Chalhoub Group reinvents itself to face new challenges in the luxury industry
today May 24, 2019
Having established itself as an indispensable door into the Middle East for luxury brands since its founding 65 years ago, the Chalhoub Group has undergone a profound transformation in the last few years. In order to maintain its leading position in the region, the distribution giant, which was founded in Damascus by Michel Widad Chalhoub in 1955 and moved its HQ to Dubai at the beginning of the '90s, has undertaken a veritable digital revolution and doubled down on strategic partnerships, such as the deal it signed with Farfetch in 2018, while also investing in high-tech distribution solutions through its start-up accelerator, The Greenhouse.
With operations in 12 countries, including India, where the group distributes fragrances, the company runs 700 stores and 12 e-commerce sites in the Middle East. It employs 12,000 people and distributes some 400 brands, from big-name luxury brands to niche labels, not to mention the group's own private labels and brands. The company does not publish its financial results but estimates suggest that its revenues are in the billions of euros. The years of double-digit growth, however, are now a distant memory. Since 2015, the luxury market in the Middle East has consolidated, leading to a notable slow-down in growth, which has been stagnating around 1 to 2%.
"It's been very hard since 2015 and it still is today, even though we've been seeing an improvement in the last 6 to 9 months. Politically, the region is very complicated," explains group CEO Patrick Chalhoub. This state of affairs has led the company to reconsider its business model, shifting its emphasis onto digital channels. The group began its e-commerce activities in 2015 with the launch of a dedicated online store for its Wojooh beauty label. This was followed by e-shops for Sephora Middle East and L'Occitane. Last year, the company debuted the e-commerce site of its oriental fragrance label Ghawali in the region, with a number of other platforms launching in the following months.
"We were a bit late to the party but digital technology is now integrated into every part of our customers' journey, from the moment they are searching for information about a brand, right up to the moment of purchase, including delivery. Before digital technology, it was just e-commerce, now it's part of the whole system, from making life easier in stores to payments and logistics. This has also changed how we communicate, pushing us more towards social networks," Chalhoub told FashionNetwork.com.
In September 2018, for example, the luxury distributor embarked on a joint venture with French media conglomerate Reworld Media to produce and distribute content aimed at the new generation of consumers in the Middle East. Still in 2018, Chalhoub also teamed up with British luxury marketplace Farfetch, introducing its Level Shoes, Level Kids and Tryano brands to the platform. This deal in particular, which saw the company partner with one of the foremost players in digital luxury, allowed the group to accelerate its own digital transformation while reducing the risks involved in this process.
In the space of only a year, the results have been better than anyone could have expected. "With our help, Farfetch has become the top luxury fashion platform in the Middle East, having previously only been in fourth place. Around 4% of our customers, who accounted for 20% of the marketplace's sales, now represent 40%. This was made possible thanks to the highly personalised services that we've made available," commented the group's CEO. Collectons put together especially for Ramadan, for example, have been hugely successful. Furthermore, the site has attracted a number of retailers, a fact which has contributed to the expansion of its offering and the availability of products on the platform.
Another of the Chalhoub Group's technology-oriented projects, launched at the end of 2018 in an effort to catapult the family business into the future, is its The Greenhouse incubator, which supports new ideas and start-ups "specialised in retail technology." The initiative is aimed at both projects proposed by the group's own employees and international start-ups that have already begun their own projects, with five proposals from each of these two categories being chosen to receive support from the company for a period of three months.
"Among the ideas that have come from group employees, out of 15 that have been chosen, three will become actual projects that we will invest in. As for the international start-ups, we're currently working with the second group of five, giving them access to our group's companies. Among the first five start-ups to come through the programme, four have done business with us and opened offices in Dubai. In the new group, three have already signed contracts. If the technologies or innovations that they are proposing work will with one of our companies, we'll roll them out throughout the rest of the group," continued Chalhoub.
These innovations range from the creation of a "magic mirror" for fitting rooms to an application giving product recommendations in real time, to ideas about the best way to grab the attention of a shopper walking by a store window. "This initiative allows us to be at the cutting edge of technology. Today, more than representatives, we have become real partners for brands because we bring them a certain added value," concluded the CEO.
All these new initiatives have been accompanied by the implementation of a new way of running the business, "in order to attract top talents to the group and to let them express themselves freely." As Chalhoub explains, "our management is less hierarchical than it was in the past. Under our new structure, each person represents a cell that belongs to a group of cells that all interact with each other. People aren't just about their performance, now they have more autonomy to play with. It's a very significant change for us."
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