion in
oil production and exploration as well as the growth in non-oil private sector, which currently
account 43.6% from total GDP (as compared to 33% in 1970).
All economic sub-sectors have recorded remarkable improvement in their performance in 2005 if
compared with preceding year. The manufacturing sector includes Petroleum Refining and other
manufacturing activates, registered the highest growth rate in 2005 among the other private sub-
sectors, which grew by 7.1% if compared with 2004.
The Transportation, storage and communication recorded the highest growth rate among the
other public sub-sectors, which grew by 9.6% in 2005 if compared with preceding year. The
Electricity, Gas and Water Sector grew by 5.4% if compared with preceding year. The
Construction sector registered a growth rate of 5.5% if compared with preceding year. The
Wholesale and Retail Trade, Restaurants and Hotels Sector grew by 6.2% against 5% in the
preceding year. The Finance, Insurance, Real estate and Business Services Sector registered a
growth rate of 6.8% against 4.4% in the preceding year.

GDP per Capita
GDP per capita is one of the major macro economic indicators that reflect the economic prosperity
and community wealth. The Purchase Power Parities (PPP) of the community is measured based on
the per capita GDP. In KSA, the GDP per capita has been grown in steady manner during the last
seven years. The highest value was registered in 2005 which reached USD 8,903 at the constant
prices since 1987. Figure (3-2) below shows the values of GDP per capita in USD during (1998-
2005).



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Draft Report

8,339
8,077
8,268
8,111
7,928
8,330
8,571
8,903
0
50,000
100,000
150,000
200,000
250,000
1998 1999 2000 2001 2002 2003 2004 2005
7,200
7,500
7,800
8,100
8,400
8,700
9,000
GDP (Million $) Per Capita GDP

Figure 3-2: GDP per capita during the period (1998-2005)
3.2.3 External Trade Statistics

Imports of Goods and Services
The total Saudis imports of good and services reached USD 44.8 billion in 2004 with a growth
rate of 21% when compared with 2003, and it is expected that the imports value will hit USD 60
billion in 2005 with a growth rate of 33% against 2004.
Table (3-2) below shows the Saudi imports values during the period (1998-2005):
Table 3-2: Saudi Total Imports during (1998-2005)
Imports
Year Value
(Million USD)
Growth
Rate
Weight
(000 tons)
Growth
Rate
1998 30,053 - 22,557 -
1999 28,070 -7% 24,230 7%
2000 30,278 8% 25,099 4%
2001 31,265 3% 24,772 -1%
2002 32,376 4% 24,615 -1%
2003 37,015 14% 28,157 14%
2004 44,864 21% 31,180 11%
2005* 59,568 33% n/a -
Source: Department of Statistics, Ministry of Planning
* Initial Statistics

Imports breakdown by nature of goods indicates that most of the imported goods are finished
products which represent 70% from the total imports in 2004 followed by the semi-finished
products and raw materials which they represent 26% and 4% respectively.



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The major importing countries to the Kingdom are: USA, Japan, Germany, China, UK, South
Korea, France, Italy, India and Australia. USA imports leads all the imported countries which
represent around 15.3% from the total imports value followed by Japan, Germany and China which
they represent 9.8%, 8.1% and 6.6% respectively as shown in following pie chart:

Figure 3-3: Top 10 Importing Countries to the Kingdom

Exports of Goods and Services
The total Saudi exports of good and services reached USD 126 billion in 2004 with a growth rate
of 35% when compared with 2003, and it is expected that the exports value, excluded oil exports,
will hit USD 19 billion in 2005. Table (3-3) below shows the Saudi exports values during the
period (1998-2005):

Table 3-3: Saudi Total Imports during (1998-2005)

Imports
Year Value
(Million USD)
Growth
Rate
Weight
(000 tons)
Growth
Rate
1998 38,874 0 399,146 0
1999 50,825 31% 367,848 -8%
2000 77,688 53% 383,030 4%
2001 68,155 -12% 390,308 2%
2002 72,658 7% 333,074 -15%
2003 93,493 29% 411,150 23%
2004 126,334 35% 463,364 13%
2005* 19,056 - n/a -
Source: Department of Statistics, Ministry of Planning
* Oil Exports Excluded

Other Countries,
37.8%
U.S.A, 15.3%
Japan, 9.8%
Germany, 8.1%
Australia, 2.9%
India, 3.2%
Italy, 3.4%
France 3 5%
China, 6.6%
U.K, 5.7%
S.Korea, 3.8%



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Exports breakdown by nature of goods indicates that most of the exported goods are raw materials
which represent 77% from the total exports in 2004, as the crude oil represent most of Saudi
exports, followed by finished products and semi-finished products which they represent 14% and
8% respectively.
The major exports markets are: USA, Japan, Germany, South Korea, India, China, Singapore,
Holland, Taiwan, Italy, and France. Exports to US market represent around 17.2% from the total
exports value followed by Japan, and South Korea which they represent 14.2%, and 8.5%
respectively as shown in following pie chart:

Figure 3-4: Top 10 Exports Markets for Kingdom

Foreign Trade Balance
Saudi balance has achieved an impressive performance during the last three decades. Since 1970,
the Saudi trade balance keeps on achieving positive records and surpluses and no trade deficits
were found. The expansion in oil production and increasing the exports from crude oil and refined
Petroleum helps the Kingdom to gain a surplus every year. Figure (3-5) below shows the Saudi
trade balance during the period (1998-2004):
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1998 1999 2000 2001 2002 2003 2004
Exports Imports Balance

Figure 3-5: Saudi Trade Balance during the Period (1998-2004)
USA, 17.2%
Japan, 14.2%
S.Korea, 8.5%
India, 5.8%
China, 4.8%
Other Countries,
32.3%
France, 2.6%
Singapore, 4.7%
Holland, 3.9%
Italy, 2.7%
Taiwan, 3.3%



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Draft Report

As noticed in the figure above, the growth in Saudi exports is increasing more rapidly than the
growth in Saudi imports, the Compounded Annual Growth Rate (CAGR) for the Saudi exports and
imports was18.3% and 5.9% respectively during (1998-2004). Starting from the year 2000, the
value of trade surplus has overcome the value of total imports; the highest surplus value was in
2004 as its hit USD 81 billion, the latter trade surplus is driven mainly by the oil production and
exports.
Oil prices were strong during 2003, and have increased sharply in 2004. Combined with relatively
high Saudi oil output since early 2003, Saudi Arabias oil export revenues were up sharply in 2004
compared to 2003.

3.2.4 Oil Production The Driver of Saudi Economy

History of Oil in KSA
In 1923, many foreign investors were invited to invest in the Kingdom's petroleum and mineral
resources; yet, their efforts did not produce any positive results. In 1933, the government of Saudi
Arabia granted a concession to Standard Oil of California (SOCAL, now Chevron), to explore and
produce oil in an area of 495,900 square miles.
Several months after signing the agreement, results of preliminary geological research of oil
exploration work showed encouraging signs of oil in Jabal Dhahran area. In 1938, good news
began to unravel with the discovery of oil in commercial quantities in Dammam Well No. 7 in an
area known as the Arab Formation.
The first Saudi oil shipment was exported from Ras Tanura Port in May 1939. Discoveries
followed with the number of fields discovered reaching 90 in 1999, seven of them are gas fields,
one condensates field and the rest are oil fields. Eighty-three of these fields are located within the
Saudi Aramco's concession area, and the remaining are in the Neutral Zone's partitioned area.
The Kingdom ranks the worlds first in oil reserves, productions and export. Its proven oil reserves
by the end of 1998 amounted to approximately 261.1 billion barrels, constituting 26% of the
worlds total oil reserves. The Kingdom's oil production reached 8.28 million barrels per day (bpd)
in 1998, or 13% of world production, and the volume of its oil exports reached 6.4 million barrels
per day, or 16% of world oil exports.
The Saudi Arabian oil is distinct for its diversity. There are five types of crude oil: Arabian heavy,
Arabian Medium, Arabian light, Arabian Extra light and Arabian Super light. The crude oil and its
products are exported via Ras Tanura port on the Arabian Gulf and Yanbu' Port on the Red Sea.

Oil Production
With one-fourth of the worlds proven oil reserves and some of the lowest production costs, Saudi
Arabia is likely to remain the worlds largest net oil exporter for the foreseeable future. Saudi
Arabia is the world's leading petroleum producing and exporting nation, accounting for about 13%



21

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of the world's annual total crude oil production. The Eastern Province has the distinction of
possessing the worlds largest reserves of crude oil. These reserves account of approximately 260
billion barrels, which represent 25% of the total global reserves, can last for 100 years at the
present level of production.
Saudi Arabia is a net energy exporter, with its total energy production exceeding its consumption
by a huge margin. Saudi Arabia currently ranks as the 4th greatest energy producing nation (behind
the United States, Russia, and China), accounting for about 5.5% of the world's total annual energy
production.
Higher than expected oil prices and positive economic growth rates enabled the government to
increase its budget allocations for the construction of new schools, colleges and universities,
housing units, hospitals and desalination plants. This has provided a major boost to the real estate
industry.
The total production of crude oil reached 3.2 billion barrel in 2004 with a growth rate of 6.1% with
an average of 8.9 million b/d. In 2003, the crude oil production grew by 18.6%, as against 10.1%
drop in 2002, and the average production was 8.2 million b/d in 2003.
Figure (3-6) below shows the Saudi production of crude oil and the average daily production
during the period (1998-2004):

8.3
7.6
8.1
7.9
7.1
8.4
8.9
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1998 1999 2000 2001 2002 2003 2004
0.0
2.0
4.0
6.0
8.0
10.0
Oil Production (Million b) Average (Million bd)

Figure 3-6: Crude Oil Production and Daily average during the period (1998-2004)

The percentage of local consumption of crude oil, which moved to petroleum refineries, represent
on average 24% of the overall oil production while the remaining 76% exported to many regional
and international countries as illustrated in the following figure:



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Draft Report

0
500
1,000
1,500
2,000
2,500
3,000
3,500
1998 1999 2000 2001 2002 2003 2004
Oil Production (Million b) Exports (Million b) Local Consumption (Million b)

Figure 3-7: Saudi Oil Production, Exports and local Consumption during the Period (1998-2004)

Oil Prices
Due to the recent increase in oil prices, followed by the Saudi government budget surpluses, the
government announced plans for spending part of the revenue on infrastructure, transportation,
health care and education and in the long run to invest in multi-billion dollar public and private
investment project, such as the economic cities.
KSA was a key player in coordinating the successful late 1990s campaign of OPEC and other oil-
producing countries to raise the price of oil to its highest level since the Gulf War by managing
production and supply of petroleum. As a result of this action, as well as rising demand from
China, India and the USA, the price of oil has tripled from 1999 to 2002.
Figure (3-8) below shows the crude oil prices in real and nominal terms as disclosed by Energy
Information Agency:

Figure 3-8: Oil Prices in Real and Nominal terms



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The price of standard crude oil was under USD 25/barrel in September 2003. By August 11, 2005,
the price had been above USD 60/barrel for over a week and a half. A record price of USD 78.4 per
barrel was reached on July 13, 2006, due to in part to North Korea's missile launches, Middle East
Crisis, Iranian nuclear brinkmanship and reports from the U.S department of energy showing a
decline in petroleum reserves. While oil prices are considerably higher than a year ago, they are
still roughly USD 14 from exceeding the inflation-adjusted peak of the 1980 shock, when prices
were over USD 90 a barrel in todays prices. In 2004, Saudi Arabia earned around USD 4,564 in
oil export income per person, versus USD 22,589 in 1980. Despite record oil prices, current per
capita income in Saudi Arabia is equal to that of 1972, a year before the start of the first boom.
A chief reason for the recent decline in real per capita income is the large increase in populations of
OPEC member countries, which have some of the world's highest birth rates. This situation applies
not only to Saudi Arabia, but to all OPEC members.
The current market conditions and the near term outlook for oil reflect the interplay of production,
stocks and consumption. Over the past two years global economic growth has greatly strengthened:
from a rate of 2.6 percent in 1998 to 3.4 percent in 1999 and to an estimated 4.7 percent in 2000.
As a result, the growth in global oil consumption increased from 0.6 percent in 1998 to 1.6 percent
in 1999, before moderating somewhat this year due to the sharp oil price increase.
There are noticeable seasonal patterns in production and in primary consumption cycles of oil.
Peaks for both cycles occur in the fourth quarter of the year, and troughs in the second quarter.
Measured stocks of crude oil and products are usually run down near the end of the calendar year
when consumers in the northern hemisphere build up their supplies (invisible stocks) of heating oil
for the winter season and visible stocks are rebuilt around the middle of the following year.

3.2.5 Population
The two growth factors - population and tourism - have a positive impact on other sectors of the
economy, especially in the development of restaurants, shopping malls, resorts, recreational centers
and theme parks, hotels and business centers.
The total number of population, based on the last population census in 2004, reached 22.7 million
inhabitants, 72.9% of the total population are Saudi citizens while the remaining 27.1 % are the
foreigners whom are working in the Kingdom.
Figure (3-9) shows the number of population in 2004 and in comparison with the previous
population censuses:



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Draft Report

0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1974 1992 2004
Saudi Foreigners

Figure 3-9: Number of Population in Saudi Arabia
The population structure, according to gender, is equal to an extent; the percentage of male is 55%
from the total population in 2004, while the female is representing 45% in the same year.
Figure (3-10) shows the number of population, broken down according to gender, in 2004 and in
comparison with the previous population censuses:
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
1974 1992 2004
Male Female

Figure 3-10: Number of Population in Saudi Arabia classified according to gender

3.2.6 Real Estate Sector in Saudi Arabia

Overview
Real estate plays an important role in the Kingdoms non-oil economy. In 2004, the value of real
estate transactions including sales of existing units amounted to SR 900 billion (USD 241 billion).
The real estate sector is driven recently by domestic demand fundamentals and not by speculation.



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A strong economy and demographic fundamentals are the core push factors behind the growth in
real estate.
By the end of 2010, its expected that the total real estate construction in the Kingdom will
reach SR 484 billion (USD 129.4 billion).
In order to meet demand, through 2020 a total of 2.62 million housing units will be built, at
an average rate of 163,750 units per annum. Through 2020, the total of new investment in
housing will hit SR 1.20 trillion (USD 0.32 trillion).
Real estate demand is sustainable and the current set of favorable circumstances will be
strengthening with the likely introduction of mortgage products in the next few years. The housing
sector is at the center of the Kingdoms growth in real estate activity.
In terms of value the housing sector comprises 75 percent of all real estate activity in the
Kingdom.
SR 75 billion (USD 20 billion) per annum will be required to meet annual housing demand in
the Kingdom through 2020.
Real estate growth might be challenged if domestic supply exceeds demand. At the moment there
are few indications that this will occur.
Real estate market is undersupplied in affordable low-income housing.
The Kingdoms real estate market is at a phase where price appreciation will grow but not
exponentially.
Average housing prices, from 2002 to 2005, in the Kingdom grew by 13.7% per year, land by
16.5 % and commercial (office) space by 15.2%.
Large real estate developers will enjoy a stable revenue stream and will grow as real estate in
the Kingdom shifts toward large projects.

The Structure of the Real Estate Market
Since the late 1970s real estate -- raw land, or land developed with commercial or residential
buildings-- has widely been perceived as an investment safe-haven in Saudi Arabia. The
establishment of the local stock market in 1985 did not dissipate interest in real estate investment
throughout the 1980s and 1990s. Since around 2002, real estate investment has been rising as have
land prices and rents, predominantly in urban areas.
Land acquisition in Saudi Arabia is a top-to-down process. The government releases large plots of
land to a limited pool of investors who either develop the land on their own or sell it to other
developers or wholesalers. In turn, wholesalers determine, according to demand and supply
conditions, whether to hold on until land prices appreciate or to begin immediately to sell it to
consumers. Some opt to develop their own real estate plots into smaller, mainly, residential,
projects. The large developers will hold on the land for an average period of 3-4 years, as
estimated.



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Draft Report

The government is the distributor of raw land and the private sector is the dominant real estate
developer. Individuals and private businesses own most housing and commercial units
respectively. Most real estate transactions are conducted through real estate agents, who charge
buyers a flat 2.5 percent commission. There are limited direct sales or leasing activities between
landlords and tenants and neither is the printed press a popular medium for real estate transactions.
Geographically the urban real estate market is divided into three regional centers: Central Region
(Riyadh), Eastern Province (Al Khobar and Al-Dammam), and the Western Province (Jeddah,
Mecca and Medinah).
The real estate market is divided into three groups according the property type:
Raw land
The housing market comprised of apartments, villas, floor in villas (duplex), traditional
homes and housing compounds.
Commercial units, which consists of office buildings, shopping malls, hotels, and industrial
facilities including warehouses.
In terms of volume (building permits), the housing market represents over 91 percent of the real
estate industry, while our value estimations suggest that this sector comprises 75 percent of all real
estate activity.

Recent Developments
Over the past several years, the real estate sector has received much investment attention. After a
decade of sluggish growth in the 1990s, a combination of factors has led to the rejuvenation of real
estate in the Kingdom, which includes:
High liquidity
Preference to maintain capital within the country and region
Low interest rates
Expected high return from real estate
Increase in bank lending
In the past land was acquired often for a relatively low price by developers and wholesalers as
demand and real estate prices rose so did prices of land purchased by the wholesalers. It is
estimated that over the past three years, wholesalers are paying 175 percent more for raw land than
prior to 2002.
Another recent trend in the real estate market has been the development of large-scale housing
projects in which middle-income groups have been given investment opportunities. The
government, along with large developers, has supported this idea through a vehicle in which
developers float affordable shares, based on the estimated total project costs, to small investors.
This has been especially popular with residential projects in which small investors may take up a



27

Draft Report

house within the project. Following irregularities with some such projects, the government
temporarily halted all such activities for a three-month period in mid-2005. Meanwhile, many
investors have also opted to invest their money in the booming local equities market. In the near
future, those investors will regain confidence in these real estate investment partnerships.

Real Estate and the Economy
The real estate and associated sectors, such as construction, have historically been important
contributors to the Kingdoms growth. According to government data, service activities related to
real estate as well as construction have contributed more than 13 percent toward the countrys real
GDP over the past few years.
Since 2002, real estate and the stock market have attracted high interest from investors who move
back and forth between the two asset classes. In early 2005, as the local equities market rose
sharply investors reduced their exposure in real estate. This in part has helped stabilize real estate
prices. The real estate will receive investment reinvigoration in 2006, sustainable for many years to
come.
Real estate is an important sector in the economy. Its highly believed that building permits (a
measure of real estate activity) will continue to exceed 37,000 per annum through 2010. The real
estate, predominantly a private sector activity, employed more than 50,000 people in 2004
compared to nearly 23,000 thousand in 1995. Construction, an associated sector, employed some
550,000 people in 2004 compared to nearly 392,000 people in 1995. There is very little
employment effect on the labor market for Saudi workers as construction predominately hires
expatriates. The real estate market is expected to grow in the up-coming year and construction
activity will enjoy a sustained boom in the Kingdom.
Figure (3-11) below shows the contribution of the real estate and construction sectors to GDP
during (1998-2004):

Figure 3-11: Real Estate and Construction Contribution to GDP during the period (1998-2004)



28

Draft Report

Real estate and construction are more cyclical in Saudi Arabia than in many other countries
because of the economys overall connection to oil prices. When the economy accelerates so does
real estate and construction and when it decelerates, both sectors slow in parallel, albeit at a slower
rate than the rest of the economy. Over the past several years, construction and real estate
combined have tended to grow faster than overall real GDP. In 2004, real estate and construction
combined grew by 7.5 percent, while the economy grew at rate of 5.2 percent. In 2002, real GDP
grew by 0.74 percent, while construction and real estate grew by 3.1 percent. This resilience in
growth could be explained due to the demand driven nature of real estate activities and
construction.
Demand-Driven Growth or Speculation
The real estate market is mostly demand-driven, rather than speculative. This is not to say that
speculative spurts have not been visible over the past few years, especially on plots of raw land.
The rises in housing prices are still mainly driven by demand factors and as a result are not
generally volatile. An important indicator of real estate speculation is the ratio of prices to rents,
otherwise known as rental yield rates. The price of a house as an investment should reflect the
financial benefits of ownership from rental income and compare favorably with other asset classes
with similar risks.
The lower the rentals yield the greater the likelihood of speculative overvaluation in a given
market. Yields in Riyadh for housing units range between 6.5 percent and for commercial space 8.3
percent. These yields are at the mid to high point of the range for rental yields in several markets,
suggesting the market is not in general, overpriced by international standards. Rental contracts
favor the landlord, with a minimum duration of one year and rent paid in advance. For many years,
raw land speculation in the secondary high-end raw land market areas has been prominent in the
Kingdom. This type of speculation is less prevalent in the housing and commercial space market.
Table (3-4) below shows a comparison of rental yield rates in Riyadh and other international
capitals cities for both residential and commercial unites:
Table 3-4: Rental Yield Rates comparison in 2005
Rental Yield Rate
City
Housing Commercial
Beijing 8.30% 9.60%
Delhi 5.50% 8.50%
Dublin 2.95% 3.60%
Hong Kong 3.75% 3.95%
London 5.30% 6.45%
Madrid 4.10% 5.20%
Riyadh 6.50% 8.30%
Source: Saudi Arabia Investment Funds

Rental contracts favor the landlord, with a minimum duration of one year and rent paid in advance.
For many years, raw land speculation in the secondary high-end raw land market areas has been



29

Draft Report

prominent in the Kingdom. This type of speculation is less prevalent in the housing and
commercial space market.
The single most important factor that makes the Saudi real estate market differ, for example, from
Dubai is the lack of expatriate ownership. Since 2000, non-Saudi residents have been entitled to
own real estate for their private residence with the permission of the Ministry of Interior.
Ownership of real estate by foreign investors to conduct their business activities and house their
employees is also permitted. Non-Saudis may not own real estate in Mecca or Madinah.
The Players
The real estate markets growth over the years has attracted a multitude of new entrants. There are
approximately 3,500 companies involved in real estate development in the Kingdom. These
companies are distributed and operated in overall the Kingdom; around 37% are located in the
Central region, 34% in the Western region and 29% in the Eastern region. In terms of market
players, there is fragmentation due to the presence of many small real estate developers. We
estimate that more than 80 percent of the real estate companies in the Kingdom are small and often
unregistered entities.
The rest of the market is divided into 30 big players, who specialize in real estate development,
diversified conglomerates with interests in real estate, and medium-size private companies, who
also have interests in real estate development. In the housing market, the very small firms possess
around a 25 percent market share. The top 30 housing construction companies have a 20 percent
market share, followed by the diversified conglomerates at around 30 percent and medium--sized
companies at 25 percent as illustrated clearly in the following pie chart:
25%
20%
30%
25%
Top 30 Conglomerates Small Medium Size

Figure 3-12: Market Share of Real Estate Developers
In the commercial real estate sector the top construction companies along with the diversified
conglomerates dominate the market. Due to the capital intensity, small players have little presence
in the commercial real estate construction sector.
Unlike government-backed developers, such as Emar and Nakheel in Dubai, the state does not play
an important role as a real estate developer in the Kingdom. Compared to the private real estate



30

Draft Report

entities, there is little involvement from the Ministry of Public Works and Housing and various
other government departments and municipalities in real estate. Small developers dominate the
housing market, mainly due to low entry barriers. This is set to change in the coming years, as
large developers increasingly build large housing complexes.
Supply
The real estate market is undersupplied in affordable low and middle- income housing. Low-
income housing units tend to have less than 150 square meters of floor space, which is less than
half the average size of a housing unit in the Kingdom. Still spacious by international standards,
these low-income units house large families. There is also a need for middle-income housing at a
cost per unit of around SR 400,000 (USD 106,952). Middle-income apartment units, which vary
between 180 square meters and 250 square meters, are in short supply. The Kingdom has a good
supply of upper middle income and high income housing units, which are larger than 250 square
meters, due to most of them being custom built. These up market units are mostly custom-built.
Outlook
Real estate is in a growth phase that will continue through at least 2010. The Saudi real estate
market is driven by demand fundamentals that are not set to change in the foreseeable future. The
demographic fundamentals, combined with the strong performance of the economy, will sustain the
growth in real estate. It is worthy to mention that a supply shortage in affordable low-income
housing is a challenge. The market will eventually become more sensitive to quality as real estate
development becomes more structured and organized. The introduction of mortgage products in the
next few years will add impetus to an already high growth sector.



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4 Why to Invest in the Eastern Province

The Eastern Province serves as the backbone of the Saudi economy, being one of the worlds
largest reservoirs of crude oil and gas; which has transformed the structure of the economy of this
region since the 1930s. These resources have provided the stimulus for a major breakthrough in
non-oil industrial development, specially centered on Jubail (which has a strong petrochemical
base) and Dammam (which boasts of two flourishing Industrial Cities consisting of hundreds of
downstream units).
The Eastern Province has attracted a large dose of foreign capital and technology due to the top
class infrastructure (transportation, communication, power and water), and the availability of
abundant raw materials and other favorable factors like well-developed banking and finance
facilities. Furthermore, the liberalization of Saudi economic polices which increase the private
sector participation has encouraged the growth in the Province. This section summarize the main
reasons which attract facilitate the investment in the Eastern Province.
Strong and dynamic Economy
The Eastern Province of Saudi Arabia has played a unique role in the economic history of the
region. With its vast coastline of 560 kms along the Arabian Gulf, this region has served as a major
commercial link between the east and the west for centuries. The Eastern Province rests on an
underground sea of black gold, accounting for one-fourth of the world oil reserves. Natural gas
reserves too are vast. Oil and the industrial development have given a new role to the Province as a
springboard for International trade.
The Province now accounts for an estimated two-thirds of Saudi Arabias total export trade. Crude
oil, of course dominates the export trade. Exports of refined products Jubail has merged as one of
the leading global sources for petrochemicals. A large number of other non-oil industries have also
come up in the Eastern Province. These include iron and steel products, non-ferrous metallic
products, engineering goods like air conditioners, tubes and pipes, ductile iron pipes, electrical
products and automobile parts, building materials, chemicals, plastic goods, furniture and
foodstuffs. The two industrial Cities of Dammam house a large part of these industries and are
fully supported by the excellent infrastructural facilities (especially water, electricity,
communications and transport) available in the Eastern Province.
Unique and Strategic Location
Eastern Province is located in the gateway between the gulf countries and the kingdom and the
neighboring countries. Being on a sea and land route, Eastern Province is serving as an arterial road
between the gulf countries, India, Far East countries and with the kingdom and other Arab
neighboring countries. In this respect the Eastern Province is uniquely fortunate in its geographical
location from which it can serve markets around the world.



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Social and Political Stability
Saudi Arabia is an Oasis of political and social stability in the region. This has resulted in:
Stable economic policies and regulations;
Steady and continuous economic growth; and
Stable currency.
Saudi system of government, as defined under the basic system and the establishment of the
Consultative Council, is not a move towards Western-style democracy, much less an imitation of
Western-Style democratic reform. It is an organic development of the consultative basis of the
relationship between the leader and the people that is inherent in Islamic tradition.
Modern and Developed Infrastructure
Housing and Real Estate: the Eastern Province has now emerged as the nerve center of the Saudi
real estate development activities. Hundreds of housing projects are being developed in the region
with private initiatives, thus overtaking the other regions.
Air travel: is the preferred method of travel within the Kingdom because of the distances
separating the main cities. There are three international airports in the main Saudi cities, Riyadh,
Jeddah and Dammam, and 23 domestic and regional airports used for cargo and internal passenger
flights. It is worth mentioning that all major airlines in the world offer services in and out of the
Kingdom.
Sea Ports: the kingdom of Saudi Arabia is the worlds main oil exporting country. It has the largest
and most diversified economy in the Middle East with industrial exports that are internationally
oriented. The kingdom therefore, has to have efficient, fully equipped ports that are capable of
doing the job as it should be done.
Telecommunications Infrastructure: the kingdom has witnessed rapid advancements in the field of
telecommunications. There are 1,000 telephone circuits with direct access to 152 countries. At the
end of March 2003, the Saudi telecom company (STC) operated 3.96 million fixed lines and 7.5
million mobile lines.
Electricity: the Saudi Electricity Company (SEC), a Saudi joint stock company, was incorporated
by Royal Decree M/16. By merging all the power utilities and the projects of the Electricity
Corporation into one entity that began operation at the 5
th
of April 2000.
Attractive Investment Climate
Saudi Arabia welcomes the contribution that foreign investors make to its economy, especially
those that promote industry.
No foreign exchange restrictions: The kingdom has experiences free financial systems and
shunned foreign exchange restrictions and obstacles to the transfer of funds.
Full ownership for foreign investors: In the new foreign investment law permits foreigners are
allowed to own 100% stakes in industrial projects.



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Moderate tax environment: Moderate tax environment and taxes on profits have been reduced to
20%.
Free access to most of the economy sectors: The law permits foreigners to invest in all sectors of
the economy, except for specific activities contained in a negative list.
Various tariff exemptions: Commodities imported for industrial production are exempt from
duties.
Flexibility with investors: Loss making units are permitted to transfer losses to following years
and loss making companies are tax-exempt until they improve their financial position.
No double-taxation: Bilateral agreements, which provide relief from double-taxation, are being
signed with an increasing number of countries.
Termination of sponsorship system: The sponsorship system for foreigners is scrapped-foreign
investors do not need to have a Saudi partner to operate in the country.
Availability of soft loans: The Saudi Industrial Developments Fund (SIDF) provides soft long-
term loans to the industrial establishments for up to 50 percent of the total cost. Loans are for 15
year duration with a repayment subjected to future cash flow. Foreign investors are eligible for
loans from the SIDF.
Huge utilities in industrial cities: The Eastern Province has five industrial cities; the largest of
them is Al Jubail industrial city. Those industrial cities are equipped with all facilities the investors
may need. The rent in these cities is USD 2 per square meter annually and the investor enjoys the
lowest utility rates.
Exemptions for exports: Export goods are exempt from storage fees for ten days, port fees are
reduced by 50% on all exports.
Expanding Market
With a steadily increasing population subject to a growth rate of over 3% and a per capita income
of around USD 10,000, Saudi Arabia is indeed a big potential market for consumer goods. If the
Eastern Province income and population features, alone are considered, separately from the other
parts of the kingdom, its per capita income will exceed the level of the most prosperous western
economies.
Consumer expenditure consumer expenditure in Saudi households is quite high and, according to
an estimate made by the Saudi Commerce, it exceeds USD 75 billion per annum. The average
salary of a Saudi is estimated at USD 50,000 per year, with an annual growth rate of 5% to 8%.
Vast Natural Resources and Raw Materials
Saudi Arabia has the biggest oil reserves in the world estimated at 25 %. The Kingdom is endowed
with other natural resources including a wide range of industrial raw materials and minerals such as
bauxite, limestone, gypsum, and phosphate and iron ore. Petrochemicals industry is operated on a
large scale in the Kingdom; it uses the hydrocarbons derived from petroleum sources as primary
feedstock to make valuable commercial products. Saudi Arabia ranks fourth in the world, after



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Russia, Iran and Qatar, in terms of natural gas reserve, the proven reserves are estimated at 224.7
trillion cubic feet. The Kingdom also has giant steel and cement production plants.
Sectors Investment Opportunities
There are several promising economic sectors in the Kingdom with many investment opportunities
especially after the governments latest decision targeting more sectors for privatization. Research
studies and reports from internal and external resources estimate that these sectors require huge
investment during the next 20 years some of which are outlined in the table below:
Table 4-1: Available Sectors Investment Opportunities
Sector Investment (Billion SR) Investment (Billion $)
Electricity 430 115
Water 330 88
Telecommunication 220 59
Infrastructure 520 139
Petrochemicals 345 92
Gas 188 50
Agriculture 106 28
Technology & Information 40 11
Railways 30 8
Housing and Service for Riyadh 1,100 294
3,309 885
Source: Saudi Arabian Monetary Agency (SAMA)



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5 Market Analysis and Research Findings
5.1 Introduction
The market analysis main objective is to assess the viability of establishing a shopping mall in AL-
Khafji district. Al-Khafji city is located in the southern part of the ex-Neutral Zone and on the far
northeastern tip of the Kingdom of Saudi Arabia facing the Arabian Gulf, 300 km Northward Al-
Dammam City in the Eastern Province and 130 km Southward Kuwait city. Recently, Al-Khafji
district has witnessed radical changes and developments since the effective launching of Al-Khafji
Joint Operation (KJO) carried out by Aramco Gulf Operations Company (AGOC) and Arabian Oil
Company (AOC) in April 2000. As a result, the Joint Petroleum Production Operations Agreement
(JPPOA) was signed between these two parties, where AGOC represents the Saudi Governments
share and the AOC represents the Kuwaiti Governments share.
Further, on January 4, 2003, the AOC concession agreement with the Kuwaiti Government
expired. The Kuwait Gulf Oil Company (KGOC) took over to run the Kuwaiti share in the
undivided one half of the divided zone to mark the beginning of a new era of joint operations
between the two national companies. During the next five years, AGOC will start executing many
investment development projects as a part of KJOs plan; those projects will focus on developing
the overall infrastructure, crude oil fields and urban development.
The urban development projects will include building new schools, hospitals and many residential
units. Among these exerted efforts, it is expected that AGCO will build 120 residential units in the
coming first year, and additional 50 residential units will be added per annum over the up coming
10 years. These rapidly urban development initiatives are definitely expected to enhance the
investment climate at Al-Khafji, increase the number of residents and standards of living, and
consequently the need for providing better level of services.
Elite consultants carried out comprehensive market researches to better understand and analyze the
shopping mall industry in KSA and to get all the needed information to develop the marketing
strategy for the proposed project.
The market researches covered the following areas, where the results of each research will be
discussed and presented thoroughly in the coming sections:
Shopping Malls
Shopping Outlets
Consumers



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5.2 Shopping Malls Market Research
The idea of establishing a shopping mall in the Eastern Province was, to a certain extent, newly
born as a result of the conservative country culture. The developments of shopping malls have
taken place since the early nineties. The first modern shopping mall (Al-Rashid Mall) was built in
1994 at Al-Khobar city.
The market research conducted by Elite Consultants has covered the main shopping malls
operating in the Eastern Province, namely: Al-Rashid Mall, Mall of Dhahran, Al-Shatea Mall and
Al-Dammam Marina Mall. In this section, the results of the surveyed malls will be analyzed
thoroughly in terms of:
Available facilities; Tenants turnover;
Structure of rental fees; Mix of visitors
Promotional activities; The competitive advantages for each mall; and
Supplementary services; Obstacles encountering shopping malls.

5.2.1 Available Facilities and Services
The available facilities and services provided by the shopping malls are similar to each other, to a
great extent. The basic required facilities were found in all surveyed malls such as: shopping
outlets, food courts, amusement park, information desk, praying rooms for men and women,
escalators, elevators and ATM machines. However, there are still some variations among these
malls regarding the delivery of certain supplementary services. For example, the availability of
bank branch, hypermarkets, and entertainment centers dont exist in all malls surveyed. Table (5-1)
shows a comparison between the surveyed malls in terms of the available facilities and the services
delivered:
Table 5-1: Comparison between the Major Shopping Malls in the Eastern Province
Item Mall of Dhahran Al-Rashid Mall Al-Dammam Marina Mall Al-Shatea Mall
Area (M
2
) 100,000 183,000 40,000 24,000
Location Al-Khobar Al-Khobar Al-Dammam Al-Dammam
No. of Floors 1 3 2 3
Opening Date April, 2005 1994 January, 2005 October, 2005
No. of Shopping Outlets 250 450 325 201
Restaurants & Cafes 27 27 25 14
Amusement Park
Entertainment Places - -
Bank Branches - - -
ATM Machines
Offices - - - -



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Draft Report

Wedding Halls - - - -
Hypermarket - -
Parking

Health Club - - - -
Customer Service -
Source: Field Survey
From the table above, it could be seen that the largest shopping mall in terms of area is Al-Rashid
Mall with a total area of 183,000 m
2
, including the car parking slots and other outdoor areas,
followed by Mall of Dhahran with a total area of 100,000 m
2
. While, Al-Shatea mall has the
smallest area of construction (24,000 m
2
) among the four malls. On the other hand and in terms of
the number of outlets, Al-Rashid Mall has the largest number of outlets; (450 outlets), followed by
Al-Dammam Marina Mall, which has 325 outlets. In terms of the available facilities, the following
were not found in the surveyed malls:
Offices for rent
Health Clubs
Wedding Halls
Brief descriptions of the facilities found in the shopping malls are as follows:
Amusement Park
The amusement park was found in all studied malls, but these parks are varying in terms of
area and visitors capacity. The largest park was found in Al-Rashid Mall. All these parks are
equipped with first aid instruments for emergency cases that might occur, especially for
children.
Entertainment Places
As revealed from the market survey, the entertainment places for adults were found in Al-
Rashid Mall and AL-Shatea Mall only. The former has a wide hall in the basement
containing: Tennis Table (Ping Pong), Billiard, Baby Foot and electronic games. Currently,
Al-Shatea Mall has an ice skating ground under construction with a total area of 1,000 square
meters. The malls management expects to officially launch this facility by the end of year
2006.
Bank Branches and ATM Machines
All studied malls have indoor and/or outdoor Automatic Teller Machines (ATMs) only
except for the Al-Rashid Mall that has an operational bank branch belonging to the Arab
National Bank (ANB).
Below is a summary of the number of ATMs found in each one of the four malls:



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Draft Report

Mall Name No. of ATMs Banks Names
Mall of Dhahran 7 Riyadh Bank
Al-Rashid Mall 5
Arab National Bank, Saudi British Bank (SABB),
Saudi American Bank (Samba) and Saudi Holland
Bank.
Al-Dammam Marina Mall 3 Saudi American Bank (Samba)
Al-Shatea Mall 3 Saudi American Bank (Samba)

Hypermarket
Hypermarket is considered as one of the mandatory extensions that should exist in any
shopping mall and become an integral part of it. Such a facility exists in the Mall of Dhahran
only. Geant, a French Hypermarket chain, currently is operating in the Mall of Dhahran.
However, the management of Al-Rashid mall has successfully reached to an agreement with
Carrefour hypermarket to establish its first branch in the Eastern Province. Carrefour
hypermarket at Al-Rashid mall is still under construction and is expected to be launched by the
end of year 2006.
Customer Service Center
As realized by the market research, all studied malls have a separate customer service center
with the exception of Al-Dammam Marina Mall, which has an information desk. However,
these service centers are varying in terms of services mix provided to visitors and shoppers.
Table (5-2) shows a comparison between the surveyed malls by type of customer services
rendered:
Table 5-2: Comparison between the Surveyed Malls in terms of Customer Services Provided
Internal Directory - - -
Customer Service Employees -
Children Strollers - -
Safe Keeping -
Prayers and Ablution Rooms
Wheelchair - -
Gift Wrapping - -
First Aid -
Others - -
As shown in the table above, most of the common customer services were found in Al-Rashid
Mall and Mall of Dhahran. This indicates clearly that the management of the said malls is
fully aware of the importance of delivering such services to their customers to create a
favorable image of the malls.
Al-Rashid Mall has installed a sufficient number of the building map on each door of the mall
to ease up customers efforts and time to find out whatever facility they are looking for at the



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Draft Report

mall. Also, the customer service center issues a semi annual magazine about the mall and a
newsletter distributed every two months. These publications are issued in close co-operation
with the malls management and delivered for free to shoppers and visitors.

5.2.2 Rental Fees Analysis
The market research revealed that rental fees for shopping outlets, restaurants, cafes and kiosks are
determined according to several factors. The main factors are:
Outlets location.
The asking rented area.
Outlets turnover rate.
Mix of tenants.
The pricing strategy and policy adopted by the mall management.
As a result, rental fees vary by the malls floors and even within the same floor. For instance, the
rental fees of outlets located in the first floor is different than those located in the second and third
floors. Also, the outlets which are located near the mall main entrances or facing directly the
escalators pay higher rental fees than those allocated at the corners.
Table (5-3) illustrates the rental fees of the four shopping malls sampled, as reveled from the field
survey:
Table 5-3: Average Rental Fees in SR for Outlets, Food Courts and Kiosks
Mall Name 1st Floor 2nd Floor 3rd Floor Average Unit
Mall of Dhahran (One level)
Shopping Outlets - - - 2,500 m
2

Food Courts 3,500 5,000 4,250 m
2

Kiosks 60,000 90,000 - - 75,000 Yearly
Al-Rashid Mall (Three levels)
Shopping Outlets:
Old Lease 1,700 2,500 1,800 3,000 n/a 2,250 m
2

New Lease 3,500 2,000 2,500 2,670 m
2

Food Courts 3,500 3,500 m
2

Kiosks 65,000 (25,000), (35,000), (45,000) 40,000 42,000 Yearly
Al-Dammam Marina Mall (Two levels)
Shopping Outlets 1,500 1,800 1,275 1,550 - 1,500 m
2

Food Courts 2,100 2,500 2,300 m
2

Kiosks n/a n/a n/a - -
Al-Shatea Mall (Three levels)
2

Food Courts 2000 - 2500 2,250 m
2

The following is a summary of the pricing tactics implemented by the shopping malls:



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Draft Report

Mall of Dhahran
Rental fees differ according to the outlet location; whether it is beside the main entrance
or near the food court and public areas.
The rental fees are mainly determined per number of squared meters to be rented.
New tenants are given a grace period ranging from 1 to 3 months in order to complete
all pre-launching preparations i.e. decorative works, assortment of merchandizes etc.
Al-Rashid Mall
Rental fees differ according to the outlet location and the floor that it is located in as
well. The location within the same floor either beside the main entrance, near the food
court and public areas.
If tenants fully paid the annual rental fees, they would be entitled for a discount of 5%
on the annual rent.
The management is going to implement a fixed rental fees strategy by floor, regardless
of the outlet location.
New tenants are entitled for a grace period ranging from 1 to 3 months, and 5 months in
case of big shopping outlets, in order to complete all pre-launching preparations i.e.
decorative works, assortment of merchandizes, etc.
Al-Dammam Marina Mall
court and the public areas.
A grace period of one to three months is given to new tenants in order to complete all
pre-launching preparations i.e. decorative works, assortment of merchandizes, etc.
Al-Shatea Mall
court and the public areas.
A grace period ranging between 1 to 3 months is given to new tenants in order to
finalize all pre-launching preparations.
Provide discount on rental fees if tenant has more than one outlet within the mall.
Moreover, food courts and entertainment centers are actually paying higher rental fees when
compared with shopping outlets. This is mainly due to extra dinning area they need, higher
rates of utilities consumed and additional working hours, especially after midnight.
Regarding the method of collecting rental fees adopted by the surveyed malls, it was found
that the most preferable payment methods are bank transfer and cheques. However, there are
some obstacles associated with the aforementioned methods of payment. These are mainly
pertaining to frequently extra delay in bank transfers due to the lengthy formal bank
procedures and the risk of returned cheques.



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Draft Report

From the malls management point of view, cash payment is inconvenient and raises security
risks and problems as tenants usually need to pay large amounts of money. On the other hand,
credit cards are not acceptable at all by all malls interviewed to avoid any possible financial
risks might occur when a third party is directly involved.

5.2.3 Promotional Tools
Promotions offer meaningful interactions with shoppers who are predisposed and attracted to
experiencing new products. All surveyed malls have used a mix of promotional tools to market the
mall itself, as well as, shopping outlets operating within its buildings, especially those who sell
international brand names products. However, various promotional tools are employed by the
sampled malls as per the stated promotional goals, targeted audience, promotion messages to be
delivered, and allocated promotional budget.
Table (5-4) shows the promotional tools used by the surveyed malls ranked form the most highly
preferable tool to the least preferable one:
Table 5-4: Advertising Tools Used by the Shopping Malls
Advertising Tool
Outdoor
Ads
TV
Daily
Newspapers
Brochures Magazines Sales Reps
Mall of Dhahran
6 5 4 3 2
1
Al-Rashid Mall
6 4 5 2 3 1
6 4 5 3 2 1
Al-Shatea Mall
4 6 5 2 3 1
6: The Most Highly Preferable
1: The Least Preferable
As reveled from the market survey, the most preferable promotional tool by the malls surveyed is
the outdoor advertisement, especially billboards, with a relative importance of 91.7%, followed by
the daily newspaper and the TV ads with an equal relative importance of 79.2%.
91.7%
79.2%
79.2%
41.7%
41.7%
16.7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Outdoor Ads
TV
Daily Newspapers
Magazines
Brouchurs
Sales Reps.
Relative Importance

Figure 5-1: Relative Importance of the Promotional Tools Used by the Studied Malls
* The responses in the graph above are the weighted average of the malls preferences towards each of the promotional tools.



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Draft Report

The outdoor advertisement is considered a cost effective promotional tool that ensures the
achievement of the required level of reach and exposure rate to targeted audience. Currently, Al-
Dammam Marina Mall and Al-Rashid Mall are planning to install an outdoor electronic LED
screen to promote the mall activities and the tenants brand names, and for public advertisements as
well.
Further, it was found that some promotional constraints and limitations are imposed by all sampled
shopping malls on tenants promotional activities to ensure healthy and fair competition among the
tenants, on one hand, and maintain the malls reputation, on the other hand. Examples of those
constraints include:
Tenants should get an approval from the malls management prior to starting any promotional
campaign; the approval should be gained on the promotional tool, promotional message and
the length of promotion period.
Promotional posters and any other written materials should be placed inside the front glass
wall of outlets.
Stands and podiums are not allowed to be placed in the malls corridors and hallways.
The prices of tenants products, especially in the sales seasons, shouldnt be mentioned on
any promotional materials to be developed by any tenant. However, tenants are allowed to
show up the discount rates offered on their products.
In addition, and in order to help shopping outlets operate profitably in the marketplace and
successfully promote and advertise on their merchants; the surveyed malls provide some
promotional facilities to enable tenants accomplish the said goals. The main promotional facilities
offered by the four malls to tenants include advertising spaces within the mall area, installation of
banners, podiums and electronic screens. However, some of the facilities mentioned in the table
above are subject to certain fees determined by the malls management. These facilities were
evaluated over the studied shopping malls as shown in the following table:
Table 5-5: Promotional Facilities Provided by the Surveyed Shopping Malls
Advertising Spaces - -
Banners -
Electronic Screens - - In the process
Podiums and Stands - -



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Draft Report

Customer Attraction Tools
Often, shopping malls strive to maintain the highest rate of shopping traffic over all the week-days.
Therefore, malls use a set of attraction tools to stimulate as many shoppers and visitors as possible.
Among these tools are gift certificates, withdrawing shopping coupons, cash awards in tournament,
short term retailing and shopping festivals.
However, it is very essential to highlight separately the main practices followed by each of the four
malls in this regard.
Mall of Dhahran
The presence of Geant hypermarket supports the mall to use withdrawing shopping coupons that
could be given to shoppers according to the value of purchased merchants. Since the commencing
of the mall services in April 2005, Geant hypermarket organized, in cooperation with the malls
management, a withdrawing event on a car once. However, such a practice wasnt repeated again
until the date of preparing this report.
Also, the management held a shopping festival Back to School aims at delivering everything
children will need for school such as: stationery, clothes, bags and any other requirements at
competitive prices.
Al-Rashid Mall
Since Al-Rashid Mall is the first shopping center established in the Eastern Province, the
management has arranged many shopping carnivals and festivals. These carnivals and festivals
were usually organized in line with special occasions. Examples include, but are not limited to,
Falcons Festival, Universal Day for Civil Defense, Kingdom Foundation Festival, Ramadan and
Al-Eid Festivals, Back to School Festivals.
In addition, gift certificate is another promotional tool used by the management to increase the
shoppers traffic rate. This certificate allows visitors and shoppers to purchase products, with a
predetermined par value, from any shopping outlets within the mall.
The customer attractions activities are not really in place yet in the mall. However, since its
establishment, the management arranged a shopping festival once, but didnt repeat it.
Al-Shatea Mall
The mall's management held cash awards event once as of the effective launching date.

5.2.4 Supplementary Service and Utilities
Through the market research, the main supplementary services similarly provided by all targeted
malls are maintenance, cleaning and security services. The delivery of these services is an essential
tool to provide shoppers with a level of comfort and maintain the image of the mall. These



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Draft Report

supplementary services are rendered for free to tenants over the surveyed malls except for the Al-
Shatea Mall, where tenants pay 15% of the total annual rental fees to take advantage of these
services.
Under the direct supervision of the malls management, it was found that the said supplementary
services are outsourced and delivered by specialized companies, over the studied shopping malls,
with the exception of Al-Rashid Mall where these services are delivered internally by the mall's
employees. The management of Al-Rashid Mall claimed that if it wants to continue its success and
maintain its good image in the mind of both tenants and customers, the responsibility for the
provision of the required supplementary services has to remain at management's hand's instead of
involving a third party to deliver such services
With respect to utilities, tenants are completely charged what they consume on monthly basis
according to the tariffs set by the Saudi Electricity Company. However, some of the studied malls
are charging tenants a yearly fixed percentage of rental fees for their consumptions of electricity.
The best practice is adopted by Al-Rashid Mall which sets a ceiling for the electricity consumption
for both shopping outlets and restaurants as follows:
For shopping outlets: the ceiling is up to 64 kw per hour per square meter.
For restaurants: the ceiling is up to 300 kw per hour per square meter.
Meanwhile, tenants will pay for any extra consumption of electricity exceeding the given ceiling.

5.2.5 Turnover Rate and Contract Period
Based on analyzing the data received from the market survey, it could be said that outlets turnover
is very low over all targeted shopping malls. This could be mainly attributed to the fact that three
of the surveyed malls have started their operations one year ago, so most of tenants, if not all, have
been operating until now. However, some of tenants in these malls phased out due to insufficient
experience they have in marketing and managing the shopping outlets.
With respect to the duration of signed contracts between the malls management and tenants, all
leasing contracts are valid for 1 year and will be renewed automatically for an extra one year.
However, international brand-names outlets usually prefer to sign a long term contract as they are
looking for safe environment for their investments.

5.2.6 Visitors Mix
Figure (5-2) shows the visitors mix of the surveyed malls:



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Draft Report

70%
50%
70%
90%
70%
30%
30%
50%
10%
30%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Mall of Dhahran
Al-Rashid Mall
Shatea Mall
Average
Saudi Arab and Foreigners

Figure 5-2: Visitors Mix of the Surveyed Malls
The KSA is considered a multi-cultural country where people from different nationalities are living
within its geographical boarders. Referring to the figure above, the Saudis account for 70% of the
total shoppers, on average, while the remaining 30% is maintained by Arab visitors and foreigners.
Furthermore, the highest percentage of Saudi shoppers estimated at 90% was found in the Mall of
Dhahran. This is due to the fact that shopping at Mall of Dhahran is strictly restricted to families
and singles are not allowed to enter the Mall.

5.2.7 Competitive Advantage
Below is a summary of the competitive advantages for all the studied shopping malls:
Mall of Dhahran
Has a huge internal area and a wide car parking.
It has one floor which makes the shopping and movement inside the mall very easy.
Shopping is restricted to families.
The availability of a large hypermarket with an international chain (Geant).
Al-Rashid Mall
It is the first shopping mall established in the Eastern Province according to state-of-
the-art malls.
The mall consists of three floors with a huge internal area and a wide car parking.
Has a unique architectural design; since the mall was designed based on an intensive
benchmarking exercise with a set of European shopping malls.
The mall's management is focusing on attracting international brand-names.
Has a well-balanced tenant mix covering most of, if not all, customers necessities of
life.



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Draft Report

Distinguished location with a sea view.
Shopping is restricted to families.
Has a well diversified tenants mix and trading activates.
Al-Shatea Mall
The mall's management is focusing on attracting international brand-names.
Targeting the elite and high income customers.
It is specialized in women and children clothes, accessories and requirements.

5.2.8 Obstacles Facing the Shopping Malls
The following are the main obstacles encountering the surveyed shopping malls:
Some of the visitors might bother the freedom of other visitors.
Possible conflicts that might happen among shoppers and tenants, on one hand, and with
security guards, on the other hand.
Sometimes, the shopping outlets might get, unfortunately, stolen.
Tenants may not pay the yearly accrued rental fees on time as agreed with mall management.
The quality levels of supplementary services rendered by subcontracted firms are often not up
to standard. In addition, the malls management need to directly supervise and follow up on
the employees working for these companies to ensure the provision of high quality services.

5.2.9 Recommendations for establishing a Modern Shopping Mall
Based on the results of face-to-face interviews conducted with the management of the four
shopping malls, below are the main recommendations to be taken into account by Al-Khafji City
Center's management:
Prepare a robust feasibility study covering all marketing aspects related to the shopping mall
industry in order to investigate the feasibility of establishing such project.
The mall building should be designed in away to facilitate the movement of shoppers and
visitors. Further, the shopping mall is recommended to consist of one floor. This will lead to
reduce the construction and excavations cost as well as the maintenance expenses.
Malls management should pay great attention to the physical evidence related matters.
Car routs from and to the car parking should be away from the malls entrances.
Use high quality building materials to avoid incurring high maintenance expenses in the
future.



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Draft Report

Mall entrances should be enhanced with double electrical doors to prevent undesirable dust
and temperature.
Be a member of the International Council of Shopping Centers (ICSC) and try to participate
in most of the conferences and events held by this institution.
Focus on attracting a balanced mix of tenants, especially those who are dealing with
international brand names and the market requirements as well.
When designing the shopping mall, the management should strategically keep in mind the
possibility of further expansions, which might be needed to keep up with the latest trends in
the shopping mall industry and the market requirements as well.



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5.3 Shopping Outlets Market Research

A systematic market research was carried out covering a total of (42) shopping outlets operating in
the shopping malls, which are surveyed by our team of consultants in the course of this study. The
main objectives of the market research are to:
Identify the average rental fees paid by tenants;
Define the methods of payment;
Determine the mix of malls visitors;
Identify tenants future expansion plans;
Measure the respondents potential for investing in Al-Khafji City Center;
Identify rental fess the respondents are expecting to pay, as well as, the area to rent; and
Figure out the main recommendations for the success of the project at hand.

This section will discuss the main results of the shopping outlets market research.

5.3.1 Rental Fees Analysis
Through the field research, it was found that there are several factors determining the rental fees for
any outlet within a certain shopping mall. Mainly, these factors include location of the outlet and
required area to rent, which are the most important factors used by malls management in designing
the pricing structure. As a matter of fact, it may be found that the rental fees within the same floor
varies in a noticeable way due to the outlets location, type of business, outlets area, and brand
names found in the area as well. On average, the annual rental fees for outlets located in the first
floor, over all the malls surveyed, were SR 2,763 per m equivalent to USD 739 per m. Also, it
was found that the annual rental fees per one square meter in the second floor was SR 1,693 per m
equivalent to around USD 453 per m.
Moreover, as a rule of thumb, the rental fees paid by restaurants and entertainment centers are
higher than that of shopping outlets. This is mainly due to the higher consumption rates of utilities
(electricity and water), extra dinning areas these restaurants need for servicing purposes, and the
expected high level of revenues they usually yield. However, in order to provide a clear picture of
the rental fees currently charged in the four malls surveyed, each of the outlets interviewed were
asked about the annual fees they pay in light of the rented area for their outlets.. Further, the survey
results indicate that all of the tenants interviewed, from the four malls, declared that they didnt pay
any down payments in advance for the area they have rented within the mall.



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According to the diagnostic visits paid to the four shopping malls, our team of consultants
discovered that a set of similar supplementary services and utilities, to a great extent, are delivered
by these malls to the tenants. These mainly include the following:
Electricity and water.
Maintenance services for: air conditioning and heating systems, elevators, escalators,
lavatories, and others.
Cleaning services.
Security services.
However, different practices are adopted by the management of the four surveyed malls concerning
the charges they impose on tenants for the delivery of the supplementary services mentioned above
and utilities they consumed. In this context, the following are the main comments raised from the
market research:
Some shopping malls are delivering all supplementary services for free with the exception of
the electricity services, which tenants are totally responsible for paying the expenses of
electricity they consume on monthly basis. The Mall of Dhahran and Al-Dammam Marina
Mall are good examples of those who belong to this category.
In Al-Shatea Shopping Mall, tenants pay around 15% of the total annual fees for the
supplementary services they receive. However, some interviewed tenants complained about
the high expenses they have incurred for these services. In addition, they pointed out that the
levels of quality of supplementary services provided by the mall are not up to standards,
especially when compared with other shopping malls operating within the Eastern Province.
On the other hand, Al-Rashid Mall implements the best practice by rendering the common
supplementary services, including the electricity, to tenants at no expenses. However, with
respect to the electricity services, it was agreed upon with the malls management that tenants
pay nothing for the first consumed 64 K.W/hour per square meter. However, if any tenants
exceed the determined electricity consumption rate, they will be charged the difference they
consume according to the tariffs set by the Saudi Electricity Company. Also, the practice
above is applicable to restaurants case, but with a little bit adjustments in terms of free
consumption rate for electricity, which might be reaching to 300 K.W/hour per square
meter.
5.3.2 Method of Payment

The market research reavealed that bank cheque is the most common payment method currently
used by all tenants to pay the rent over the four shopping malls. The main justification behind this
method is that both tenants and the malls management consider this method the most secured way
through which they could pay and receive money. Besides, some of the tenants in the Mall of
Dhahran and Al-Dammam Marina Mall use the bank transfers as another method for paying the
rental fees.



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The tenants were asked to specify the preferable method of payment to be adopted by the malls
management. Amongst the surveyed tenants in the four shopping malls, 90.5% of them preferred
the direct deposit, whereas 4.8% of the tenants preferred the cash payment. However, credit card is
another favored method of payment by around 14.2% of the tenants, as indicated in table (5-6)
below and taking into consideration that the surveyed tenants had the choice to choose more than
one payment method as a preferred method:
Table 5-6: Preferred Methods of Payment
Payment Methods Average
Direct Deposit 90.5%
Credit Cards 14.2%
Cash Payment 4.8%

5.3.3 Breakdown of Shopping Malls Visitors by Nationality
In general, it has been noticed that Saudis account for the largest percentage of visitors for the
shopping malls in the Eastern Province. Furthermore, the findings from the market research
targeting the shopping outlets assured that the Saudi visitors maintained the lion share of the total
visitors with an average of 72%, over all the surveyed shopping malls. Arab visitors occupied at the
second place with an average of 21%, followed by foreigners 7%. However, the visitors from Gulf
Countries Cooperation, particularly Kuwait, Bahrain, and Qatar, represent a considerable
percentage of the Arab visitors to the Shopping Malls in Al-Dammam and Al-Khobar.
For each of the four shopping malls, the breakdown of visitors by nationality is shown in figure (5-
3) and table (5-7) below:

Arab Visitors,
21%
Foreigner
Visitor, 7%
Saudi Visitors,
72%

Figure 5-3: Breakdown of Shopping Malls Visitors by Nationality



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Table 5-7: Breakdown of Visitors by Shopping Mall and Nationality


5.3.4 Expansion Plan
To a large degree, most of the tenants, if not all, intend to expand their business over the Kingdom.
From the surveyed tenants point of view, the decision to invest in new marketing ventures is
dependent on several factors. Among these factors are the feasibility of the market opportunity,
availability of financial resources and the intensity of potential competition they may face.
Therefore, the more promising and feasible the marketing opportunity, the more they are willing to
invade and capitalize on it.

5.3.5 Potential for Investing in Al-Khafji City Center

It is very important to mention that the question dealt with testing the tenants response to invest in
the Al-Khafji City Center came out with excellent results. An average of 50% of the tenants, from
all four malls, demonstrated their interest and willingness to open new branches at the mall. In
addition, around 35.7% of the sampled respondents claimed that they would think seriously about
the idea of making new business at the mall. Finally, 14.3% of the tenants were indifferent to the
idea or not interested in opening a branch in the mall.
Figure (5-4) below shows the average answers of the surveyed tenants concerning their willingness
to invest in Al-Khafji City Center:

Item
Al-Shatea
Mall
Al-Dammam
Marina Mall
Al-Rashid
Mall
Mall of
Dhahran
Average
1. Saudi Visitors. 72% 72% 63% 89% 74%
2. Arab Visitors. 20% 23% 26% 11% 20%
3. Foreign Visitors. 9% 5% 11% - 6%
100% 100% 100% 100% 100%



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Figure 5-4: Willingness of the Surveyed Tenants to Invest in Al-Khafji City Center
The decision of opening a branch in Al-Khafji City Center is preferable by the tenants, from each
of the four malls responded positively to this idea, for many reasons; especially for maximizing the
return on their investments, avoiding drastically increasing competition in Al-Dammam and Al-
Khobar, and maximizing their profits and operational revenues. These are points apparently
recognized by all the tenants interviewed. The majority of the tenants representing 78.6% are
intending to establish new business in Al-Khafji in order to optimize their profits. The next two
most common reasons were to increase the geographical area served, as well as to being one of the
pioneers who invest in such a mall. Figure (5-5) indicates that the main tenants motives for
investing in Al-Khafji City Center starting from the most important motive affecting their decision
to the least important one.
15.4% 38.5% 46.2%
30% 25% 25% 20%
25% 25% 25% 25%
20% 60% 20%
21.4% 28.6% 35.70% 14.3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
(Al-Shat ea)
(Marina)
(Al-Dahran)
(Al-Rashed)
Overall
1. Sure I want to open a branch in the mall.
2. Probably we will open a branch in the mall.
3. I could think later to open a branch.
4. There is no intention to open a branch in the mall.



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Draft Report

78.6%
66.7%
45.2%
7.1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Maximizing profits.
Increasing number of
branches.
The first center in the region.
Building a better image.
Motives to open a branch in Khafji city center

Figure 5-5: The Outlets Motives to Open a Branch in Al-Khafji City Center
Those tenants who are not willing to expand their business at Al-Khafji City Center were asked to
specify the main reasons underlying their decision. The major restraining factor, from their point of
view, is that Al-Khafji city is populated with a very small number of households, if compared with
other cities over KSA. Based on the last population census conducted in 2004, the total number of
population in Khafji was 60,975 inhabitants and is expected to reach approximately 90,000
inhabitants after few years. This represented 1% of the total population of the Eastern Province and
0.3% of the overall Saudi Population. In addition, some of the tenants were worried about the level
of potential sales they might yield if they invest in Al-Khafji. According to their statements, a big
portion of the population of Al-Khafji city might not afford the high prices of products they sell.
Thus, making further investments in Al-Khafji is out of the question for them. However, these
respondents account for just 14.3% of the total tenants targeted by the market research.

5.3.6 Expected Area to Rent

The tenants decision concerning the expected area to rent within the mall is influenced by various
determinants, particularly the anticipated rental fees per square meter, the facilities and discounts
given by the malls management, and proposed tenants mix of the mall. However, the average area
the tenants might think to rent at Al-Khafji City Center is ranged from 70m to 200m, provided
that the rental fees are expected to be lower than what they pay currently for their established
branches in the Eastern Province.



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In addition, more than 24% of the total respondents in the four surveyed malls, expect that the
annual rental fees to be charged by Al-Khafji City Center will be much less than those imposed by
other malls, especially in Al-Dammam and Al-Khobar within the Eastern Province.

5.3.7 Suggestions and Recommendation

The following are the main suggestions given by the surveyed tenants:
To ensure the success of the mall, the management is highly recommended to allocate
sufficient budget for promotional activities.
The tenants preferred not to pay for their advertisements placed inside the mall.
To choose an appropriate location for the mall, within Al-Khafji, as well as to take into
consideration state-of- the-art shopping malls when designing the mall.
The following facilities should be available at the mall:
First class cleaning, maintenance and security services.
Well- known hypermarket.
Parking slots.
Praying rooms separated for both genders.
It is strongly advisable to focus mainly on attracting the international trade marks to open
branches in the Mall.
Boutiques with similar line of business should be located within the same area.
The mall is advised to make sure that all shops are rented before the formal launching date.
It is highly recommended to set reasonable rental fees and avoid overpricing. In addition, the
tenants should be given an exemption from paying any amount of money during the
completion of decorative works.
Regarding the service hours, a set of clear and precise standards should be established to
clarify the time of shopping designated for families, as well as for singles.



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5.4 Consumer Market Research

With the intentions of meeting one of the main objectives of the study; a market research was
carried out targeting a sample of 61 respondents throughout Al-Khafji district. A questionnaire was
designed to attain the following objectives:
Clarify consumers shopping patterns; preferred day of shopping and time of shopping;
Identify the criteria affecting consumers decision of selecting a shopping mall;
Identify the shopping centers that are visited regularly by the respondents (share of heart);
Determine the promotional media preferred by the respondents;
Identify the most preferable banks by the respondents;
Test consumers reaction and motives towards launching a shopping center in Al-Khafji; and
Find out consumers recommendation and suggestions regarding the commencement of the
shopping center.
The respondents surveyed were citizens, investors, private sector employees and governmental
employees (Municipality of Al-Khafji, Ministry of Justice, Saudi Telecommunication Company,
Post office and Aramco) in an attempt to cover the main aspects of the socio-economic groups,
keeping in mind the characteristics of the proposed project in Al-Khafji. The respondents were
participating by filling out the survey questionnaires, through face-to-face interviews in hopes of
minimizing the potential errors that might happen during data collection stage. After that have been
completed, the data and information gathered were cleaned, sorted, coded, and then converted into
a computerized format that would fulfill the objectives of the market research. Finally, all data was
precisely investigated, analyzed and presented in the report.
To provide a quick overview of the demographic characteristics of the respondents, it was revealed
that more than 60% of the respondents were employees in the public sector, while the remaining
40% were in the private sector. Out of the 61 respondents, 92% of them were Saudis, whereas the
rest were from Gulf Cooperation Countries (GCC).
However, for the purpose of gaining more accurate and reliable data, it would have helped much
more to interview a selected sample of the households residing in Al-Khafji. But contacting these
targeted groups was out of our capabilities due to the city conservative culture and the country
customs. This fact didnt allow such an idea to be put into action. Built on what mentioned earlier,
it could be said that all interviewed respondents were males. On the other hand, out of the total
sample 62% of the respondents were married, while 31% were singles and 7% remained with no
response.



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5.4.1 Shopping Patterns
In order to get a clear insight on the shopping patterns, the respondents were asked to state the day
of the week in which they usually make the shopping. The figure (5-6) shows the respondents
shopping patterns as realized by the market research.

Figure 5-6: Shopping Patterns
Having analyzed the chart above, it could be clearly seen that 48% of the respondents favored the
weekdays to go for shopping, while shopping on the weekends is preferable by 52% of the total
respondents. From the point of view of those respondents who preferred shopping on the
weekends, this is mainly due to the fact that most of the respondents are employees, in either
governmental or private institutions, where they spend a considerable percentage of their time in
the workplace during the weekdays. Thus, they dont have enough time to designate for shopping
purposes throughout the working days. In addition to that, some respondents pointed out that they
prefer to enjoy the experience of shopping by accompanying their families and children, especially
on the weekends as this pattern is one of the traditional activities addressed usually on their
agendas over Thursdays and Fridays. As for the favored shopping time of the day, the results of the
market research are shown in figure (5-7), while the preferable shopping company is shown in
figure (5-8).

Figure 5-7: Preferred Time of Shopping.
M o r n i n g
1 0 %
E v e n i n g
9 0 %
M o r n i n g E v e n i n g
Weekdays,
48%
Weekends,
52%
Weekdays Weekends



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Referring to the figure above, it is clearly noticed that many of these respondents expressed their
interest in doing shopping in the evening. This trend could be mainly attributed to the fact that the
idea of shopping in the morning is out of question for a large portion of the respondents since they
cant leave their working places over the morning time. On the other hand, the remaining 10%
prefer to go for shopping in the morning.
Alone
16%
Friends
13%
Family & Friends
13%
Family
58%
Alone Family Friends Family & Friends

Figure 5-8: Shopping Company
Based on the data presented in figure (5-8), it has been noticed that the majority of the interviewed
respondents estimated at 58% demonstrated their willingness to accompany their families while
they are going for shopping. The main reasons behind this trend, as stated by the respondents, are
listed hereunder:
Enjoy together the experience of shopping.
Most of the shopping centers, which are visited by the respondents, have entertainment
centers within their buildings, for example: ice skating, amusement parks. This gives the
opportunity for children to enjoy their time while their parents are shopping within the center.
Some of shopping centers, particularly those that operate within the Eastern Province, permit
shopping only for families. By doing so, a clear message will be delivered to the targeted
families concerning the safe and excellent experience of shopping they would feel during
their shopping at these centers.
On the other hand, 16% of the respondents prefer to enjoy shopping lonely, while 13% of them like
to do that with their friends and colleagues.



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5.4.2 Criteria for the Selection of a Shopping Mall
The respondents were asked about the factors they take into consideration when deciding on which
shopping mall to visit. The figure below shows the key considered factors by the respondents who
are planning to visit any shopping center.

Figure 5-9: Criteria for the Selection of a Shopping Mall

Note: The above graph is organized in an order of the most important factor affecting the respondents choice of a
shopping mall to the least important factor.
From the figure above, one could notice that the supplementary services rendered by the center
such as centralized air conditioning, heating, elevators, escalators, security, etc, are considered as
the most important factors influencing on the respondents selection of a mall, at an average
percentage up to 95%. Furthermore, the availability of spacious car parking and the variety of
shopping boutiques were the second and third most important factors amongst other factors, with a
weighted importance of 93% and 89%, respectively.
22%
52%
64%
68%
72%
75%
76%
78%
82%
82%
84%
84%
87%
89%
93%
95%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Others
Location outside town
Special Enterances for Women
Availability of Info. Center
Grouping Shops of Similar Activites
Ease of Transportation
Women Seating Areas
Availability of Hypermarkets
Availability of Kids Entertainment
Center Entrances
Midtown Location
Availability of Restaurants and Cafs
ATMs
Variety of Shops
Car Parking
Supporting Services



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The availability of the ATMs installed at the mall was found to be the fourth most important factor,
followed by the convenient location of the mall and the presence of restaurants and cafs within the
mall.

5.4.3 Promotional Media
With the aim of building up a better understanding of promotional media that is usually used by the
targeted customers to know about the shopping centers; the respondents were asked to rank a set of
information channels and media according to their preferences. Statistics on the promotional tools
preferable by the surveyed respondents are given in figure (5-10).
6%
38%
56%
59%
72%
72%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Others
Magazines
Brochures
Advertised on TV
Advertised in Newspapers
Billboards
Relative Importance

Figure 5-10: Promotional Media
As could be shown in the figure above, the billboards and advertisements in local newspapers are
the most important form of media used to learn about shopping centers, over all the sampled
respondents, at an equal average percentage of 72%. From the respondents point of view, outdoor
advertising is a cost effective media with high repetitive rate that might be used by any shopping
mall.
However, it is worth mentioning that advertisements on TV and brochures have gained the third
and fourth place in the respondents ladder of preferences and with an average percentage of 59%
and 56%, respectively.
Finally, other least important promotional media were mentioned by 6% of the respondents. These
include Short Message Service (SMS), e-mail and sales promotions.



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5.4.4 Share of Heart
It is very essential to know malls that are preferable by the targeted respondents. To this end, the
respondents are requested to name the shopping malls they would favor usually to approach.
Based on the results of the market research, it is so obvious that the malls operating in the Eastern
Province, for example: Al-Rashid Mall and Mall of Dhahran, as well as other malls found in
neighboring countries, especially Kuwait, are the best choice for the respondents when they think
about shopping. Major explanation to this trend may lie in the fact that there are no shopping malls
established until now within Al-Khafji.
It could be clearly noticed that Al-Rashid Shopping Center maintained the highest share of heart
amongst the other malls and with an average share of 85%. Whereas Mall of Dhahran was placed
second with a heart share of 23%, followed by Kuwaiti Malls and Al-Dammam Marina Mall with
average percentages of 13% and 10%, respectively.

5.4.5 Preferred Banks
In our research to figure out the most preferred banks by the respondents, our team of consultants
inquired the interviewed respondents, who all live in the city of Al-Khafji, to list the six main
banks classified from the most favored bank to the least one. The results are described in table (5-
8) and figure (5-11).
Table 5-8: The Most Preferable Banks by the Respondents.
Banks Percentage
Al Rajhi Bank 66%
Riyadh Bank 62%
National Arab Bank 59%
Al-Ahli Bank 51%
Samba 25%
SABB 13%
Bilad 7%
French 5%
Jazeera 3%
Holland 2%



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Draft Report

66%
62%
59%
51%
25%
13%
7%
5%
3%
2%
0%
20%
40%
60%
80%
100%
Al Rajhi
Bank
Riyadh
Bank
Nat ional
Arab Bank
Al-Ahli
Bank
Samba SABB Bilad French Jazeera Holland
Percentage

Figure 5-11: The Most Preferable Banks by the Respondents.
It can be clearly noted that Al-Rajhi Bank is the most preferable bank by the respondents to deal
with as 66% of them prefer to find such a bank at the new shopping center to be established in Al-
Khafji. Riyadh Bank was ranked second with an average percentage of 62%, followed by National
Arab Bank (NAB) as 59% and then Al-Ahli Bank as 51%.

5.4.6 Launching Al-Khafji City Center
The respondents were inquired to whether they positively encourage and support the idea of
launching a shopping center within Al-Khafji. The figure below illustrates the respondents main
reasons for launching such a project.
30%
54%
67%
78%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Others
Absence of a shopping
center
Absence of grand shops
Visiting other shopping
centers
Rel ati ve Importance

Figure 5-12: The Respondents Motives for Launching Al-Khafji City Center



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Draft Report

The analysis of the respondents feedback regarding the subject at hand came out with excellent
results. Approximately 95% of the respondents showed their urgent need for having such a project
in the city. This could be related to the fact that the city of Al-Khafji currently lacks any shopping
center to satisfy the needs and requirements of residents.
Through the market research, it was found that there is a small number of local boutiques operating
in the city. However, these boutiques fulfill residents basic needs like convenience goods. Thus, if
residents are going to live the experience of real shopping, they have no choice but to leave the city
of Al-Khafji and to approach the nearest mall either in the Eastern Province or neighboring
countries, mostly Kuwait.

5.4.7 Suggestions and Recommendations
Furthermore, the surveyed respondents delivered a set of useful points that should be taken into
account by the management of the Al-Khafji City Center. The main suggestions and
recommendations could be listed as follows:
To select an accessible and attractive location for the mall, as well as the architectural design
of the mall should be in compliance with the international mall standards.
The following facilities should be included in the mall:
Security and cleaning services,
International hypermarket,
Huge car parking,
Special entrances and areas for people with special needs,
Installing good lighting system, centralized air conditioning, elevators and panoramic
escalators.
It is essential for the mall to hire well-groomed and well-educated employees.
It is suggested that the mall operates around the clock and allow shopping at the weekends for
families only.
The mall is highly advisable to have a well-diversified mix of boutiques including
international brands, sport shops, and all women requirements,
To pay more attention to satisfy children needs by having an amusement park, clothing and
toys shops within the mall.
To have entertainment facilities for teenagers such as a gym, arcades and internet cafs.
International and local fast food franchised restaurants and cafs should be located away from
shopping outlets.



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6 Proposed Marketing Strategy

The proposed project will be the first shopping mall in Al-Khafji district; therefore, the malls
management should adopt robust and sound marketing strategies to market and promote the
project. The following are the proposed marketing strategies, including: positioning, supplementary
services, pricing, and promotion strategies.

6.1 Positioning Strategy
Al-Khafji City Center has to smartly and meaningfully establish a distinctive position in the minds
of the targeted market segments it intends to serve. One of the important marketing tools that could
usefully assist the mall to accomplish such a goal is the positioning strategy.
Positioning strategy for Al-Khafji City Center is concerned with identifying and maintaining the
favorable image needed to occupy a distinguished place in the customers mind and to be apart
from its potential direct competitors as well.
However, to set a well-thought out positioning strategy, it would be much better to take the
preferences and requirements of the sampled respondents into consideration when preparing such a
strategy.
As discussed earlier in section 5.4.2 (criteria for the selection of a shopping center) of the report, it
could be concluded that the supplementary services delivered to customers and the tenants mix are
considered the two most important factors looked upon by the respondents when they approach a
certain shopping mall. Thus, from the respondents point of view, these two factors are vital needs
that should be satisfied by Al-Khafji City Center in order to succeed and maintain high share of
market.
Based on this conclusion, the first part of the positioning strategy for the mall should mainly focus
on the respondents said needs and benefits. This could be done by linking these needs with the
benefits to be delivered by the mall, especially in terms of shopping experience and supplementary
services provided.
Further, and due to the fact that Al-Khafji is one of those cities which currently dont have the
facility of a shopping mall, most of citizens, satisfy their necessities of life by visiting shopping
malls either in the Eastern Province or city of Kuwait. The fact mentioned above is a very
important aspect that should be strongly highlighted and focused on in the positioning strategy for
the mall.
Putting it together, a double positioning strategy could be formulated for the mall by benefit and
attribute. Consequently, Al-Khafji City Center should position itself as the dominant mall that
delivers a fantasy shopping experience, on one hand, and as the first well-established mall in the
city, on the other hand.



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6.2 Services Strategy

Tenants Mix
This cluster of tenants is referred to as the tenant mix by the shopping mall industry. It has been
a long-term concern for shopping mall managers because of its significance in establishing the
shopping malls image and enhancing the synergies within the shopping mall. However, no
satisfactory suggestions have been made for the best strategy for tenant mix; owners usually follow
some rules of thumb or their own experience. The variety is an important factor in increasing
productivity in the trade-good sector.
The shopping centre is an agglomeration of various retailers and commercial service providers
within a well planned, designed and managed building or a group of buildings as a unit. This
definition suggests the agglomeration of retail/service activities in a shopping centre to be well
planned and highly controlled by the centre manager/operator. Therefore, the interactive forces
among tenants, that are the inter-store externalities, can be managed to maximize profits for the
whole shopping centre.
Tenant mix is one of the most crucial factors in the establishing the image of a shopping mall.
Since each possible mixture of tenants makes a distinctive contribution to the image of the
shopping centre, it is very important to identify an ideal or balanced tenant mix for Al-Khafji
City Center. Moreover, tenant mix is not a static condition, in other words, the market changes over
time, as do the customer preferences and fashion trends. Therefore, even the ideal condition
achieved in one season or period might not be suitable for the next one. Besides, the retail industry
is almost a perfectly competitive market, thus, the actions of competitors always dramatically
influence marketing strategies. Consequently, the management has to adjust the tenant mix
constantly to keep up with the latest market trends.
A good tenant mix includes a variety of compatible or complementary retail stores, and an efficient
space allocation (both size and number) and proper tenant placement that encourages the
interchange of customers and retail activities. In a wider perspective, it should also include
sufficient public facilities and services, both in terms of the quality and quantity demanded. The
essentials that enhance the quality of the malls shopping environment, to satisfy shoppers needs,
such as goods and services, convenience, excitement, and amenities, are all part of the elements of
an ideal tenant mix.
However, Elite consultants highly recommend the following mix of tenants to be considered by the
management of Al-Khafji City Center:



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Draft Report

Table 6-1: Proposed Tenants Mix
Tenants Mix
Watch Repair Electric Games Studio / Camera
Travel Agents Shoes / Keys Repair Cafeteria
Home Entertainment Lingerie - Women underwear Sports wear & Equipments
Telecommunications Children needs Barber Shop
Watches Family Shoes & Leather Pharmacy
Perfume & gifts & cosmetics Men Shoes Restaurants and caf
Toys & kids Accessories Socks Natural honey
Ice Cream Dining & House wear Textiles
Leather / luggage Gold & Jewelry Liners & Carpets
Skin Care Products Book & Stationary Computers
Gulf Men Clothes Family Clothes Diet & Natural Nutrition
Men's Clothes Gulf Women Clothes Art & Frames
Women Clothes Women shoes Music Instruments
Internet Caf Optics Kids & Women clothes

Choosing tenants is very crucial for the malls management and affect, to a great extent, the
profitability and revenues generation for the mall. The leasing process is an easy process but, at the
same time, important and case sensitive. Some of tenants submit an application to the mall
management in order to operate and lease an outlet inside the mall, while other tenants, especially
those dealing with international brand name, are directly approached and contacted by the mall's
management.
It is highly recommended for the management of Al-Khafji City Center to adopt the following
procedures prior to giving the final approval for any tenants:
Conduct field visits to the potential tenants outlets, if possible, to evaluate their trading
activities, the level of demand for their products, geographical coverage, etc.
Check up on tenants history records, particularly to see to what extent they have been
committed to paying regularly and continuously the accrued rental fees on time.
Study the overall financial position of tenants to ensure the continuity and sustainability of
their business.

Supplementary Services
Service offerings of any shopping mall typically consist of a core product bundled together with a
variety of supplementary service elements. Supplementary services are those that facilitate and
enhance the use of the core service. They range from provision of needed information, advice, and
documentation to problem solving and acts of hospitality. To facilitate the use of core service and
enhance its value and appeal, search for competitive advantage, and differentiate service offerings
over competitors are considered vital justifications that encourage Al-Khafji City Center to highly



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emphasize on providing excellent and distinguished supplementary services that are bundled with
the core service.
The following paragraphs present the most important supplementary services to be provided by the
project.

Information
To obtain full value from any service, shoppers need relevant information. Therefore, the new
shopping mall should use convenient channels of information to provide the information needed by
visitors and shoppers. Information should include:
Background to the mall.
Objectives of the mall.
Direction to the site.
Internal directions inside the mall.
Opening hours during the week-days and week-end.
List of main tenants.
Available facilities and entertainment centers.
The mall should make sure that the information delivered is up-to-date and accurate, as incorrect
information may affect shoppers negatively.
Also, it is extremely advised to design and install well-prepared and colored maps of the shopping
mall on each entrance to facilitate shoppers movement within the mall to easily reach to their
destination.
Safekeeping
The new shopping mall should pay high attention to safety issues for visitors and shoppers. The list
of potential safekeeping services is long. However, the new shopping mall, at least, should secure
the following for its visitors and shoppers:
Safe and convenient parking
Valet parking for luxurious cars at certain charges.
Safekeeping of valuables
Coatrooms
Managerially speaking, these services are recommended to be provided by the customer service
center at the mall.



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Security Services
The security service is a very crucial element in the delivery of safe and sound shopping experience
to both visitors and tenants. Due to the conservative Saudi culture, the malls management should
ensure the provision of first class security services to avoid any conflicts might take place among
shoppers themselves and/or among shoppers and outlets owners. To achieve this objective, its
highly recommended for the mall to establish an internal security department instead of being
dependant on an external party to deliver such services.
Cleaning Service
Cleaning service is one of the most important services in enhancing the image of the mall. It is very
vital to ensure the cleanness of the malls buildings around the clock, especially in the peak hours
of the day. To this end, the malls management should establish an in-house unit that will be
responsible for executing, supervising and following up on cleaning operations within the mall
buildings.
Customer Service Center
The quality of customer care services delivered by the malls employees has direct influence on the
overall shoppers satisfaction and image of the mall. Therefore, the mall should do the best to
ensure that its staff treat shoppers with respect, reflect pleasure upon meeting then, and show
courtesy and consideration towards shoppers inquires, needs, and requirements.
Accordingly, the following main actions recommended to be carried out by the mall:
Establish a customer service center dedicated for serving the malls shoppers and visitors and
providing the required information and answers to shoppers inquiries.
Recruit high qualified, trained and knowledgeable personnel in the front desk to provide
shoppers and visitors any type of information they might need.
The customer service center should provide a mix of services which are, but are not limited
to, the following:
Foreign language assistant;
Promotional brochures for the mall in multi-foreign languages;
First aid service and a small clinic for emergency cases and injury;
Postal Service for tenants, visitors and shoppers;
Telecommunication Services;
Strollers for babies and children;
Wheelchairs for disable people;
Gift Wrapping; and
Gift vouchers.



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Service Hours
It is impossible and unfeasible for the mall to open 24 hours a day due to the extra unjustified costs
it will incur compared with the low expected revenues. Hence, to satisfy the needs and wants of
shoppers, a clear policy concerning the official opening hours should be set by the malls
management. Table (6-2) indicates the proposed service hours for the mall.
Table 6-2: The Proposed Service Hours for the Mall
Open hours
Type of Tenant
Morning Evening
Shops 9 am -12 pm 4 pm- 12 am
Food Courts 9 am -12 pm 4 pm- 1 am

Hypermarket and Entertainment Centers
The highly recommended facilities to be an integral part of Al-Khafji City Center are a well-known
hypermarket and a state-of-the-art entertainment center. They do contribute strongly in the success
of the mall, as well as, maintaining high traffic rates over the time. As per the set project plan, the
mall has incorporated the hypermarket as an anchor without comprising the basic traffic flow of
shoppers.
For the purpose of attracting the best choice hypermarket for the mall, the management is
recommended to proceed with a very well-organized process of targeting, investigating, and
screening a set of potential worldwide or regional hypermarkets, known for their quality and
expertise in this regard.
The following are the most recommended hypermarkets to be approached by the malls
management:
Carrefour.
Geant.
Farm Superstores
Azizia Panda.
Sultan Center.
Spinneys.



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Restaurants and Cafes
Based on the master plan developed for the mall, it is planned that a total of 11 restaurants and
cafes will be established and operated within the malls building. This will contribute, to a large
degree, in creating and delivering an enjoyable shopping experience to shoppers.
In this context, Elites team of consultants recommends the malls management to have a well-
balanced mix of restaurants and cafes covering the main needs of shoppers. Below is a list of
proposed restaurants to have branches at the mall.
Cinnabon Dominos Pizza
MacDonalds Al-Dajen
KFC Dunkin Donuts
Isfahani Hardees
Tako Hot Popeyes
Hot Crispy Burger King
Jofferys Hungry Bunny
Baskin Robbins Star Bucks

In addition to the above, it is useful to deliver extra recommendations pertaining to the services
strategy to be considered by the malls management:
It is highly advisable to use high quality construction materials in designing the malls
building. This will play a vital role in enhancing the image of the mall, and lower the
maintenance works and expenses in the future.
The exterior design for the mall should be consistent with the best exterior international
standards and reflects modern shopping mall trends.
The following facilities should be available within the mall:
Sufficient emergency exists,
Well-designed lighting system,
Centralized air conditioning system,
Appropriate setting area,
Separate praying rooms for men and women,
Car parking, and
ATMs.
Consistent with international trends, smoking within the malls building should be officially
prohibited. However, it is suggested to designate certain free smoking areas within the mall
equipped with filters and air suction machines to push out the smoked air and to keep the
environment healthy.



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6.3 Pricing Strategy
Pricing strategy is considered a major concern for the mall management. Pricing decision combines
pricing objectives, selecting appropriate pricing strategy and determining rental fees structure.

Pricing Objectives
The proposed project should strive to achieve the main pricing objectives mentioned below:
Build up a leader image for Al-Khafji City Center by charging rental fees close to but little
lower than those offered by shopping centers operating in the Eastern Province.
Provide 5-10% discounts on rental fees to those tenants who deal with well-known
international brand names.
Reach an occupancy rate of 80% over the first year of operation.

Pricing Strategy
In order to achieve the aforementioned pricing objectives, the most appropriate pricing strategy to
be adopted by the malls management is Rapid Skimming Pricing Strategy. The main
justifications beyond adopting such a strategy could be elaborated as follows:
A large proportion of potential shoppers and tenants are unaware of the mall. This will lead
the malls management to spend heavily on promotional campaigns to inform and get the
appropriate level of awareness among the targeted audience.
It is very important for the mall to convey a clear message to its targeted market segments
about the uniqueness and distinctiveness of the services it provides to create the image of a
"Service Leader". The Rapid Skimming Pricing Strategy can contribute, to a large extent, in
building such a favorable image for the mall.
The malls total costs are expected to be higher during the first years of operation. This could
be attributed mainly to the heavy promotional expenses and small market share. In return, the
rental fees at the mall should expect to be high in order to achieve the required net profit to
cover its expenses.
Within the coming few years, it is expected that other competitors will enter the market. Such
an action will intensify the competition in the marketplace for all players operating in the
shopping mall industry. Therefore, the mall should differentiate its offers over potential new
entrants and try to take advantage as the first movers into this particular field and to build
brand preference as well.



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Rental fees
In this section, a proposed structure of rental fees will be set for Al-Khafji City Center. However,
we highlight a summarized insight of rental fees charged by the surveyed shopping malls within
the Eastern Province. Table (6-3) shows the average rental fees for the four malls.
Table 6-3: Average Rental Fees in SR
Mall Name 1
st
Floor 2
nd
Floor 3
rd
Floor Average Unit
Mall of Dhahran (One level)
Shopping Outlets - - - 2,500 m
2

Food Courts 3,500 5,000 4,250 m
2

Kiosks 60,000 90,000 - - 75,000 Yearly
Al-Rashid Mall (Three levels)
Shopping Outlets:
Old Lease 1,700 2,500 1,800 3,000 n/a 2,250 m
2

New Lease 3,500 2,000 2,500 2,670 m
2

Food Courts 3,500 3,500 m
2

Kiosks 65,000 (25,000), (35,000), (45,000) 40,000 42,000 Yearly
Al-Dammam Marina Mall (Two levels)
2

Food Courts 2,100 2,500 2,300 m
2

Al-Shatea Mall (Three levels)
2

Food Courts 2000 - 2500 2,250 m
2

Average for All Malls
Shopping Outlets 2,056 m
2

Food Courts 3,075 m
2

Kiosks 58,500 Year
Hypermarket 850 m
2

Amusement Park 900 m
2

Also, around 25% of the interviewed tenants, over the four malls, stated clearly that if they invest
in Al-Khafji City Center, they expect to pay lower rental fees than what they currently are charged
for their business in the Eastern Province.
Taking into consideration the pricing strategy and objectives of the mall as well as the
aforementioned facts, the rental fees for Al-Khafji City Center were estimated using the following
equations:
Rental Fees for Shopping Outlets,
Restaurants and Cafes, and Kiosks

Rental Fees for the Hypermarket and the
Amusement Park



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By applying the rental fees equations to the figures presented in Table (6-3), the rental fees for mall
was calculated as shown in Table (6-4).
Table 6-4: Proposed Rental Fees Structure for Al-Khafji City Center
Rental Fees / m2
Facility
SR USD
Shopping Outlet 1,131 301
Restaurants and Cafs 1,691 451
Hypermarket 468 125
Amusement Park 495 132
Kiosk (Per Year) 32,175 8,580

In order to keep the tenants turnover rate at its minimal level, the rental fees should be subject to
continuous revision on interval bases taking into consideration that the rental fees given for the
tenants should be different according to the location and the required rented area.
It is highly recommended to set a fixed rental fees after certain years of operation irrespective of
the location of outlet. The argument underlying such a strategy is that the occupancy rate for the
mall will reach its ultimate level, the tenants turnover rate becomes very low, and the demand for
investing in the mall is expected to be very high.
Furthermore, the malls management is strongly advised not to request any potential tenant for key
money in advance of service delivery. Such a practice, if implemented, may limit the ability of the
mall to attract the targeted tenants, especially well-known shops.
Regarding the supplementary services, it is highly recommended that the mall should render such
services to tenants at no expenses except for electricity.
As revealed from both the shopping malls research and the outlets research, bank cheque is
considered the most convenient, reasonably secured and preferable way of exchanging money by
the two said parties. Thus, accepting payment by cheque appears to be the best method of payment
that the mall is recommended to implement.
In addition, the malls management should agree with potential tenants on the terms of payment. In
this regard, two options are available to be adopted by the malls mangement. The first option is to
collect accrued payments on yearly basis. The second option is to ask tenants for an initial payment
in advance, with the balance being due later according to a predetermined schedule of payments.
However, the first option is better than the second, particularly in the introductory stage. Such an
option would prevent the mall from dealing with financial difficulties expected to occur with any
tenant when a large amount of money is still not collected. Moreover, it would secure an
appropriate level of cash inflows to be utilized in maintaining and enhancing the financial position
of the mall, as well as, to recover a considerable portion of promotional expenses it will incur.



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6.4 Promotion Strategy
Promotion strategy will assist in communicating with the targeted audience and provide them with
awareness on Al-Khafji City Center. Promotion decisions are concerned with identifying targeted
audience, setting promotional objectives, selecting the appropriate promotional tools and message
for each category of the targeted audience.
Target Audience
Owners of big shopping outlets in the Eastern Province and overall the Kingdom.
Citizens residing in Al-Khafji district and those who are living in Kuwait.
Promotional Objectives
Once the targeted parties are identified, the management of Al-Khafji City Center should seek to
achieve the following promotional objectives in the first year of operation:
Announce the opening of Al-Khafji City Center as the first modern shopping mall in Al-
Khafji district.
Inform the target shoppers about the distinctive tenants mix existing in the mall to
substantially satisfy their shopping needs.
Gain approximately 20% of awareness on the mall in the city one day before the launching
date of the promotional campaign.
Gain approximately 60% of awareness on the Al-Khafji City Center at the completion of the
campaign.
Build a service preference, among the targeted audience, by promoting Al-Khafji City Center
distinctive facilities and services.
Highlight competitive rental fees to tenants who are willing to rent in the shopping mall.
Promotional Media and Promotional Message
Choosing the appropriate promotional media to reach the targeted audiences is very important as
well as the development of highly attractive promotional message to be delivered to the targeted
audience. Sometimes, inappropriate selection of the promotional message and media wouldnt lead
to achieve the per-set promotional objectives, especially during the first years of operation.
Table (6-5) shows the recommended promotional tools and proposed messages to be delivered for
each of the targeted audiences.



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Table 6-5: Recommended Promotional Media and Messages
Target Audience Promotional Media Promotional Message
Owners of Shopping Outlets
Personal Selling
Newspaper Advertising
Direct Marketing

New and modern shopping mall.
Suitable and secure investment
climate.
Competitive rental fees and other
facilities.

Visitors and Shoppers
Outdoor Advertising
Advertisements in Newspaper
TV advertising
Brochures and leaflets

Pleasant and fantasy Shopping
Environment.
Varity of trade activities that fulfill
shopper needs.
Availability of hypermarket and
entertainment centers.

Moreover, there are many promotional activities that could be adopted by the malls management:
It is suggested that marketing communications campaign for Al-Khafji City Center will be
commencing two weeks prior to opening the mall and will last for five weeks. The rationale
for that is to attract the maximum number of customers and increase the awareness of the
public.
A sound slogan for the mall should be creatively designed to reflect the intended image of the
mall and the potential targeted shoppers needs. Two of the possible options for the slogan
are:
Enjoy and experience fantasy shopping at Al-Khafji City Center
Al-Khafji City Center, where you find all you look for under one roof
To achieve the best possible results, it is recommended to use a mixture of pull and push
marketing strategies for the mall. Pull strategy will be used to achieve the awareness levels
needed and to work towards interest building. Push strategy will allow reaching maximum
number of visitors.
Advertising is the main promotional element that could be used including television which is
recognized as the most important media for advertisement. Therefore, a special weight
should be given to TV advertisements to ensure a wide promotion coverage.
Advertising in print media will be the keystone of the campaign and will have local coverage.
The objective of this medium will be to inform people of the launch and build interest.
Different newspapers will be used, for example Al-Yaum daily newspaper.



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Internet activities will include the development of a friendly, informative, interesting, and
effective web-site which will inform visitors about the mall and give access to information,
and banner advertisements. The objective of internet advertising is to reach targeted shoppers
who spend significant amount of time online.
Public Relations (PR) will be a major part of the malls promotional strategy. Public relations
may play a significant role in this regard, especially when considering its reasonable costs
compared to other promotional elements. The goal of this activity will be to build awareness
and interest about the mall.
Since editorial coverage is virtually free advertising, PR activities will include press releases,
newsletters, and on-going dialogs with key editors, writers and news personalities. The mall
could schedule key people to give talks and seminars. PR activities are recommended to take
place throughout the campaign.
It is highly recommended that the mall should design a comprehensive Compact Disc (CD),
which will include details about the malls mission, objectives, services, facilities, etc. Such
CDs would offer the targeted audience the chance to get a complete overview of Al-Khafji
City Center.
Some Arabic newspapers could be approached to publish achievements and news of the mall.
In selecting the newspapers that would carry the advertisements, the following points should
be taken into account:
Papers with a nation-wide coverage should be given special weight.
English language papers should also be given special consideration.
Other elements of the promotional mix could be used, such as personal communication. The
mall might hire qualified people to contact targeted tenants and convince them to rent at the
mall. To achieve this target, a detailed manual should be prepared to clarify different aspects
of the mall (i.e. location, services, rental fees, facilities of payments and any other useful
information).
There are some aiding and supporting promotional materials that could be distributed to the
targeted parties, from time to time, to build up and enhance the malls image (examples might
include fine quality of desk calendars, wall calendars, watches, clocks, key chains, ball pens,
calculators, etc). All of which will be printed in attractive colors and bear the malls official
name and logo.
The management of Al-Khafji City Center should make a deal with airline companies,
especially Saudi Arabian Airlines and any other airline company that has considerable air
traffic to the Eastern Province airports, to promote the mall through publishing well designed
printed ads in the magazines presented to passengers on-board.
The concerned governmental bodies in the Eastern Province and even those in Kuwait should
be contacted and help in promoting the new shopping mall. The malls management should
build and maintain excellent relationships with these bodies to place some printed ads that



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describe the advantage of investing in a shopping mall in general, and in Al-Khafji City
Center in particular.
The malls management should offer some promotional facilities to tenants in order to
promote their products.
It is suggested to rent street advertisement sign boards in some good locations within the city
to raise the level of the targeted shoppers awareness.
Sales promotion is another helpful tool that might be used to reach maximum short-term
sales. For example, a considerable number of promotional coupons would be distributed via
direct mail or in person to a selected sample of the potential shoppers at the commencement
of the campaign. On the back, coupons will have advertisements from potential outlets, which
operate in the mall. This will allow Al-Khafji City Center to reduce costs of sales promotion
through benefiting from the advantages of cross-promotion.
Special contests would also take place from the date the mall is launched until the end of the
campaign. Shopping vouchers will be given away to randomly selected shoppers. This
motivates customers to stay longer and purchase more.
The malls management is recommended to produce sales promotion materials to support
advertising and sales. A good idea is to distribute T-Shirts for children who win certain
contests and games, while their parents shop. This activity will motivate more children to stay
longer and to come frequently to the mall, thus children themselves will encourage parents to
come. Despite the fact that children are not primary target market for this campaign, it is very
important to attract them as a large percentage of Saudis do shopping with their families and
children.



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7 Anticipated Sales Revenues

According to the proposed structure of rental fees for the project developed by Elite consultants,
the total sales revenues were estimated for the mall over the coming ten years. However, this was
prepared in light of the following assumptions:
Over the first five years of operations, the proposed rental fees will be fixed; however,
following that year an increase of 3% will be added annually to the rental fees.
It is assumed that the occupancy rate of the shopping outlets will be 80% in the first year; and
is expected to increase gradually by 5% on yearly basis to reach 100% in the fifth year of the
projects lifetime.
The number and average areas of the malls facilities are as under:
Facility Number Average Area (m
2
)
Shopping Outlets 70 68
Restaurants and Cafes 11 26
Hypermarket 1 9,562
Amusement Park 1 1,147
Roadside Shop 1 320

Other revenues that might be generated from public advertising, festivals, and any
promotional events in the mall is estimated at USD 30,000 per year.
Table (7-1) shows the expected sales revenues for the project during a time period of ten years. It
should be noted that total sales revenues for the first year of operations is estimated at USD 3.8
million.


Feasibility Study for Establishing a Shopping Mall
In Al Khafji

78
Table 7-1: The Projects Anticipated Sales Revenues
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Number of Shopping Outlets 70 70 70 70 70 70 70 70 70 70
Number of Roadside Shop 1 1 1 1 1 1 1 1 1 1
Number of Restaurants & Cafs 11 11 11 11 11 11 11 11 11 11
Average Outlet Area (M2) 68 68 68 68 68 68 68 68 68 68
Roadshop Area (M2) 320 320 320 320 320 320 320 320 320 320
Average Restaurants & Cafs Area (M2) 26 26 26 26 26 26 26 26 26 26
Number of Kiosks 2 4 6 8 8 8 8 8 8 8
Average Rent per (M2) - Outlets 301 310 319 329 339 349 359 370 381 393
Average Rent per (M2) - Restaurants 451 465 478 493 508 523 539 555 571 588
Average Rent per year - Kiosks 8,580 8,837 9,103 9,376 9,657 9,947 10,245 10,552 10,869 11,195
Occupancy Rate 80% 85% 90% 95% 100% 100% 100% 100% 100% 100%
Hypermarket Area (M2) 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562
Average Hypermarket Rent per (M2) 125 128.8 132.6 136.6 140.7 144.9 149.3 153.7 158.3 163.1
Amusement Park Area (M2) 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147
Average Amusement Park Rent per (M2) 132 136.0 140.0 144.2 148.6 153.0 157.6 162.3 167.2 172.2
Revenues Calculation
Leasing Revenues - Outlets 1,223,264 1,338,710 1,459,981 1,587,324 1,720,993 1,772,623 1,825,801 1,880,576 1,936,993 1,995,103
Leasing Revenues - Kiosks 17,160 35,350 54,615 75,005 77,255 79,573 81,960 84,419 86,951 89,560
Leasing Revenues - Restaurants & Cafs 103,189 112,927 123,157 133,899 145,175 149,530 154,016 158,637 163,396 168,297
Leasing Revenues - Hypermarket 1,195,250 1,231,108 1,268,041 1,306,082 1,345,264 1,385,622 1,427,191 1,470,007 1,514,107 1,559,530
Leasing Revenues - Amusement 151,404 155,946 160,625 165,443 170,407 175,519 180,784 186,208 191,794 197,548
Total Leasing Revenues 2,690,267 2,874,040 3,066,418 3,267,753 3,459,094 3,562,867 3,669,753 3,779,845 3,893,240 4,010,038
Other Revenues 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Total Revenues 2,720,267 2,904,040 3,096,418 3,297,753 3,489,094 3,592,867 3,699,753 3,809,845 3,923,240 4,040,038



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8 Technical Study
8.1 Mall Location
The geographical location of the proposed shopping mall was already determined by the projects
owners; therefore, Elite Consulting was not required to conduct a location benchmarking study in
order to select the appropriate and attractive location for the new shopping mall.
The chosen site will be on two main roads with 30 meters and 40 meters wide, and the access to the
shopping mall from the city center is very easy. The proposed shopping mall is located within the
main residential area in Al-Khafji and beside ARAMCO future residential projects.
Figure (8-1) below shows the location of the proposed project:

Figure 8-1: Location of the Proposed Project
8.2 Detailed Description of Mall Facilities
Atrium
The atrium is the central part of the shopping mall and could be used for various purposes. It may
be used as events area for making shopping festivals and carnivals and bazaars. Also, it could be
used for promotional purposes for the tenants to promote their merchants through installing stands
and podiums. Further, this area could be leased for companies/individuals whom are seeking to use
the marketable status of a mall to promote themselves.



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Shopping Outlets
The shops are rentable spaces allocated to cater various trade activities. These shops may possibly
be rented as single outlets or might be combined together with larger areas required by the tenants.
All these shopping outlets are enhanced with heating, ventilation and air-conditioning systems. The
total number of shopping outlets is 71 shops; one of them is a road side shop which is dedicated for
special trade activities.
Food Court
The Food Court is composed of 11 rentable outlets could be used as restaurants, caf and fast food
restaurants and it also contains a well prepared dinning area to ensure customer comfort. Like the
Hyper Market, the Food Court is also designed to be open for the public beyond normal mall
opening hours.
Amusement Park
The mall will contain an Amusement park located at the heart of the food court area. This park is
designed for the children and adults alike. Here they can play arcades or online games with each
other. The amusement park is one of the attractiveness factors of the shopping mall especially for
the families.
Hyper Market
The large hyper market is a rented out establishment designed to take advantage of the vicinitys
relative under commercialization. It has enough space to accommodate hundreds of people at a
time with a large area for bulk storage of goods and merchandise. The Hypermarket is located at
roadside for easy accessibility to motorists and patrons. The area designated for the hypermarket is
designed in such a way that it may be open to the public even before or after the mall opening
hours.
8.3 Civil Engineering Work
Civil engineering work consists of following:
Site Preparation and development,
Description of total built-up area, and
Construction cost of the main mall building and other related facilities and the cost of outdoor
work and landscaping.
8.3.1 Total Construction Built-up Area
The total built-up area for the mall is broken down based on the main mall premises and facilities,
as provided by the projects architectural consultant, which include shopping outlets, food court,
hyper market, outdoor shopping outlets, amusement center, parking slots, inside and outside
service area and other unspecified areas. The following tables show the breakdown of the mall
areas according to the aforementioned mall premises and facilities.



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Shopping Outlets
Table (8-1) below shows the built-up areas for the shopping outlets:
Table 8-1: Total Built-up Area for Shopping Outlets
Item Quantity Approximate individual Area (M
2
) Total Area (M
2
)
Inside Outlets 70 Avg. 68 4,751
Roadside 1 320 320
Entrances and corridors 1 2,400 2,400
Atrium 1 800 800
8,271
Source: Project Architectural Consultant
Food Court
Table (8-2) below shows the built-up areas for the food court:
Table 8-2: Total Built-up Area for the Food Court
Item Quantity Approximate Area (M
2
) Total Area (M
2
)
Dinning Area 1 1,355 1,355
Food Outlets 11 26 286
1,641
Hyper Market
Table (8-3) below shows the built-up areas for the hyper market:
Table 8-3: Total Built-up Area for the Hyper Market
Hyper Market Area Quantity Approximate Area (M
2
) Total Area (M
2
)
Lobby and trolley park 1 871 871
Display Area 1 5,594 5,594
Storage 1 3,097 3,097
9,562
Amusement Center
Table (8-4) below shows the built-up areas for the amusement center:
Table 8-4: Total Built-up Area for the Amusement Center
Amusement Center Quantity Approximate Area (M
2
) Total Area (M
2
)
Total Floor Area 1 1,147 1,147
1,147



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Parking Area
Table (8-5) below shows the built-up areas for the parking area:
Table 8-5: Total Built-up Area for the Parking Area
Parking Area Quantity Approximate Area (M
2
) Total Area (M
2
)
Parking slots 395 22.94 9,063
9,063
Services Area
Table (8-6) below shows the built-up areas for the inside and outside services area:
Table 8-6: Total Built-up Area for the Services Area
Services Area Quantity Approximate Area (M
2
) Total Area (M
2
)
Area for Toilets 1 195 195
Area for Other Utilities* 1 640 640
835
* Such as: Lifts, Prayer Room, Janitor Closets, Maintenance, Services Corridors and Delivery Bay
Other Areas
Table (8-7) below shows the built-up areas for the other unspecified services area:
Table 8-7: Total Built-up Area for the Other Unspecified Area
Other Areas Quantity Approximate Area (M
2
) Total Area (M
2
)
Administration Offices 1 412 412
Electro-mechanical Room. 1 815 815
Service Parking 1 679 679
Landscaped Areas 1 1,900 1,900
Paved Areas 1 3,375 3,375
7,181
Summary of Built-up Area
Table (8-8) below shows a summary of total built-up areas



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Table 8-8: Summary of Total Built-up Areas
Mall Areas Total Areas (M
2
)
Shopping Area 8,271
Food Court Area 1,641
Hyper Market Area 9,562
Amusement Center 1,147
Parking Area 9,063
Inside and Outside Service Area 835
Other Areas 7,181
37,700

8.3.2 Project Cost
Table (8-9) below shows the amount of construction related and unrelated items for the proposed
project in US Dollars:
Table 8-9: Breakdown of Project Construction Cost
Description Estimated Cost (SR) Estimated Cost (USD)
Building Works 19,000,000 5,066,667
Landscaping 950,000 253,333
Electromechanical Work 4,000,000 1,066,667
Electrical & Auxiliary Work 3,000,000 800,000
Interior Finishing Work 14,000,000 3,733,333
40,950,000 10,920,000
The total project construction cost is USD 10,920,000 as shown in the table above.
The value of the required transportation vehicles is estimated at USD 45,000, which includes salon
cars for serving mall management and employee; the value of the office furniture, tools and
equipment is estimated of USD 40,000.
8.3.3 Land Cost
The table below summarizes the cost of land which the new mall will be built in:
Table 8-10: Cost of Projects Land
Type Area Value USD
Land 40,080 m 4,010,695
4,010,695



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8.4 Utilities
The main utility items that will be discussed in this section include energy (electricity and Fuel)
and water. The usage types for each utility item will be discussed in particular.
Energy
The malls use substantial amounts of energy in the form of heat and power. The main uses of
energy generally are:
Heating, ventilation, and air conditioning covering all premises of the mall.
Lighting for overall mall areas.
Fuel for vehicles and electricity generators.
Boilers and Chillers.
Water
Usually, the malls do not consume large quantities from water because it is considered a public
place for shopping and entertainment. The main uses for water are in the toilets and washing rooms
and for drinking through water dispensers allocated over the mall.
8.5 Manpower Requirement
8.5.1 Organizational Structure
People are the critical element in the success of a new company, especially the service provision
firms. To this end, the mall management should follow well-organized hiring and recruiting
process aiming at targeting the right persons at the right place.
The organization structure has been developed in line with the basic organization principles, taking
into consideration the following:
Span of Control
Specialization
Unity of Command
Delegation
Smooth flow of Communications and Operations
The organizational structure of the shopping malls could take two shapes of management and
structures: First one is to manage all day-to-day operations through in-house departments including
the supplementary service, i.e. Maintenance, Cleanliness and Security. The second option is to
recruit the managerial staff and approach companies to provide the required aforementioned
supplementary services.



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Based on the field survey conducted on the shopping malls in the Eastern Province, it is highly
recommended to choose the first option rather than the second one, because it ensures better
service provision and maximum level of supervision as well as ensuring loyalty of service
personnel.
Figure (8-2) below shows the proposed organizational structure for the proposed mall:

Figure 8-2: Proposed Organizational Structure

Sales and Marketing Functions
The Sales and Marketing Functions include the following processes and activities:
Strategic Plan and analysis
Promote the malls and its facilities and services.
Arrange for visitors and attractions events.
Review the rental fees structure from time to time.
Finance & Administration
The Finance & Administration functions include the following processes and activities:
Cash Management
Cash in finance department.
General Manager
Executive Secretary
Operations Sales and
Marketing
Finance and
Administration
Customer Service
Leasing
Security
Cleanliness
Maintenance



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Cash in banks.
Banks guarantees.
Rental Fees Collections
Accounts Receivable
Tenants Payment invoices and notices.
Collection of dues.
Debts of doubtful collection.
Debts write off.
Accounts Payable
Interim payments, invoices and dues.
Advance payments.
Payments of other parties.
Procurement and sub contracting
Material and Sub-Contracting
Quotations.
Evaluation.
Negotiation.
Contracts.
Following up.
The administrative control function includes the following processes and activities:
Human Resources
Human Resources Planning.
Human Resources Recruitment.
Human Resources Appraisal.
Human Resources Development.
Administrative Affairs
Governmental Procedures.
Administrative supporting.
Personal Affairs
Personal Files and Statistics.



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Vacations.
Payroll.
Operations Department
The operation department includes the following processes and activities:
Leasing Operations.
Customer Service
Front Desk Personnel.
Operators,
Wrapping,
First Aid,
Maintenance
Electricians
Mechanics
Carpenters
Technicians
Plumbers
Security
Cleanliness
8.5.2 Human Resources Required
Table (8-11) shows the manning required based on proposed organizational structure.
Table 8-11: Cost of Human Resources Required
Monthly Annually

Position
No. of
Staff
Basic
Salary
Fringe
Benefits
100%
Total
cost
Per
Employee
Per Staff
USD USD USD USD USD
General Manager
1 4,000 2,000 6,000 72,000 72,000
Executive Secretary
1 800 400 1,200 4,400 14,400
Operations Department
Operations Manager 1 2,000 1,000 3,000 36,000 36,000
Leasing Supervisor 1 1,500 750 2,250 27,000 27,000
Leasing Coordinators 2 1,200 600 1,800 21,600 43,200
Customer Service Supervisor 1 1,000 500 1,500 18,000 18,000
Customer Service Personnel 3 600 300 900 10,800 32,400
Cleaning Supervisor 1 600 300 900 10,800 10,800



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Monthly Annually

Position
No. of
Staff
Basic
Salary
Fringe
Benefits
100%
Total
cost
Per
Employee
Per Staff
USD USD USD USD USD
Cleaning Workers 15 150 75 225 2,700 40,500
Maintenance Supervisor 1 1,000 500 1,500 18,000 18,000
Maintenance Engineers 2 800 400 1,200 14,400 28,800
Maintenance Technician 4 800 400 1,200 14,400 57,600
Security Supervisor 1 600 300 900 10,800 10,800
Security Guard 5 300 150 450 5,400 27,000
Sales & Marketing Department
Sales & Marketing Manager 1 2,000 1,000 3,000 36,000 36,000
Marketing executive 2 750 375 1,125 13,500 27,000
Finance & Administration Department
Financial & Administration Manager 1 1,500 750 2,250 27,000 27,000
Chief Accountant 1 1,000 500 1,500 18,000 18,000
HR & Admin. Coordinator 1 800 400 1,200 14,400 14,400
Driver 1 300 150 450 5,400 5,400
Office Boy 1 150 75 225 2,700 2,700
47 21,850 10,925 32,775 393,300 567,000
8.6 Mall Security
Every visitor and shopper would like to shop in a safe, secure and pleasant environment, and there
are many ways in which the security guards, in cooperation with customer service personnel, can
contribute to this. Several factors will influence the general security of the mall, and both security
guards and the reception staff controls most of them. The mall management should have
recognized policies to ensure maximum security measures and provisions. The main security
measures could be described as follows:
Control the mall gates to ensure that most of the mall shoppers and visitors are families rather
than singles.
Achieve a high percentage in finding the lost property.
Safety deposits at the customer service center.
Avoid any conflict could be found among the shoppers themselves and between the shoppers
and outlets owners.
Low percentage of theft cases.
8.7 Fire Precautions
Fire is always a terrifying experience, but in a mall it is particularly so, since visitors, shoppers and
outlets owners are in unfamiliar surroundings. It is essential; therefore, that staff should be fully



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experienced in fire drills and practices, and are familiar with all the entrances, exits and assembly
points of the mall.
So all fire-fighting equipment is designed to remove at least one of the elements and so starve the
fire. All establishments will have their own procedures, both for reporting fires and for evacuating,
and staff should ensure they are familiar with them.
Fire alarm
Call points easily accessible
Easy to operate
Tested regularly
Fire safety training
Give instructions for all outlets owners
Place the fire instructions in many places over the mall for visitors and shoppers.
Directional signs
Easy to follow
Well displayed
Illuminated
Fire exits
Clearly indicated
May be numbered
Clear and uncluttered
Easy to open in an emergency
Fire notices
Brief
Easy to follow
Well distributed
8.8 Environmental Aspects of the Project
Environmental aspects and issues have become increasingly important all around the world. All
countries, irrespective of the type of economy or stage of development, face problems related to
issues of pollution and/or depletion of natural resources. Some of these issues may be of a local
nature and some have global significance. Often a problem arising in one country will also affect a
number of other countries.



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Environmental Scope
The Scope details the applicable standards and purposes for which they can use it, namely:
Implement, maintain and improve an environmental management system;
Assure its conformance with its stated environmental policy;
Demonstrate such conformance to others;
Seek certification/registration of its environmental management system by an external
company;
Make a self-determination and self-declaration of conformance with the International
Standard.
Operational Control
This requires that any activities that are associated with significant environmental aspects should be
carried out under specified conditions. This involves establishing and maintaining procedures for
such activities and determining operating criteria (i.e. performance standards).
The required particular procedures will depend on the outcome of the environmental aspects
analysis, but typically will cover activities such as waste management, effluent control, utilities use
and emissions control.
Operating criteria may be derived from legal limits (ideally allowing a reasonable margin for error
by setting the company limit slightly tighter than legal limit), customer requirements or from the
companys own policy requirements.
Monitoring and Measurement
The mall management must have documented procedures to regularly monitor and measure the key
characteristics of its operations and activities that can have a significant impact on the environment.
It is important to be capable of measuring environmental performance over time. Therefore, the
standard requires that information be recorded to track performance, relevant operational control,
and conformance with respect to environmental objectives and targets.
Equipment used for monitoring must be maintained and calibrated and relevant records maintained.
Procedures must also be maintained to periodically evaluate compliance with relevant legislation
and regulations.
Records
This requires the company to maintain procedures for the suitable management of its
environmental records (comparable with the requirements for document control). The second
requirement is that the company must maintain records to demonstrate conformance with these
requirements.
Environmental Management System (EMS) Audit
The company must establish and maintain programs and procedures for periodic environmental
audits. Audits are carried out to determine if the environmental management system:



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Conforms to planned arrangements.
Has been implemented and is maintained.
Provides information on the results of the audit to management.
The standard requires that audits must be scheduled or programmed based on the environmental
importance of the activity and results of previous audits; audit procedures must cover the scope,
frequency, methodologies and responsibilities and requirements for conducting the audits and
reporting results. It is important to remember that an EMS is a tool to assist a company in its
management functions.
The benefits derived from the application of an EMS include the following:
Ensuring legal compliance.
Efficient and economic management of environmental aspects.
Rational planning of environmental objectives for improvement.
Improved operational control in key process areas.
Credibility and assurance with customers and staff.
Competitive edge and marketing tool.
Waste Management
Every company will create solid wastes since not all companies will generate significant emissions
to atmosphere or water borne effluents (apart from domestic sewage). The quantity, nature and
manner of disposal of these wastes can all have important consequences on the environment and so
waste management is considered a key area of environmental management.
There is a generally recognized ideal hierarchy for the disposal of wastes:
Eliminate the waste (e.g. by materials substitution in the process which gives rise to the
waste).
Reduce the quantity of the waste (e.g. by improved process efficiency).
Recycle or re-use the waste material.
Incinerate the waste with energy recovery.
Landfill the waste.
Use of Energy
Good management practice should not only be concerned with the control and prevention of
pollution, but should also include the efficient use of natural resources. The discussion of this
aspect is restricted to energy and related utilities (compressed air, steam, water, etc.), since these
are resources consumed by virtually all companies.


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8.9 Implementation Schedule

The estimated project implementation schedule required to complete all pre-commercial launching activates is 18 months as shown in table
(8-12) below:
Table 8-12: Project Implementation Schedule
Time Span (Months)
Activity
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Licensing and Legal Aspects
Building Construction
Arrangement of Suppliers
Recruitment of Staff & Labor
Pre-launching Promotion



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9 Financial Study and Project Profitability Evaluation

There are numerous techniques for determining the feasibility of establishing a shopping mall.
Income Based method is the most appropriate method for determining the feasibility of the
anticipated Shopping Mall in Al-Khafji. However, the income-based approach considers
discounted cash flows to be the most appropriate method for assessing the financial implications
for the establishment of the mall, and this method will be adopted for the purpose of this study.
Discounted cash flows take into account the future earnings potential of the malls operations. Due
to the possibility of accelerated or uneven growth, the discounted cash flow analysis would more
closely reflect the financial projections and future prospects of the company, than a capitalization
of earnings approach, which focuses on the near term and stable earnings.
The concept of time value of money has been used to derive the projected income and cash flow
statements over the next ten years. These figures will enable us to approximately estimate the cash
flows that will be generated in the future for deciding the malls feasibility by discounting the
mentioned set of cash flows.
The discounted cash flows method relies on:
Estimation of future cash flows generated by the business having regard to the following:
Demand and revenue analysis for the various components of the company including the
following:
Number and Type of leasing areas
Pricing strategy.
Occupancy rate for the shopping outlets and restaurants.
Cost Analysis
Operating expenses
General and administrative expenses
Determination of an appropriate discount rate that takes into account risks inherent in the
country, competitors and the proposed shopping mall.
Determination of the capital structure of the anticipated company that takes into account the
debts to equity percentage based on a reasonable common sense and determined judgment.
The financial evaluation has been conducted based on different alternatives of investment methods
listed below, which are widely used in finance and advanced accounting theory, to assure a high
level of reliability and objectivity:
Projected Income Statement.
Projected Cash Flow Statement.



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Profitability Ratios.
Break Even Point (BEP).
Internal Rate of Return (IRR) Indicator.
Payback Period (PP) Indicator.
Profitability Indicators (PI).
9.1 Total Investment Cost
The investment cost represents the initial outlays required for the mall. This cost includes the fixed
assets of project, pre -operating expenses and working capital. Table (9-1) below shows the total
investment cost of the project:
Table 9-1: Total investment Cost
Item Value (USD)
Fixed Assets
Land 4,010,695
Building and Construction 7,186,667
Interior Finishing and Fixture 3,733,333
Office Furniture, Tools and Equipment 40,000
Transportation Vehicles 45,000
Fixed Assets 15,015,695
Working Capital 200,000
Pre-operating Expenses 486,591
Investment Cost 15,702,286

Below is a detailed explanation of the main items included in the project investment cost:
Pre-Operating Expenses
The pre-operating expenses are estimated according to the assumptions outlined in the technical
study. The pre- operating expenses consist of the following:
Feasibility study fees.
Engineering supervision and management.
Pre-lunching marketing and promotion Expenses.
Pre-launching staff salaries.
General Expenses.
Fixed Assets
Fixed assets are estimated according to the assumptions outlined in the technical study. Operating
assets consist of the following:



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Land.
Buildings and constructions.
Interior finishing and fixture
Office furniture, tools and equipment.
Transportation Vehicles.
Working Capital
Working capital requirements of the mall will be estimated based on the Malls requirements.
The amount of working capital is estimated of USD 200,000 (US Dollar Two hundred thousand
only)
Depreciation and amortization expenses are excluded from the operating, marketing, and
administrative expenses.
9.2 Project Financing and Capital Structure
In general, the new shopping mall can choose among many alternative capital structures .It can
issue a large amount of debt or it can issue very little debt. It can issue floating-rate preferred stock,
warrants, convertible bonds and callers whether put or call options. It can arrange lease financing,
bonds, swaps and forwarding contracts. Because the number of instruments is large, the variations
in capital structures are endless.
The factors influences on capital structure decisions are:
Business risk or the risk inherent in the firms operations.
The firms tax position. A major reason for using debt is that interest is deductible, which
lowers the effective cost of debt.
Financial flexibility or the ability to raise capital on reasonable terms under adverse
conditions.
According to the above variables, the suggested financing structure for the new shopping mall is as
follows:
Paid up capital = 25% from the total investment.
Long term loan = 75% from the total investment under the following terms:
Annual Interest rate is 6%.
One year grace period.
Loan period is 10 years.



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The table below shows the capital structure for the new project:
Table 9-2: Capital Structure of the Project
Item Percentage Amount (USD)
Debt 75% 11,776,714
Owners Equity 25% 3,925,572
100% 15,702,286

9.3 Anticipated Sales Revenues
Leasing Revenues
Leasing revenues are determined by the two variables: average rate for each type of leasing areas
(i.e. shopping outlets, food court, hypermarket and amusement park) and the estimated occupancy
rate of the shopping outlets during the initial operation period. As mentioned earlier in this report,
the average rental fees of each leasing type are as follows:
Table 9-3: Average Rental Fees for the Mall Facilities
Item
Unit
Average Rental Fees in USD
Shopping outlets Square meter 301
Restaurant and Caf Square meter 451
Hypermarket Square meter 125
Amusement park Square meter 132
Kiosk / ground Yearly 8,580
The estimated occupancy rate is 80% in the first year and it will grow by 5% annually to reach
100% in the fourth year onward.
Other Revenues
Other revenues could be generated from different sources, in addition to leasing revenues, namely:
Public advertising in case of installing huge electronic screen outside the shopping mall.
Shopping events, festivals and carnivals and any other event could take place inside the mall.
The table below shows the expected revenues for the next ten years of operations. In the first year,
the expected revenues are estimated at USD 2,720,267 and will reach USD 4,040,038 in the tenth
year of operations.


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Revenues:
Table 9-4: The Projects Anticipated Sales Revenues
Number of Shopping Outlets 70 70 70 70 70 70 70 70 70 70
Number of Roadside Shop 1 1 1 1 1 1 1 1 1 1
Number of Restaurants & Cafs 11 11 11 11 11 11 11 11 11 11
Average Outlet Area (M2) 68 68 68 68 68 68 68 68 68 68
Roadshop Area (M2) 320 320 320 320 320 320 320 320 320 320
Average Restaurants & Cafs Area (M2) 26 26 26 26 26 26 26 26 26 26
Number of Kiosks 2 4 6 8 8 8 8 8 8 8
Average Rent per (M2) - Outlets 301 310 319 329 339 349 359 370 381 393
Average Rent per (M2) - Restaurants 451 465 478 493 508 523 539 555 571 588
Average Rent per year - Kiosks 8,580 8,837 9,103 9,376 9,657 9,947 10,245 10,552 10,869 11,195
Occupancy Rate 80% 85% 90% 95% 100% 100% 100% 100% 100% 100%
Hypermarket Area (M2) 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562 9,562
Average Hypermarket Rent per (M2) 125 128.8 132.6 136.6 140.7 144.9 149.3 153.7 158.3 163.1
Amusement Park Area (M2) 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147 1,147
Average Amusement Park Rent per (M2) 132 136.0 140.0 144.2 148.6 153.0 157.6 162.3 167.2 172.2
Revenues Calculation
Leasing Revenues - Outlets 1,223,264 1,338,710 1,459,981 1,587,324 1,720,993 1,772,623 1,825,801 1,880,576 1,936,993 1,995,103
Leasing Revenues - Kiosks 17,160 35,350 54,615 75,005 77,255 79,573 81,960 84,419 86,951 89,560
Leasing Revenues - Restaurants & Cafs 103,189 112,927 123,157 133,899 145,175 149,530 154,016 158,637 163,396 168,297
Leasing Revenues - Hypermarket 1,195,250 1,231,108 1,268,041 1,306,082 1,345,264 1,385,622 1,427,191 1,470,007 1,514,107 1,559,530
Leasing Revenues - Amusement 151,404 155,946 160,625 165,443 170,407 175,519 180,784 186,208 191,794 197,548
Total Leasing Revenues 2,690,267 2,874,040 3,066,418 3,267,753 3,459,094 3,562,867 3,669,753 3,779,845 3,893,240 4,010,038
Other Revenues 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Total Revenues 2,720,267 2,904,040 3,096,418 3,297,753 3,489,094 3,592,867 3,699,753 3,809,845 3,923,240 4,040,038



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9.4 Operating Expenses
The operating expenses item for the shopping mall is limited and very low if compared with other
service provision firms. Most of these expenses are representing in the cost of supplementary
service provided to the tenants and some service provided to the mall shoppers and visitors. Below
is a summary of the main operating expenses item which the shopping mall could be incurred.
Wages and Salaries
The wages and salaries are estimated according to the staff requirements, salary scale and benefits
which offered to the employees in Saudi Arabia.
Utilities Expenses
The utilities consumption of the shopping mall takes several forms including electricity and fuel
which used for space heating, air conditioning, lighting and other miscellaneous power
requirements. This category also includes the cost of water and sewer costs. The utilities expenses
are estimated according to benchmarking analysis with the current operating shopping mall in
Saudi Arabia.
Maintenance
Maintenance expense is another expense category that is largely controlled by management. Except
for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating,
and electrical items), most maintenance can be deferred for varying lengths of time. The age of the
building has a strong influence on the required level of maintenance. A new or thoroughly
renovated property is protected for several years by modern equipment and manufacturers
warranties. However, as a hostelry grows older, maintenance expenses escalate.
A well-organized preventive maintenance system often helps delay deterioration, but most facilities
face higher property operations and maintenance costs each year.
The quality of initial construction can also have a direct impact on future maintenance
requirements. The use of high-quality building materials and construction methods generally
reduces the need for maintenance expenditures over the long term.
This amount should be two percent (1.5%) of Gross Revenue for the first three Fiscal Years, three
percent (2.0%) of Gross Revenue for the next three Fiscal Years and four percent (2.5%) of Gross
Revenue for the following Fiscal Years.
General and Administration Expense
The general and administration expenses include all managerial and operational expenses that
require managing the day-to-day operations of the shopping mall. Among these expense items are:
Wages and salaries for the malls management, marketing and promotion, utilities consumptions
for management premises, telecommunication and any other unspecified expense items could be
incurred.



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The table below shows the expected expenses for the next ten years of operations. In the first year,
the expected expenses are estimated at USD 2,679,519 and will reach USD 1,767,702 in the tenth
year of operation.


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Expenses:
Table 9-5: The Projects Expenses
Direct Cost
Wages and Salaries 417,600 430,128 443,032 456,323 470,012 484,113 498,636 513,595 529,003 544,873
Utilities 78,623 80,982 83,411 85,913 88,491 91,146 93,880 96,696 99,597 102,585
Maintenance 40,804 43,561 46,446 65,955 69,782 71,857 92,494 95,246 98,081 101,001
Sewer Expenses 11,531 11,877 12,233 12,600 12,978 13,368 13,769 14,182 14,607 15,045
Other Direct Expenses 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
558,558 576,547 595,122 630,792 651,263 670,483 708,779 729,720 751,289 773,505
General & Administrative (G & A)
Wages and Salaries 149,400 153,882 158,498 163,253 168,151 173,196 178,391 183,743 189,255 194,933
Utilities 5,766 5,939 6,117 6,301 6,490 6,684 6,885 7,091 7,304 7,523
Marketing and Promotion 40,000 0 0 0 0 0 0 0 0 0
Telephone and communication 3,669 3,779 3,892 4,009 4,129 4,253 4,381 4,512 4,648 4,787
Legal Advisory 6,000 6,180 6,365 6,556 6,753 6,956 7,164 7,379 7,601 7,829
Auditing Fees 10,000 10,300 10,609 10,927 11,255 11,593 11,941 12,299 12,668 13,048
Insurance (Medical & Life) 12,000 12,360 12,731 13,113 13,506 13,911 14,329 14,758 15,201 15,657
Travel Expenses 15,000 15,450 15,914 16,391 16,883 17,389 17,911 18,448 19,002 19,572
Stationery & Office Supplies 3,000 3,090 3,183 3,278 3,377 3,478 3,582 3,690 3,800 3,914
244,835 210,980 217,309 223,829 230,544 237,460 244,584 251,921 259,479 267,263
Pre-operating Expenses 486,591 0 0 0 0 0 0 0 0 0
Insurance 45,047 45,047 45,047 45,047 45,047 45,047 45,047 45,047 45,047 45,047
Interest expense 706,603 706,603 635,943 565,282 494,622 423,962 353,301 282,641 211,981 141,321
Depreciation 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567
Amortization 97,318 97,318 97,318 97,318 97,318 0 0 0 0 0
Other Expenses (Miscellaneous) 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000
Total Interest and Other Expenses 1,876,126 1,389,535 1,318,874 1,248,214 1,177,554 1,009,575 938,915 868,255 797,595 726,934
Total Expenses 2,679,519 2,177,062 2,131,306 2,102,834 2,059,361 1,917,519 1,892,278 1,849,896 1,808,362 1,767,702



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9.5 Projected Income Statement
The projected income statement shows that the company will generate gross profits of USD
2,161,709 during its first year of operation; these profits will reach USD 3,266,533 during the tenth
year of operation.
The projected income statement shows that the company will generate net profits after zaka of
USD 40,748 during its first year of operation however; net profits will reach USD 2,219,463 during
the tenth year of operation.
The tables below summarize the projected income statement for the next ten years of operations.


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Income Statement:
Table 9-6: The Projected Income Instatement

Total Revenues 2,720,267 2,904,040 3,096,418 3,297,753 3,489,094 3,592,867 3,699,753 3,809,845 3,923,240 4,040,038
Total Direct Cost 558,558 576,547 595,122 630,792 651,263 670,483 708,779 729,720 751,289 773,505

Gross Operating Profit 2,161,709 2,327,493 2,501,296 2,666,961 2,837,830 2,922,383 2,990,974 3,080,126 3,171,952 3,266,533

General & Administrative Expenses 244,835 210,980 217,309 223,829 230,544 237,460 244,584 251,921 259,479 267,263

Net Profits before interest 1,916,874 2,116,513 2,283,986 2,443,132 2,607,287 2,684,923 2,746,390 2,828,204 2,912,473 2,999,270

Interest and other expenses 1,876,126 1,389,535 1,318,874 1,248,214 1,177,554 1,009,575 938,915 868,255 797,595 726,934

Net Profits Before Zaka 40,748 726,978 965,112 1,194,918 1,429,733 1,675,348 1,807,475 1,959,950 2,114,878 2,272,335

Zaka after complete one year (2.5%) 0 1,019 18,174 24,128 29,873 35,743 41,884 45,187 48,999 52,872

Net Profits 40,748 725,959 946,937 1,170,790 1,399,860 1,639,605 1,765,591 1,914,763 2,065,880 2,219,463



103

Draft Report

9.6 =Projected Cash Flow Statement
There are two types of future cash flows that are considered for estimating the malls profitability
and feasibility as follows:
Cash amounts expected to be received by the proposed company year by year for the
upcoming ten years starting from the base year, which are generally defined as net cash flows
to be generated from the total companys activities (operating, investing, financing).
Amounts expected to be received from the residual value of the proposed company, which is
equal to net book value of total assets.
Total cash inflows during the first year are estimated at USD 1,052,906 and will reach USD
2,745,030 during the tenth year of operation.
Net cash flows during the first year are estimated at USD 1,052,906 and will reach USD
1,567,426 during the tenth year of operation.
The net residual value for the project after loan is estimated at USD 8,776,018.
The table below shows the projected cash flow statement for the next ten years


In Al Khafji

104
Cash Flow Statement:
Table 9-7: The Projected Cash Flow Instatement
Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Cash Inflows
Net Profit 40,748 725,959 946,937 1,170,790 1,399,860 1,639,605 1,765,591 1,914,763 2,065,880 2,219,463
Depreciation 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567 525,567
Pre-operating expenses 486,591
Loan 11,776,714
Total Cash Inflow 11,776,714 1,052,906 1,251,526 1,472,504 1,696,357 1,925,426 2,165,171 2,291,158 2,440,329 2,591,446 2,745,030
Cash Out flows
Fixed Assets 15,015,695
Pre-operating expenses 486,591
Additional to Working Capital 0 0 -1,903 -3,638 1,995 -1,966 -12,983 14,869 -2,575 -70 -67
Loan Installment 0 1,177,671 1,177,671 1,177,671 1,177,671 1,177,671 1,177,671 1,177,671 1,177,671 1,177,671
Total Cash Outflow 15,702,286 0 1,175,768 1,174,033 1,179,666 1,175,705 1,164,688 1,192,540 1,175,096 1,177,601 1,177,605
Net Cash flow -3,925,571 1,052,906 75,758 298,471 516,691 749,721 1,000,483 1,098,618 1,265,233 1,413,845 1,567,426
Cumulative Cash Flow -3,925,571 -2,872,666 -2,796,908
-
2,498,438
-
1,981,747
-
1,232,025 -231,543 867,075 2,132,308 3,546,154 5,113,579

Residual Value
Net Assets Value 9,760,029
Residual Value 9,953,689
Loan Balance 1,177,671
Net Residual Value 8,776,018
Loan Balance 11,776,714 11,776,714 10,599,043 9,421,372 8,243,700 7,066,029 5,888,357 4,710,686 3,533,014 2,355,343 1,177,671



105

Draft Report

9.7 Profitability Analysis
Profitability Ratios
During the first year, the net profit margin is expected to be 1.50%, 25.00% during the second year
and will reach 54.94% during the tenth year of operation.
The Return on Fixed Assets (ROA) for the first year will be 0.28 % and will reach 22.74% during
the tenth year of operation.
The Return on Investment (ROI) for the first year will be 0.28 % and will reach 9.31% during the
tenth year of operation.
Contribution Margin and Break Even Point Analysis
The break-even point during the first year is estimated at USD 2,677,292 and will reach an amount
of USD 1,631,394 during the tenth year of operation.



106

Draft Report

9.8 Feasibility Indicators
Below are the major indicators that are considered for calculating the companys economic
feasibility.
Internal Rate of Return (IRR)
Depending on the total investment and the cash inflows, the internal rate of return is calculated.
The IRR is 22.73%, which indicates the feasibility of the mall with an encouraging rate of return.
Present Value (PV)
The present value of the investment is USD 8,368,672
Net Present Value (NPV)
The net present value was calculated based on cash flow analysis at a discount rate of 10% as the
required rate of return for the proposed company. NPV amounted to USD 4,443,101
Profitability Index
The profitability index, calculated using a required rate of return of 10%, is 2.13
Payback Period
The company will payback its investment within the 7
th
year of operation.



107

Draft Report

9.9 Sensitivity Analysis
Sensitivity analysis is conducted to investigate the effects of changes in the main project
parameters.
In this scenario testing, it is assumed that the rental fees (revenue) change with plus or minus 10%.
In addition, total investment cost was assumed to change with plus or minus 10%.
Under these scenarios, the mall is still able to generate cash flows, and will still be more than
adequate to cover bank installments and related bank interests.
The table below summarizes the main stress scenarios indicators under the adjusted projections:
Table 9-8: Results of Project Sensitivity Analysis
Feasibility Indicators
Item Change (%)
IRR NPV (USD) PI
Base Case Scenario - 22.73% 4,443,101 2.3
-10% 16.98% 2,489,723 1.63
Revenues
+10% 28.70% 6,396,479 2.63
-10% 27.64% 5,469,200 2.55
Investment Cost
+10% 18.79% 3,415,436 1.79

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