Patrick Chalhoub: “The Middle East luxury market will stagnate for another two years”
On April 11 - after London and before Paris - Patrick Chalhoub, co-CEO of the Chalhoub group, a luxury goods distribution specialist in the Middle East, passed through Milan to present the group’s sixth white paper, which was this year focused on the beauty sector.
It was an opportunity for Chalhoub to talk to FashionNetwork.com about the luxury goods market in the Middle East; a sector worth an estimated €13 billion, according to consultancy firm Bain & Co., while discussing the group’s new projects, on the eve of the launch of its partnership with British luxury marketplace Farfetch.
FashionNetwork.com: What is the trend of the luxury goods market in the Arab Gulf region?
Patrick Chalhoub: We have had two very tough years, with sales shortfalls ranging between 1% and 2%. Several factors have contributed to this decrease, beginning with declining oil prices. This caused a decrease in subsidies on raw materials and consequently fuelled inflation. In 2017, GDP in the region grew by only 1%. The market was also affected by the strength of the US dollar. In addition, consumer confidence has lessened due to local geopolitical tensions, especially with the wars in Yemen and Syria.
FNW: Which is the region’s main market?
PC: The United Arab Emirates. Though it is Saudi consumers who buy the most luxury goods in the Arab Gulf.
FNW: What are your expectations for the future?
PC: The luxury goods market in the Middle East will continue to stagnate for the next two years. The introduction of VAT in some Gulf Cooperation Council countries will not make things easier. Nevertheless, the market is about to be radically transformed, as increasingly younger consumers acquire more and more influence, and as digital tools become ubiquitous. These factors are game-changers.
FNW: You recently launched into e-commerce and signed a partnership with Farfetch. How are you progressing?
PC: We began working with Farfetch in February, though the official launch is scheduled for May 1. We will contribute our knowledge of the Middle Eastern market, while Farfetch will bring in its own e-tail know-how. We will begin with our three retail brands Level Shoes, Level Kids and Tryano. The idea is to then extend the collaboration to other chains. We first ventured into e-commerce in 2015, launching the e-tail site for our beauty brand Wojooh. Then, in 2016 we introduced the Sephora Middle East e-store, followed by L’Occitane. This week, we launched the Middle Eastern e-store of British cosmetics brand Molton Brown, and this year we are also planning to introduce one for our Oriental fragrances label Ghawali.
FNW: The Chalhoub group has expanded its business outside the Middle East, in India and recently in South America. What is your overseas strategy?
PC: We opened in India about ten years ago, because it is a market located less than three hours away from our headquarters in Dubai. We set up our own company there, Tarz Distribution, specialising in perfume distribution. We now have an 18% market share in organised fragrance distribution in India. As for the South American market, we invested in a partnership with the Panama-based Saint-Honoré group, a specialist in luxury brands distribution, something of a counterpart of ours in Latin America.
FNW: As a distributor, what future do you see for brick-and-mortar retail?
PC: For us, e-commerce is a significant growth driver. But this doesn’t mean its the end of the line for traditional stores. Young consumers are keen to touch products. But, like me, they don’t want to waste time. When you buy online, your size and preferences are known, and you don’t need to queue up to pay, or to carry your shopping bags around. Of course, [traditional] stores need to reinvent themselves. Nowadays, to make a store interesting, you have to offer other services, and provide an experience that appeals to all these busy consumers. If this is the case, consumers will not hesitate to spend a couple of hours in a store.
FNW: How is your business performing, in the face of the current crisis?
PC: We are a family company and we don’t disclose our results. I can only say that we currently employ 14,000 people in 14 countries, and we operate more than 700 stores.
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