Jarir Marketing Co. - Investment Club

20 min read

The reason behind analysing Jarir Bookstore

From a small library with an area not exceeding 50 square meters, it turned into a giant library with an area estimated at 50,000 square meters, with 71 branches across the Kingdom, from sales of a thousand riyals to daily sales estimated at 4 million riyals, and from one employee to 1,200 employees and more.

The company was founded in Riyadh in 1974 as a small bookstore, the project began to grow in the market over the days until, in 2000, the company became a joint stock (closed) with a capital of 240 million riyals.

The company was listed on the Saudi Stock Exchange (Tadawul)، and the company turned into a public company, its shares were listed in 2003 until its capital reached 240 million riyals. The giant company achieved profits estimated at 222 million riyals by the year 2007, and this pioneering company continues to achieve success.

According to BRANDZ 2017's list of the Top 20 Brands in Saudi Arabia, Jarir is the best brand in the country and the top retailer. Additionally, Jarir is included in the Arab world's "Top 100 Listed Companies" list.

The firm's expansion, financial development, and rise in market value are some of the most significant factors that motivate us to study the company's finances. By doing so, we may learn where the company is going and what it expects to accomplish in the upcoming years.

Sector overview globally:

The retail sector is projected to experience significant and continuous growth, with a focus on electronic development. This entails the rise of electronic stores and applications, replacing physical stores for purchasing purposes. This shift aims to enhance consumer convenience and technological advancements. It also leads to the emergence of smart goods and services that facilitate daily life. The retail sector will play a pivotal role in offering these products to consumers. Projections indicate that the fashion and apparel sector will exhibit the highest compound annual growth rate (CAGR) of 8.7 per cent between 2021 and 2026, making it the fastest-growing retail product category worldwide. Following fashion and apparel, electricals are expected to be the second-fastest growing product category based on CAGR.

These estimates provide insights into the growth potential of different sectors within the global retail industry over the specified period.

Sector overview in Saudi Arabia:

The retail goods sector encompasses a wide range of products and services that fulfil human needs and desires. It is responsible for supplying goods to the final consumer. This sector includes various items such as smartwatches, stationery, painting tools, books, and electronic products, among others. In Saudi Arabia, the overall retail industry is projected to grow at a compound annual growth rate (CAGR) of 4.6% from 2022 to 2027, reaching SAR 727.2 bn. While hypermarkets, supermarkets, and hard discounters currently dominate the market, the online channel is expected to experience the highest growth during this period, with a CAGR of 14.0%, reaching SAR 75.8 bn.

The important external factors that are most likely to have an impact on a Jarir Bookstore can be identified and evaluated using the strategic framework known as a PESTEL analysis:

Development of the sector

The retail sector in the Kingdom of Saudi Arabia has undergone remarkable transformations in recent years. One striking aspect of this transformation is the substantial increase in retail sales, demonstrating a Compound Annual Growth Rate (CAGR) of 12.1% over the past nine years. This remarkable growth reflects the expanding consumer base and the growing appetite for retail offerings in the country.

Moreover, the retail industry has witnessed unparalleled progress in terms of net income, which has surged at an impressive rate of 10.16% over the past eight years. This notable increase underscores the sector's ability to efficiently manage its operations and enhance its profitability.

Furthermore, the retail companies operating in the Saudi Arabian market have displayed consistent dividend growth, with a CAGR of 12.52%. This not only signifies financial stability within the sector but also indicates the confidence of investors in the long-term prospects of retail businesses in the Kingdom.

These multifaceted developments in the Saudi Arabian retail sector are indicative of its resilience and adaptability to changing market dynamics and consumer preferences. They also underscore the sector's potential for sustained growth and its importance within the broader economic landscape of the Kingdom.

Future of the sector:

It seems that the retail industry in Saudi Arabia has a bright future ahead, thanks to several contributing factors. Based on the latest economic performance and statistical data, the retail market in the country has already reached 553 billion Saudi Riyals this year. Experts predict that it will continue to grow at a CAGR of more than 4% from 2021 to 2026. This positive projection suggests that retail companies like Jarir have a great chance of success in the Saudi market, as there is a steady demand for their products and services. Moreover, other factors such as technology, sustainability, and demographics are also expected to play significant roles in shaping the industry's future trends and success.

Jarir's activities and The Market share:

Jarir began as a small bookstore in Riyadh in 1974 and subsequently grew to become one of the largest retail chains in the region, offering a diverse range of products. Jarir's product portfolio is extensive, encompassing office supplies, school supplies, consumer electronics such as laptops and smartphones, books and publications in both Arabic and English, arts and crafts materials, computer accessories and software, and many other products.

Market share for Jarir varies by product type, reflecting the significant diversity in its product offerings. For example, its market share in laptops reaches up to 50%, while in smartphones, it amounts to 20%. In the book category, it accounts for 40% of the market share, and in the schoolbook category, it ranges from 30% to 40%.

Geographical Expansion: In addition to its main presence in Riyadh, Jarir has expanded across many cities in Saudi Arabia and the entire region.

Technological Advancement: Jarir can be at the forefront of technological advancements, offering the latest devices and technologies to its customers.

The diversity of its products and its strong presence in multiple categories make it an important shopping destination in the region for a wide range of goods and services.

The company offers a diverse range of products, including books, electronics, school and office supplies, arts and crafts materials, and more. Customers can purchase these products from physical Jarir stores or through their website.

Jarir Library offers a variety of key services, including book sales, browsing, and home delivery services. In addition, customers can search for specific books and order them from the store. For added convenience, Jarir provides a mobile app that allows customers to purchase and read e-books on tablets.

1. Technology Services: These services include the sale of electronic devices such as laptops, smartphones, and tablets. Jarir Library also provides maintenance and repair services for electronic devices.

2. Gaming Services: Jarir Library offers video games, board games, and gaming accessories. Customers can purchase games and accessories and take advantage of maintenance services if necessary.

3. Delivery Services: Jarir Library provides delivery services for customer purchases to their homes. Customers can order products online and choose to have them delivered to their address.

4. Customer Services: Jarir Library offers excellent customer services by providing advice and assistance in product selection and responding to customer inquiries.

5. Loyalty Programs: Jarir Library offers loyalty programs for valued customers, allowing them to benefit from special discounts and rewards when making purchases.

In addition to these core services, Jarir Library also offers supplementary services such as training, printing, gift wrapping, and exclusive releases, making it a comprehensive destination to meet the diverse needs of its customers.

The figure illustrates the market share of the retailing sector in the Kingdom, with Jarir holding a market share of 47.6% of the total sector revenues. This share can be further segmented based on its product categories, reflecting the significant diversity within its product range. For example, its market share in the laptops category stands at 50%, while in the smartphones category, it reaches 20%. In the books category, Jarir holds a 40% market share, while in the schoolbooks category, it ranges from 30% to 40%.

Here is Jarir Bookstore's timeline, which illustrates its remarkable growth:

We conclude our examination of Jarir Bookstore's business performance in the SWOT analysis by exploring its internal strengths and weaknesses, along with the external opportunities and threats that impact its performance and position in the retail market:

After we have taken a comprehensive look at the retail sector in the Kingdom and the performance of Jarir Bookstore and its market share, we now move on to take a glance at its prominent competitors:

Al Saif Gallery

Al Saif Development and Investment Company emerges as one of the competitors to Jarir Bookstore in the retail sector. Established in 1993, Al Saif Gallery primarily focuses on retail services, specialising in the sale of:

Electrical appliances
Home appliances
Household tools

Notably, the company went public on the Saudi Stock Exchange 'Tadawul' in December 2022, with a market value of 2,877,000,000.00 Saudi Riyals. In a strategic move, the Board of Directors at Al Saif for Development and Investment opted to apply for a micro-financing license and initiate the establishment of a financing company. This strategic shift aligns with the company's expansion into the significant home appliances sector, where it anticipates that consumer financing will play a pivotal role in boosting its sales. As of 2022, Al Saif Gallery commanded a market share of 3.75%

SACO:

Saudi Company for Hardware (SACO) stands as a competitor to Jarir Bookstore, distinguished as a pioneer in the hardware retail and wholesale business. It holds the esteemed title of being the largest total-solution home improvement superstore in the Kingdom of Saudi Arabia. SACO's diverse range of activities is worth noting, including:

Wholesale trade.
General contrcting for buildings.
Electrical and machine works.
Decoration works.
Maintenance of buildings, facilities, residential and commercial complexes.
Garden maintenance and landscaping.
Import, export, transportation, and storage services.
E-commerce for various company purposes.

In the dynamic retail landscape, SACO has asserted itself with a substantial market share of 5.77%. This multifaceted approach and extensive presence in the hardware and home improvement sector position SACO as a prominent contender in the market.

Extra:

Among the notable and formidable contenders in the competitive retail sector, Extra emerges as one of Jarir Bookstore's most significant and largest competitors. Extra, a prominent and widely recognized entity in Saudi Arabia, operates within the retail domain, specialising in an extensive array of products:

Retail of electronic goods.
Sales of home appliances.
Offering a wide range of household items.

Renowned for its expansive presence, the company boasts numerous outlets across the nation, offering consumers competitive pricing and a diverse product repertoire. Extra's inception in 2003 can be attributed to the establishment of United Electronics Company. With a substantial market share of 29.62%, Extra solidifies its position as a significant player in the retail landscape, intensifying competition within the sector.

Finally, we will present a financial ratios comparison between Jarir and its competitors:

Net profit Margin:

The net profit margin is an important financial indicator that displays a company's ability to generate profit from its core operations by indicating the proportion of net income or profit obtained from revenue. It is computed by dividing the company's net earnings by its total revenue.

Analyzing the financial performance of Jarir, Saco, and Alsaif, Jarir emerges as a standout with a consistently strong net profit margin of 10.33%. This consistent performance, maintaining a margin between 10% to 11% over four years, underscores Jarir's exceptional cost management and stable profitability. In stark contrast, Saco reports a concerning -12.54% net profit margin, raising red flags about its financial stability. Conversely, Alsaif Group exhibits a robust 17.56% margin, showcasing sustained financial health, despite a slight decline. With a net profit margin consistently above 15%, Alsaif Group demonstrates remarkable cost control and resilience in a competitive business landscape.

Current Ratio:

The current ratio, a critical financial metric, provides valuable insights into a company's ability to meet its short-term financial obligations using its immediate assets. It is calculated by dividing current assets by current liabilities.

Jarir maintains a remarkably high and consistent current ratio, standing at 1.38x as of December 31, 2022. This signifies Jarir's sustained financial strength and its capacity to promptly fulfil financial obligations. In contrast, Extra Co. exhibits a lower but still stable current ratio of 0.57x on the same date, showcasing improving liquidity over time. SACO, while lower compared to Jarir and Extra Co, maintains a reasonable current ratio of 0.16x as of December 31, 2022, indicating effective management of short-term liabilities despite some fluctuations. Al Saif Group, with an exceptionally high current ratio of 2.99x, maintains liquidity but may have substantial idle assets that could be used more efficiently. Jarir's impressive and consistent current ratio places it in a robust liquidity position, outperforming its competitors. However, the significance of these ratios also depends on the industry and financial strategies, necessitating a comprehensive assessment of each company's financial health and short-term financial management.

Inventory Turnover:

The Inventory Turnover Ratio is a key financial metric that assesses how efficiently a company manages its inventory by measuring how many times it sells and replaces its inventory within a specific period.

Jarir stands out with a consistently high Inventory Turnover Ratio. As of 2022, Jarir recorded a ratio of 6.33x, indicating that it sold and replaced its inventory approximately 6.33x times during the year. This consistent and relatively high ratio suggests that Jarir has been effectively managing its inventory, ensuring that products are efficiently converted into sales.

Comparatively, Extra also demonstrates efficient inventory turnover with a ratio of 4.61x in 2022. While slightly lower than Jarir, it still reflects effective inventory management. On the other hand, SACO and ALSAIF show lower and, in the case of ALSAIF, negative ratios. SACO's ratio of 1.67x indicates a relatively slower inventory turnover, and ALSAIF's negative ratio suggests potential difficulties in managing and selling inventory efficiently. Jarir’s consistently high Inventory Turnover Ratio highlights its exceptional inventory management and quick sales conversion compared to competitors.

ROA Ratio:

The Return on Assets (ROA) ratio is a vital financial metric that assesses how well a company turns its assets into profits. It's found by dividing net income by total assets and serves as a key measure of efficiency and profitability.

Jarir demonstrates consistent performance with a ROA of 0.23 in 2022. This signifies that Jarir was able to generate 0.23 units of profit for every unit of assets it held during that year.

Comparatively, EXRTA also maintains steady performance with an ROA of 0.11 in 2022, indicating reasonable profitability in its assets. SACO shows fluctuations and even negative ROAs, particularly in 2022, suggesting challenges in generating profits relative to assets. On the other hand, ALSAIF boasts a relatively higher ROA of 0.2 in 2022, indicating efficient utilization of its assets to generate profits.

Debt-to-Equity Ratio:

The Debt-to-Equity Ratio, a significant financial indicator, assesses a company's financial leverage by comparing its debt levels to its equity. It's calculated by dividing total debt by shareholders' equity.

In the four companies across the provided years, Jarir consistently maintains a relatively low ratio. This demonstrates Jarir's prudent financial management, indicating that it relies less on debt financing and maintains a balanced capital structure. In contrast, EXRTA and SACO consistently exhibit higher ratios, suggesting a more substantial reliance on debt in their capital structures. Al Saif Group ALSAIF, similar to Jarir, maintains a lower ratio, indicating a more conservative approach to financial leverage. Jarir stands out among its competitors for its conservative financial approach, with lower debt reliance, potentially reducing financial risk and enhancing stability.

Asset Turnover Ratio:

The Assets Turnover Ratio is a crucial financial metric, revealing how effectively a company generates revenue from its assets, calculated as total revenue divided by average total assets.

In this context, Jarir consistently shines with a robust ratio, averaging 2.21x over four years, indicating its skilful use of assets to drive revenue. EXRTA and ALSAIF also demonstrate commendable asset turnover, signifying efficient asset utilization. However, SACO lags, hinting at the potential for improvement in extracting revenue from assets. Overall, Jarir distinguishes itself among competitors with its consistently high asset turnover ratio, illustrating its efficient asset utilization and revenue generation prowess.