Diwan: A Tale Of Heart Over Matter

May Kamal ID case # 57

Diwan: A Tale of Heart over Matter

During their annual meeting on December 1st 2009, the managing partners of Al-Sharq for BookstoresDiwan examined the effects of their increased expansion over the last two years. The study of the financial statements revealed an unpredictable situation that jeopardized the partners vision for the company. As a result of its fast expansion all over Egypt from December 2007 to December 2009, Diwan experienced a steep increase in costs which were not covered by the revenues generated. The executive board, Hind Wassef, Nihal Schawky, and Nadia Wassef, had to take several tough decisions before the end of January 2010 to save their business.

Entrepreneurs' Background
Driven by their passion for reading and culture, Hind and Nadia Wassef graduated from the American University in Cairo (AUC) with a Bachelor of Arts in Political Science and English and comparative literature in 1991 and 1994 respectively. Both sisters went on to get Masters degrees, in English and comparative literature, in 1994 and 1996. Afterwards, Nadia continued her education at the University of London where she obtained another Masters degree in Social Anthropology in 2000. The start of the 21st century marked a shift in the sisters interests away from social reform, especially womens rights, to an entrepreneurial pursuit that would not only re-shape their personal lives but also contribute to cultural reform in Egyptian society. Joined by their friends Ziad Bahaa El-Din, Nihal Schawky, and Ali Dessouki, they founded Diwan Bookstore. The introduction of Diwan to Egyptian market bridged the gap between book-starved customers and book retailers. Before the launch of Diwan, some bookstores in Egypt stocked only a limited selection of books, which were rarely current titles. In order to acquire their desired publications book-hungry individuals were forced to purchase them in other countries, where the book retailing industry is more developed, or to wait for the annual international book fair, which offers a great variety of new and used books. However, with the book fair held only once a year, individuals had to pay a lot of money in order to satisfy their yearlong book needs. For this reason, Diwan is considered a pioneer in the book retailing industry in Egypt. Some fortunate coincidences guided the way: First was the availability of a retail space in Zamalek. Secondly, Alaa El Aswany, a prominent Egyptian author, had just published his most famous novel Omaret Yacoubian (The Yacoubian Building). This novel grabbed the attention of all sectors of Egyptian society as it addressed the social struggles currently facing the different segments of the society. The interest in reading and discussing this novel provided Diwan with an opportunity to capitalize on. Last but not least, some economic factors also affected Diwan, such as the devaluation of the Egyptian Pound, which meant that people preferred to spend their disposable income in local rather than foreign markets. These unplanned factors played a major role in Diw ans introduction to the Egyptian market.

Diwan: A Tale Of Heart Over Matter

Diwans Start up
The five friends wanted to create a recreational cultural experience for families with a disposal income. Until Diwan, the middle-class Egyptian family had to rely on restaurants for an outing. Motivated by their passion for books, the friends idea of a boutique bookstore that sold niche products came to life. The first Diwan in Zamalek was launched on March 8, 2002. Services offered by Diwan include, first, an extensive selection of books in Arabic, English, French, and German in many different categories, such as arts, history and fiction. Secondly, a Multimedia section offers audio books, DVDs, educational CD ROMs, music CDs, and PC games for both children and adults. In addition, Diwan offers more than just new multimedia releases; it also offers classics which arent easily found in the Egyptian market. Also, Diwan has a stationery section in every branch that offers products from local and international suppliers, artistic calendars, bookmarks, and notebooks. Last, but not least, Diwan offers a variety of other services such as book binding, childrens activities, corporate gifts and services, gift wrapping, services for schools (including field trips, supplying books for school libraries), event hosting, and used book exchanges. However, Diwan cannot be described as just another bookstore, for it has transformed the ordinary purchase of a book into a cultural retail experience. In addition, Diwans priority as always has been customer service and satisfaction, which was one of the reasons why services such as delivery and loyalty cards were established. These loyalty cards allow customers to accumulate points based on purchases. Upon reaching 100 points, customers are rewarded with an LE 100 (US $20) voucher with which they can purchase any of the products offered by Diwan. The success of Diwan wouldnt have come about without an exceptional management team, which has certain indispensable characteristics: they are strategic thinkers who have a long-term vision and are committed to the development of the organization. Hence, their main objective is to empower their teams in order to increase productivity and customer satisfaction. In addition, Diwan has partnered with several strategic partners who are equally passionate about the revolutionary transformation of the book culture in the Egyptian society. These partners include publishers, writers, local non-governmental organizations and cultural centers. These partners not only aid Diwan in bringing books into the mainstream, they also diversify the services that Diwan has to offer as well as increase its target market.

Diwans Organizational Culture

Diwans management culture is based on the passion that drives people to do what they do best while enjoying it. This culture can be felt as soon as one steps one of Diwans branches. One can see the values that have been set up from the beginning and which have played a gigantic role in the success that is witnessed today, such as passion, transparency, and sensitivity to the needs of the community. These values also emphasize team work instead of hierarchy. Trust, recognition, social responsibility, and innovation are also essential elements. Diwans priority is customer satisfaction, with its welcoming, warm, and comforting atmosphere as well as its various services that seek customers fulfillment. Moreover, Diwan is constantly and relentlessly striving for innovation and the creation and implementation of new ideas that will further transform the concept of the traditional around the corner bookstore into a cultural center where intellectuals get together to improve the cultural status of the country and region. This innovativeness comes from constant learning in order to enrich and broaden customers horizons. Consequently, Diwan has developed its own website in which it offers several features, such as discussion forums and book clubs, as well as insightful and inspirational daily entries on history, culture, and arts.

Diwan: A Tale Of Heart Over Matter

Over expenditure problem in 2009

The success of their first branch in Zamalek encouraged Nadia and her partners to expand, in order to end the book retail famine all over Egypt. Citadel Capital, a private equity firm, supplied 40% of the initial investment capital, enabling Diwan to expand all over Cairo and the north coast. In a matter of two years, Diwan was able to revolutionize and change the concept of a traditional bookstore by opening the first book-retailing stations in huge shopping malls, such as the Diwan Station in Alexandria City Center. Also, December 2007 witnessed the birth of the largest bookstore in Cairo: Diwan Heliopolis. Expansion continued to dominate Diwans main business strategy until there were about twelve branches of Diwan eager to serve the awaiting market. There are many costs to consider when opening a new branch. First, theres the rent , which varies according to the space and location. The refurbishment costs vary from LE 3000/ m2 (US$500) to LE 5000/m2 (US$850), with an average branch size of 120 m2. In addition, theres the high cost of some essential parts such as the cashier unit and the dcor that fits Diwans culture and atmosphere. Needless to say, the merchandise and the books inventory, which include some direct costs such as the purchase price and some other indirect costs such as shipping, custom duties, etc The idea in evaluating the breakeven point in Diwans business model is to amortize the costs of all the branches on the sales of all of them. The amortization of the costs of each branch on its own sales would demonstrate that branches with the larger spaces are less costly than those with smaller spaces. Hence, the division of the costs on the total number of branches would lead to a breakeven and. From there on, the ability to estimate the percentage of the revenues compared to that of the costs. For Diwan, the opening of its branches had negative impact that appeared during the analysis of the expenses and revenues. The analysis demonstrated a 60% deficit in the budget. And the revenues that were generated by the different outlets were covering only 40% of the costs. Therefore, an immediate decision had to be made in order to avoid further losses and to breakeven.

Future of Diwan
In an effort to sustain its market share, Diwans innovativeness is impeccable. By using the experiences of the more developed book cultures in other countries, where book retail has had a chance to mature, Diwan is able to bring in many new ideas to the Egyptian market, and hence, it is able to sustain its everlasting development. The next step for Diwan is to introduce e-books, making use of the spread of different technologies such as Apples iPad and Kindle. Also to expand the range of social-related events, such as lectures given by prominent people on different subjects.

Conclusion
Diwan is more than just a book retailer; it offers lots of activities for the people of Egypt as a whole for children and adults. As well as serving the book-hungry population, Diwan also meets the cultural and intellectual needs of Egyptian society. Diwan has revolutionized the book-buying experience in Egypt, but its success has come at a cost that threatens the companys profits and operations. The time has come for Diwan to re-shape its business model. According to Nadia Wassef, The best business decisions are made at the worst of times and the worst business decisions are made at the best of times. One option is for Diwan to build the strong bond with its loyal customersthe ones that value the services offered and could potentially bring in new customers in the future.