Patrick Chalhoub, co-chief executive officer of the Chalhoub Group.
MILAN — “It’s a new world,” said Patrick Chalhoub, co-chief executive officer of the Chalhoub Group, which is one of the leading operators of luxury brands in the Middle East. The company released its fifth white paper study here on Thursday, focusing for the first time not only on the market in the region but on the evolution of local customers.According to Chalhoub, there’s a significant change in society and in the approach to shopping. The countries of the GCC, or Gulf Cooperation Council, are at a demographic turning point, especially in Saudi Arabia and Oman, where half of the population is under age 30.Chalhoub highlighted how this new generation of young, well-informed and strongly digitalized consumers have different values and priorities compared to the past, looking for experiences more than mere brands and status. “The consumers’ behavior is totally changing because of digital,” he said. “We’re entering a new world of less easy money and less opulence, where we will have to work harder and expect less revenues."After years of exponential growth, the luxury industry in the region slowed down, gaining 1 percent in 2015 but decreasing 1 percent in 2016. Chalhoub Group’s revenues increased 3 percent in 2015 and 1 percent in 2016, while for 2017, even with flat market conditions, the company expects to close the year with sales growing 4 percent.Part of such a recovery will be attributed to e-commerce channels, which are starting to boost their appeal. In 2015, the region’s online sales accounted for just 2.6 percent of total retail sales, against a worldwide average of 7 percent, with luxury goods’ sales totaling $230 million. Thanks to major operations, including Amazon’s acquisition of Souq.com, the venture signed by Symphony Investments with the Yoox Net-a-porter Group and the upcoming launch of Mohamed Alabbar’s Noon.com, high-end online sales in the Gulf are expected to climb and total $1.5 billion within four years. Chalhoub explained how the fastest-growing countries for e-commerce are the United Arab Emirates and Saudi Arabia, where customers “are very thirsty for it because the shopping experience is not very exhaustive.”Chalhoub explained how a series of cultural factors caused the delay in the expansion of e-commerce. “We can’t talk with customers in a language they don’t understand,” he said, referencing the limited number of online stores in Arabic. In addition, in the region consumers still prefer transactions in cash and have some privacy concerns that prevent them from leaving address information, which has led the group to promote “cash and collect” solutions. “We can’t refuse a user because they don’t have credit cards,” Chalhoub said, “We need to adapt, because if we refuse [to do it], we lose the market.”Chalhoub Group, which counts 650 stores in 14 countries, plans an investment of $80 million for 2017, part of which will be dedicated to digital activities.These will include the implementation of five e-commerce sites — Level Kids, Tryano, Swarovski, Michael Kors and Ghawali, an oriental fragrances label — for a total of 10 online stores by the end of the year. The goal is to reach 20 web sites in 2018, all divided by brand or franchise. “We have decided to not have big multibrand sites for the moment, as we first need to capture customers in the most relevant way,” said Chalhoub.According to the ceo, omnichannel is the key element for the future of retail. “The brand is not at the center anymore, the customer is, so we have to use the best of digital and physical to connect and engage with him,” he explained. “Those who want to survive in the market need to gear up right now or they risk being left out."In particular, the goal is to create the in-store signature physical connection in the “cold” digital world. On the other hand, Chalhoub stressed the need to provide in stores some of the services that online platforms offer, including a history of what a consumer has bought and a track of their preferences. Engagement with clients can be developed with customized services, including text messages, e-mails and exploiting the broad success of WhatsApp through dedicated messages.Among digital’s main assets, social media is a driving force in the region and defined as the “favorite source of information.” Chalhoub pointed out how in countries such as Saudi Arabia, these channels have enabled people to be more engaged and communicate with each other. “Today, a person’s clan is his social media contacts,” he said, underscoring how the average time spent by users in the U.A.E. and Saudi Arabia on such channels is 3.27 and 2.85 hours, respectively, compared with 1.85 hours in the rest of the world.Chalhoub also stressed how the large number of women who don’t work prefer social media, Instagram in particular, to television or books, highlighting the importance of video content and, mostly, influencers. According to the white paper, 71 percent of people in U.A.E. aged 18 to 40 said they follow the advice of influencers before purchasing a product, because of their “honesty and integrity,” said Chalhoub.In order to continue to focus and better understand consumers’ behavior, Chalhoub Group has created a “customer and innovation strategy” division aimed at collecting and analyzing data on Millennials, in particular. A change of mind-set is promoted internally with a “reverse-mentorship” program, where younger employees of the company are supporting and teaching older ones about the latest digital tools and innovations.
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