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The Drapers Interview: Patrick Chalhoub's luxury dominance in the Gulf

Vast, specialised boutiques and capturing the growing online market in the Middle East are the next steps in the Chalhoub Group’s 60-year history.

Patrick Chalhoub pictured at the Jumeirah Carlton Tower

Patrick Chalhoub pictured at the Jumeirah Carlton Tower

Despite his family business boasting a 40% market share in the Middle Eastern luxury fashion market, Patrick Chalhoub is not one to rest on his laurels. In the company’s 60th year, the softly-spoken 57-year-old Dubai resident says it is essential to review the Chalhoub Group’s strategy all the time and is currently exploring new retail concepts that offer both a wide choice and the depth of a range.

The firm, which is today one of the leading franchise and equity partners for luxury brands in the Middle East and operates its own concept stores, was founded by his parents Michel and Widad Chalhoub, who opened the first boutique for French silverware specialist Christofle in Damascus in Syria in 1955.

In a tale that saw them criss-crossing the Middle East avoiding civil wars and political uprisings, yet signing deals to represent some of the world’s biggest luxury brands such as Chanel and Louis Vuitton. They eventually settled in Dubai in 1990, where the firm is now headquartered and led by co-chief executives Patrick and Anthony, who took over from their father in 2011.

Today, the group employs more than 11,000 people in 14 countries and operates more than 600 stores and more than 1.6 million square feet of warehouse space. It has a local presence in the UAE, Bahrain, Qatar, Kuwait, Saudi Arabia, Jordan, Egypt, Lebanon, Iraq and India.

Level Shoe District is the Chalhoub Group's luxury footwear concept store

Level Shoe District is the Chalhoub Group’s luxury footwear concept store

Chalhoub operates standalone franchise boutiques for the likes of Lanvin, Marc Jacobs and Céline, has equity partnerships with Christian Dior, Christian Louboutin, Fendi and Saks Fifth Avenue. It also runs its own multibrand concepts including the 96,000 sq ft Level Shoe District store dedicated to luxury footwear that sells some 800 to 900 pairs of designer shoes from brands such as Manolo Blahnik, Miu Miu and Chloé each day.

“I don’t want to present us as a stagnant business model – we have to be adaptable because everything is changing so much,” he says, as Drapers meets him just after he presented his company’s latest white paper on sustainability and luxury in the Gulf at the Responsible Business Summit in London in May.

“When we started 60 years ago, we were mainly working in a consultancy and advisory role introducing luxury brands to the Middle East, because back then the markets were quite small and it was mostly a business of direct contact with the customers.

“In time, the network of distribution has evolved and so we went from 90% of our activity being in consultancy and 10% in retail, to adding some wholesale, and for the past 15 years or so we have made a big shift towards retail, accounting for around half of our business today.”

Even in the company’s own retail business, there have been significant changes as Chalhoub was prominent in multibrand in the 1980s, moved into monobrand stores through franchise partnerships in the 1990s and is today seeing a shift from customers looking for multibrand stores again.

“Now, customers are looking for a different kind of multibrand store, with a bigger focus on experience and offering the depth of the ranges and the choice, rather than one or the other,” he says. “We’re seeing the rise of department stores in the Middle East now.”

It was his company that brought US department store Saks Fifth Avenue to Bahrain in 2008, while Dubai-based luxury retail partner Al Tayer Insignia introduced Harvey Nichols and Bloomingdale’s to Dubai in 2006 and 2010, respectively.

But Chalhoub says there is also a growing demand for stores with a more specific identity that act like department stores but specialise in one category. Level Shoe District opened in 2012, stocking between 200,000 to 300,000 pairs of shoes from around 250 brands and around 5,000 different styles, priced from £50 to over £2,000.

Katakeet is the Chalhoub Group's luxury kidswear concept store

Katakeet is the Chalhoub Group’s luxury kidswear concept store

“We are doing the same thing for the kidswear category, with a very specialised 85,000 sq ft store for children aged from newborn up to 13 years to open in February next year,” he says. Although the company already has four kidswear stores under the Katakeet moniker in UAE and Saudi Arabia, the name of this new, separate concept is yet to be announced. “It is a model that we are going to develop further, which could be very interesting.”

He would not disclose specific brands and price points but says the store will stock premium luxury, contemporary and urban kidswear, shoes, accessories and toys, as well as featuring games rooms and a kids’ café.

Chalhoub is also opening a similar, specialised model in a department store in Yas Mall on Yas Island in Abu Dhabi later this year. Again, the name is yet to be disclosed but it will focus on beauty, kids, handbags and accessories, rather than the wider selection of products such as menswear, womenswear and home products that is usually found in a department store.

He says the Middle Eastern luxury fashion market varies from much of the Western world due to the strength of the accessories, footwear and kidswear categories.

“Fashion makes up around 55% of the total luxury goods market in most of the world, but in the Middle East it is more like 40%. Within this, the women’s and men’s ready-to-wear categories are relatively small because people often dress in traditional garments rather than Western styles, but things like handbags, beauty and shoes are really popular.”

The other area where people like to spend is in kidswear, he smiles knowingly, as the father of two grown-up children.

“People here love to invest in their children, firstly because they have the wealth to do it and secondly they have this willingness to portray the best for their children, so the kidswear category is much more important in our area of the world than anywhere else,” he says. “So we are buying into those elements and giving our customers what they couldn’t find into other places.”

Chalhoub will not disclose either turnover or profits, explaining the group has qualitative objectives as well as financial KPIs to ensure they are building a long-term sustainable business, although he does concede wryly that “with 11,000 employees, we would have to be making more than say, £100m, otherwise we’d have been bankrupt a long time ago”.

It is clearly a lucrative business to be in, as Middle Eastern shoppers spend on average €1,012 (£732) on luxury items per transaction, compared with €786 (£557) for UK shoppers, according to data from tax-free shopping specialist Global Blue.

The region’s men love to purchase high-end tailoring while women, although they dress conservatively in public, often like to dress up in the latest designer fashions at women-only parties at home.

Chalhoub says its ready-to-wear prices start at around £200 but “the heart of our activity is about £700 to £1000”. Handbags start at around £100 and go up to £10,000, although the bulk of what the group sells at retail would be between £500 and £1,000.

Much has been made of the rapid growth of the Middle Eastern luxury market and critics often argue that this growth cannot be sustained.

Chalhoub says: “I’d say now we are at maturity level in the Gulf, not at a saturation level. What helps us is that we have a very young population and they are wealthy, so we still enjoy higher growth than other areas.”

But he concedes that the growth is not at the same level as the region enjoyed around four years ago, unless there is a very strong tourist drive into Dubai.

“Countries like Egypt or the Near East also have great potential when it comes to luxury and retail, and we’ll continue to invest there in spite of challenging economic situations.”

A director at a fellow Middle Eastern franchise company that partners with Western fashion retail brands says the Chalhoub Group is a significant player in its field in terms of bricks-and-mortar retail and distribution but that it had not yet led the way in terms of ecommerce.

Chalhoub agrees, saying the next big challenge will be to conquer the burgeoning online market.

“The Middle East and the Gulf in general has been very much digitally connected because it offers people a way to connect with the outside world in a fairly closed environment, as well as connecting among themselves,” he says. “While we have been focused on digitally promoting our brands in the region, the ecommerce side, both in our part of the world and for the luxury industry, hasn’t developed as quickly as the social side of things.

“Today, we still have a few difficulties, relating to the supply chain, logistics, payments and consumer trust, but it is happening and will start gradually and at one point it will have a huge acceleration. We are not at the influx part yet but we are very close to it, I suspect.”

Chalhoub started by launching an ecommerce site with its partner, cosmetics brand L’Occitane, last October and will introduce an ecommerce site for Level Shoe District later this month, with more sites expected to follow in the near future. Again, he is nothing short of bold in his plans.

“In the next five years, we are aiming for a 20% share of the online luxury market in the Middle East.”

 

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