From the impact of influencers to the importance of transparency, Drapers spoke to Patrick Chalhoub, co-CEO of The Chalhoub Group, to discover the challenges and opportunities that lie in the Middle East’s nascent luxury ecommerce boom.
The Middle East is in the midst of a digital revolution. As the population gets younger, more connected and more demanding in their desire for luxury, retail is facing a new series of challenges and struggles to capitalise on the burgeoning market.
Drapers spoke to Patrick Chalhoub, co-CEO of The Chalhoub Group, the leading partner for luxury brand alliance Walpole in the Middle East, at the launch of the Chalhoub white paper, Luxury in the GCC: Age of Digitisation?, to find out the reasons behind the market’s boom and the resulting opportunities for brands looking to enter the market.
The Middle East is entering a new ecommerce frontier
Luxury consumers in the Middle East are young and digitally empowered and, as this market grows, it is fuelling the rise of a new ecommerce revolution for the country.
“The digital revolution in the Middle East has been happening for quite a while in terms of mobile users and internet connections, but the new thing in the Middle East is ecommerce,” says Chalhoub.
A total of 52% of the population in Saudi Arabia, 51% in Oman, 49% in Bahrain, 47% in Kuwait, 47% in Qatar and 40% in the UAE were aged under 30 in 2016, and internet use in these countries is soaring. In 2015, internet and smartphone penetration rates surged to 84% (compared with 49.5% worldwide) and 126% respectively. These connected consumers are digitally empowered, and ecommerce is rising to meet to their needs.
“One reason for the boom is that when people became connected, they started seeing that there was a gap in luxury pricing between the Gulf and elsewhere. This has been one of the triggers that made ecommerce popular: it makes sure there is transparency, and that brands are selling the same lines and stories across borders.”
Luxury is embracing the Gulf’s digital potential
“Luxury has been very resistant to the digital world, be it because brands want to safeguard their image, or because they find they cannot give the same experience online. I would say we’ve reached the point over the past two years where luxury is getting much more engaged with digital. Without a doubt, luxury brands are starting to use digital more,” explains Chalhoub.
“The luxury ecommerce market in the Middle East is underdeveloped,” he says. “There is a momentum from brands and retailers that is picking up on that.”
While ecommerce in the Gulf region currently makes up just 2.6% of total retail sales (compared with 7% globally in 2015), and online accounts for just 2.5% of total luxury sales, luxury ecommerce in the Middle East is expected to reach a total value of US$1.5 billion within four years.
The Middle East’s ecommerce revolution is a golden opportunity for niche brands
“Smaller luxury brands are starting to realise ecommerce is a huge opportunity, as they could enter the market at a much cheaper price, with fewer barriers than opening physical stores. It’s still complicated to develop in the market, but it is much easier to enter. Until recently, brands would have to make a connection with a multi-brand store and it was complicated to get into the market. Digital makes things so much simpler,” explains Chalhoub.
“It is happening mainly thanks to the customers, rather than because of the brands themselves. Customers now enjoy the aspect of ‘discovery’ with ecommerce. They are becoming assertive and are looking for something different. Ecommerce means people can try lots of different brands until they find one that they like. There is a huge opportunity for niche brands to engage in the market because of this.”
There is still a future for innovative physical stores
“Bricks-and-mortar is still very important, and it always will be. What they have to do is bring much more experience and much more service to customers. If you go to the website to shop it’s either for the convenience, the price or for a specific solution. When you go to bricks-and-mortar stores, it’s to enjoy your time there,” says Chalhoub.
”There need to be more services and experiences. There must be a service, an experience or an option for the customer to attract them to the store. In addition, there must be a personal connection with the customer. We have to make sure that in all we do, online or not, we navigate around the consumer.”
Social media and influencers are key to the market
“For the Middle East, influencers and social media are huge. Ecommerce has developed quite quickly in countries where there are barriers to personal connections outside the family sphere. Social media allows these connections. With social media, and the arrival of influencers with a real point of view, there is a real possibility of connecting with someone – you can share their views, and they will communicate back,” explains Chalhoub
With a luxury market where 90% of consumers are aged 18 to 26, social media influencers are a phenomenon in the Middle East. Luxury in the GCC found that in 2016, 61% of people aged 18 to 26, and 56% of people aged 27 to 34, followed at least on influencer online, while 71% of UAE residents aged 18-40 were happy to take advice from an online influencer before making a purchase.