Saturday, Oct 21, 2017
Industry & Trade | Middle East | United Arab Emirates

Chalhoub Group

“Now you cannot only spend more, but you are also able to invest”


2 years ago

Patrick Chalhoub, CEO of the Chalhoub Group
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Patrick Chalhoub

CEO of the Chalhoub Group

Focusing on the luxury end of beauty, fashion and gift items in the Middle East, the Chalhoub Group created a highly respected retail academy to demonstrate how to add value to customer services. CEO Patrick Chalhoub discusses the dynamic landscape for regional business based in the UAE, the Emirates’ competitive advantages, and the challenges of matching digital trends with real-life demands in retail.

 

Could you please tell us more about the genesis of Chalhoub Group and its major milestones with the expansion in UAE?

We are a family business that was established 60 years ago. We focus on luxury (beauty, fashion, and gifts) and the Middle East. We have moved our head office from Syria to Lebanon, then to Kuwait and finally to the UAE. We took this decision because of the political and economic instability in some of those countries. However, one of our key strengths is that we’ve always been regional, ever since the foundation of the Chalhoub Group. In fact, we are present in 14 countries across the region.

Today we have over 12,000 people working in the organization and we operate over 650 retail stores. But retail is only 50% of our business, because we also have a marketing advisory and consultancy arm, and we have distribution and wholesale, mainly for beauty products.

Our presence in the UAE began through a business-to-business approach with specific families who could afford our luxury products. At the beginning there was no real distribution network. Afterwards, we began to work through our distributor, and only in 1990 did we implement our own distribution route. When my father first came to Dubai, he was in direct contact with many influential people, and he had the opportunity of meeting His Highness Sheikh Rashid bin Saeed Al Maktoum several times. One of the things His Highness used to tell my father in 1961 was: “Come here often, my son, this will be the future Hong Kong.”

For us it has been an extraordinary country to grow in because of all the facilities it provides. It’s true that when we speak about Dubai and the UAE we speak about the future. However, in my opinion the essence of this country has always been the same: it is a wonderful platform, a fantastic logistics center and hub that connects talents from all around the world. And this is exactly the experience we have had here.

 

What is Chalhoub Group’s future strategy in consideration of the high profitability but also volatility that characterizes the region?

I agree that this is a region with a higher risk factor: there are cases of political turmoil; economically, the main risk is associated with oil price fluctuations; and we have also witnessed social protests. This being said, the Gulf – more than the entire Middle East – is still a very stable region. The stability has been built on the strong foundation of trust among families and tribes that respect each other and work with each other.

Many people misconceive the fundamental meaning of democracy, saying there’s no democracy here, to which I disagree. If we ask ourselves what the meaning of democracy is and consider it as the act of listening to people, giving them a voice and a chance to participate; then yes, we have a form of democracy.

So, in terms of political systems, it is debatable whether a European or American system is more or less stable than here. Countries in the Gulf operate under another set of rules and if you understand it culturally and you appreciate it then you will start investing money because you will understand the system from within. This is an incredible place to diversify your portfolio. There is a limited market here; but if you look at the greater Middle Eastern region including, for instance, Egypt, India, and Pakistan, you have tremendous opportunities to grow. In my opinion you cannot do business only in Dubai if you want to be a world-class player, the size of the domestic market is simply not large enough. If you consider it as a platform, then you can be a global player from the UAE. 

 

What do you think are the opportunities stemming from the new trends in tourism as a result of Expo 2020?  

I love the word milestone. And I have repeated it ever since the UAE won the bid for Expo 2020: 2020 is not a target, it’s a milestone. Let’s imagine the UAE had lost the bid; the plans for infrastructure, real estate, and tourism development would have been the same. Expo gives a direction. The central theme that revolves around the concept of “connecting minds” goes back to the roots of Dubai, when it was the exchange point between India and the West for spices. Now, it is not only connecting goods, it is also “connecting people”. Hence, this milestone gives us a direction: Dubai is a platform and we want to expand from Dubai.

It also gives us another mission: attract 20 million tourists in 2020. It’s a big number, but it makes sense. And in order to achieve this target, the country is building gradually and intelligently in a sustainable way. In this respect, we all have a role to play. For me, as a retailer, I have to make sure I can attract people willing to come to Dubai in order to visit my stores. 

 

The luxury and retail markets are getting more and more competitive. How important is the human capital factor in order to provide an added value to your customer service?

We are already working to create a pool of talent, which will be working in different areas: from technology to creative fashion and design industries, to luxury retail. If we want to maintain Dubai as one of world’s best luxury retail destinations in the world, we need to give people much more than the convenience of shopping here.

We are going to provide, first of all, real expertise combined with depth of choices. We have to remain competitive in our prices and we need people who are passionate and knowledgeable about the industry. In a country where education is still a challenge, we have to create a platform where people are even more knowledgeable than anywhere else in the world. Secondly, we have to offer an experience. We have to make sure our clients’ experience will be memorable and that it will make them come back. So, experience and expertise both mean more resources to create this kind of platform. We are in an environment that is very helpful because it offers flexibility that other countries lack. Therefore we can easily adapt, react, try, move, and learn from our mistakes.

In short, human resources are absolutely key. At Chalhoub Group we started the Retail Academy in 2008. I am very proud of the evolution of the academy, because in less than 10 years it went from providing elementary information to world-class knowledge. We understood that customers need much more than just basic product knowledge. Our staff need to be more informed and have to be able to talk about fashion, trends and what the competition has to offer. Some people think that you can hire the best people in the world and bring them here, but what you really need to do is develop talents. It is not an easy task, because in human resources one plus one doesn’t always equal two. It is more dynamic; there is leadership involved, emotions, competitiveness, and character. There are many elements you have to taken into consideration. Some of our partners have seen the academy and they would like to replicate our model in their respective countries.

 

Let’s take the macroeconomic factor into consideration: what has been the effect of a weak euro and the sharp depreciation of the ruble on the sector?

I would say we have been suffering in general, in Dubai, from the depreciation of the euro and appreciation of the dollar. When we start comparing the prices of hotels, plane tickets, and retail prices, Dubai has become increasingly expensive as a result. Within a month’s time, we have seen a 25% increase. The fantastic thing about Dubai is its flexibility. The collapse happened in December and we started ringing the bell at that time. As of February, actions had been taken – a very quick reaction. The adaptability of this economy definitely helps.

On the other side, people living in Dubai have seen their purchasing power increased due to the lower cost of imported goods. In addition, the value of expats’ savings in their home currency has been increased due to the USD rise. In other terms, groups that want to make investments today can think about investment opportunities they would not have had two years ago. Now you cannot only spend more, but you are also able to invest.

 

Do you think the appreciation of the dollar will attract more American business this year?  

We are attracting much more American business, but it is not for that reason. What is helping us is that Dubai is getting much more promoted in the States today than it has ever been. We have easier airline connections and, at the same time, Dubai is a platform for other emerging markets. It used to be hard to go out of the US; sometimes they invested in Europe, in the UK, and in China. But today as China is suffering, they start thinking about Indonesia, India, etc. Dubai is perfectly located to reach those countries. The fact that American businesses are thinking about those emerging markets, and not only China and Japan, makes Dubai extremely attractive for them. Investors look for security and for a certain standard of life, which they can find in Dubai. These are in my opinion the main drivers of American investments in Dubai.

The Russian market is different. The Russian crisis has hit us hard, because some of our Russian customers for luxury brands are worth 20% of the business. Since the devaluation of the ruble, their share dropped to probably 5%. On the positive side, economies always follow cycles. The first market to benefit from the Russian recovery is going to be Dubai, because our diplomatic relations have always been great with Russia.

 

Millennials expect a deeper link between retail services and how they manage their everyday lives. Innovative technologies on a mobile platform will be expected as more individuals rely on connectivity across platforms. How do you think millennials getting into the market will impact the retail and luxury sector?

I feel like in Dubai we could grow faster to capture this digital transformation. I think consumers are much more digitalized than what the retail industry has to offer. We need to invest heavily in order to speed up this process, because I think we are absolutely late compared to the evolution of what is happening in other companies and in the retail sector in general. We can take advantage from being a latecomer: certain countries have to go through different phases of innovation; here, we have the chance of going from something that is completely obsolete to something that is modern, without passing through the intermediate steps.

A few years ago, we were very skeptical about going digital in luxury retail because we were not sure about how we could offer the experience through a digital network – which we felt could not reflect our know-how, our craftsmanship or our knowledge. Probably, we were not truly aware of the possibilities it offered. Today, we completely encompass the digital world. The idea is to make it easier for the consumer. Some consumers prefer to check out our products online first and then come and buy them; others, buy at night because they don’t have time during the day.

We conducted a study on digital channels. When talking about e-commerce in the Middle East we had certain apprehensions about payment and logistics. However, the study has proved us wrong. In fact, it is a worry but not any more so than anywhere else in the world. The real issue is that people want to touch and to connect with the product, so the challenge is to give them that experience.

 

Can luxury be reconciled with sustainability?

For me, sustainability is about how we can live in this world without damaging it, making it viable for millions of years.

To come back to your question: if I have fast moving consumer goods at an affordable price, how many times will you have to change those goods? For instance, I have had my own luxury pen for four years, which means it pollutes less and is more sustainable. In terms of fashion, the quality of a luxury product will make it more sustainable; the price will be higher, but more durable as well. So, luxury is more sustainable than anything else. Then, it is a question of respecting certain principles. We are true believers that we have to respect the environment and we have to create our products consciously.

As a company, we decided that since we are a family business we want to create something sustainable for future generations and also for the environment. First of all, we act as opinion leaders. Wherever we can exercise that influence, we use it to speak about sustainability and create awareness. We conduct many awareness campaigns and we involve our teams in actions, for instance the deep-sea cleaning initiative.

We consider the impact we can have on the environment. We even ask this to our developers and partners. For example, we were the first ones to ask for a recycling process in the mall. In fact, we have been recycling for the last 10 years. Another example is the implementation of a green checklist to make sure that we are using the right lamps and electrical power every time we open a new store. We teach our drivers to be conscious and spend less energy. We are creating a process through which we can measure the company’s consumption of CO2. So it is about creating awareness but also about taking action. I don’t know where the idea that luxury is not sustainable came from. On the contrary, we have to make people truly aware that quality means sustainability.

 

Chalhoub Group is also a member of the UN Global Compact Community. Is there any feature that you would like to bring in the sustainability reform agenda to be discussed in a multilateral level within the UN?  

I think we need to put in place certain minimum requirements that people have to accept. What I like about the UN Global Compact program is its continuous improvement, because once you reach a standard, it will get higher. You are always trying to outperform yourself. What I like less about it is that there are no minimum requirements, which, in my opinion, should be established for everyone, because sustainability is in the world’s interest. So continuous improvement is great, but first we need those basic standards. 



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