Patrick Chalhoub CEO of the Chalhoub Group on the future of retail, the challenges faced, and transforming the business to meet the needs of today’s and tomorrow’s consumer.
In 1979 Patrick Chalhoub followed in his father’s footsteps in shaping up the future of retail in the Middle East when he took over the family business alongside his brother Anthony. By trying to meet the aspirations of luxury in the region in a more consistent and deeper way, the Chalhoub Group has built multi-brand networks of retailers, distributors and now e-commerce that has allowed luxury in the region to become more unified, more readily available and more engaging with consumers. In 1979 the company employed around 100 people, today that number has grown to over 12,000 and the company’s market share has exploded to over 30 per cent. Today, the Chalhoub Group is the largest retail operator in the Middle East and it has played a crucial role in developing the luxury sector in the region.
But what makes the Chalhoub Group so unique is actually Patrick himself. His passion and flair for luxury and retail are what drives the company and his entrepreneurial mindset and desire to always be moving and keeping ahead of the times has allowed the Group to be a leader in its field for the last 40 years. This year, when the global pandemic hit, the Chalhoub Group was already well prepared. Under Patrick’s guidance, the Group had already outlined a plan for the future that would see it progress into the digital, technological and data-driven era and be able to lead in the industry moving forward. Of course, the Group has faced difficulties this year, like any of the world’s corporations, but with a new mindset already instilled into its employees, partners and consumers, the Group is weathering the storm and continuing to plan for the future. To find out more about building for a better future and being leaders in their field in the region, we talked to the CEO of the Chalhoub Group, Patrick Chalhoub.
What can you tell us about the way the Chalhoub Group has been and is continuing to restructure the company and build for the future?
Every time we say we are putting something in place that will take us to the next phase, things change and we have to adapt, so it has been quite an interesting ride. Around three years ago we decided that we needed to transform our organisation. Even if we have been an ambassador of luxury for years in the Middle East, we have remained quite a traditional retailer. We felt that things were changing; the environment, the consumers etc. and we needed to transform and move towards the different vision of being a hybrid retailer that brings luxury to the fingertips of our customers anywhere and everywhere. I am very happy that we started this movement three years ago, since if we hadn’t, the situation with the global pandemic would have been really difficult. We set ourselves a period of 900 days, which came to an end in June this year, but that was just beginning. We have put in place a transformation structure called “shift” and now we have to shift the whole organisation and make sure the structure is in motion. Thankfully the idea of re-organising ourselves happened before the pandemic as it was obvious that we needed to move forward.
Moving onto the global pandemic, unfortunately, we are living through this period of craziness which is not over yet. We immediately realised that we needed to react very quickly. Firstly, we had to take care of the health and the welfare of our people. Secondly, we had to make sure we were connected to our customers and that they were safe. This was the reactive part. After this, we started to think about that point when we are going to return to business, and we wanted to make sure that we do that most efficiently and adapt to the reality of what we are living, and this is how we have been working over the past few months. In parallel to this, we are also keeping in mind what will happen after the pandemic. Life will eventually continue but the world will be different. So we had to question how we are going to reinvent ourselves as a Group after the pandemic and understand how we can be the most relevant to future needs.
We need to make sure that our Group’s activity remains relevant to the customer. The customer is changing so we as a Group need to constantly adapt to be relevant to them. The pandemic has purely accelerated this movement for us. We had already started to move into digital for example, then when our stores were closed this accelerated and now it has become part of our company. We aimed to reach 12-15 per cent of our total revenue from digital sales. Before the pandemic, we were at 3 per cent and it increased to 20 per cent during the pandemic, so the acceleration was there. Taking all this into consideration we need to, more than ever, put a structure in place within the organisation which will create this relevancy.
The other thing that we need to involve is innovation and creativity in everything we do. This is not only in the products we sell but also in the type of experience we offer, we really have to make sure that we have this creativity and innovation in our mindset. We must also be agile in whatever we do, and we will achieve this by making sure we have people within the organisation who are empowered and can move ahead.
The last point that has nothing to do with the pandemic is that I am blessed to have around me a team that has accompanied me for 20 or 30 years. As a family business, one of the most important elements is knowing how we can make sure there is a transition between people who are loyal and knowledgeable to welcoming a new generation who will perhaps know different and new things but also can absorb everything we have worked on. This is the final element that has prompted us to make sure we become this hybrid retailer and continue our movement and transformation. We have had a shift in our leadership team, which meant a shift in the way we are seeing the business. We split our business into two and saw it from a holistic point of view. And finally, we are looking at becoming more data-driven. We are very blessed to have a lot of data on our customers collected over many years, but honestly, we have never really used it because we didn’t know how to use it well and analyse it to help us be relevant. So we are working hard to analyse this and use it to help us move forward.
What are the current challenges you are facing today?
There are different types of challenges. The biggest challenge today, which hopefully will disappear in time, is that people are feeling insecure. This is happening because we don’t know how the pandemic will affect our families and us. So everyone, from customers to employees is worried about security. As a company, to address this immediate challenge of security we need to do two things. One is to try to secure people, but the second is to have honesty and transparency. The worst thing I believe is to give false hope to people. So you need to be transparent and tell the truth, even if it’s not 100 per cent securing people, but this will ensure they will believe you and trust you and there will be no surprises.
The second challenge is to ensure that we can absorb this change of mindset. From an employee point of view, we are not changing our values or beliefs, but the way we are doing business and behaving has to adapt. We still want to have good people who are delivering what we want, but we are adapting to the mindset of working in different ways. Changing behaviours, without changing our values or beliefs but changing the way we process business is important.
You have launched the “Greenhouse” platform a few years ago that works with SME businesses and individuals – tell us a little about this initiative and why it was something you wanted to do?
The Greenhouse is something that I feel we should be very proud of as a Group. With the Greenhouse, we had three objectives. The first was to help the change of mindset within the organisation and make sure that we go back to an entrepreneurial mindset. The second was to nurture talent. We had a lot of people within the company who had plenty of ideas but could not pursue them, so we created a place where they could initiate their idea, have the job security and if it works, develop it and if it doesn’t, go back to their job. The third objective was that we needed to make sure that start-up companies all over the world became aligned with us. For a long time, companies of our size or bigger have been afraid of start-ups and we wanted to stop this and use the best of them.
Three years after having launched the initiative we feel that people are feeling that they are offered more opportunities. We have at least three ideas who are on a very good path to success, which has made the whole Group extremely happy. We have brought companies from all over the world who have now established their businesses here in the UAE and also added value to our business. So we really feel that this is moving in the right direction. Now we want to scale it up and allow it to include all aspects of our business. We want to take it to Saudi Arabia where there is a movement of entrepreneurship. In the new chapter of the organisation, the Greenhouse will be a key part of our innovation moving forward.
What can you tell us about the work and development you are doing in Saudi Arabia?
Saudi Arabia has always been our most important market by far. Not only our most important market but in our activities of luxury fashion and beauty, we are among, if not the leading company in the country. With the new environment of business, the growing economy, women’s empowerment and all of these things happening in The Kingdom, things are moving extremely fast and as an organisation, we should be able to not only lead the movement but also make sure we are the ones who are shaping the future. That is our ambition.
How are we going to do it? It will start with people – making sure we have the right people based there. This is something we started three of four years ago when we opened our retail academy in Jeddah. This will build a foundation that enables us to attract retail clients and develop these people. Bridging this with people who are talented and want to use their initiative; young designers, for example, people who we want to offer the opportunity to develop. We have a much deeper understanding of the market and we have been visiting areas in Saudi that we have never been too. I was taken to some of the new districts out of the city centre and I found such interesting ideas, I saw concept stores, met people with great ideas. There is a feeling of it being underground and no one knows about this exciting industry and it was honestly fantastic. I visited one particular concept store that was absolutely amazing. It had been there for five years. I found things that I would have never imagined I could find. There was also a nice mix between things that were produced locally and pieces from some of the leading designers. I told them “I am happy that you are here, and you don’t have to pay the rent in the mall”. But it turned out that their rent was actually higher than the rent in any of the malls in which we are renting. They know all of their clientele by name, they engage with them and they have a great business. All of this has been happening in the background in Saudi Arabia but now it’s moving to be at the forefront. So as a group and an organisation, it is our mission is to make sure that we cater to this new generation of people and align with them to help us shape and move in the right direction. I think we can bring a lot to them, but they can also bring a lot to us as a company. The opportunity is huge. Despite the pandemic, we have still been moving forward with our work there and building the bridge in all aspects of the business. Now we need to make sure we are a part of the ecosystem, but also driving the ecosystem.
How do you see the future of retail in the Middle East and globally in the near future?
For me retail, if we are talking about hybrid retailers whether digital, physical or any form of 360 retail, is still an activity that will without a doubt, continue to grow. There is no denying that luxury retail has been damaged as a result of the pandemic. 2020 will be remembered as the year where luxury retail saw a loss of around 25 per cent in the Middle East specifically. This is a lot better than some parts of the world and China is doing much better than us as they rebounded much quicker. So on average, we believe that the recovery will happen between 2022 and 2023, which will get us back to 2019 figures. The bigger picture is if we project ourselves in 2025, and this is again only a projection, but if we project for five years time, we reach the same figures as what we would have projected in 2019, despite the pandemic. So the future of luxury, be it in our region or the world, is absolutely, totally there. Yet, it will not be the same motivation of purchases or the same category of product that is leading, in fact, it will be totally different.
Of course, the classic question has been about physical vs. digital. Before the pandemic we were originally forecasting that probably by 2025, 20 per cent of luxury retail would be digital. Today after the pandemic, we are saying that it might be 23-30 per cent. But honestly what I care about is what my customer wants and what is convenient for him or her. What I need to do is to be a good hybrid retailer. Are shoppers looking for an experience online? No, they are looking for convenience but there is no human touch. When it comes to convenience we have to do that in the best possible way – making sure there is the ease of use, providing all the necessary details and offering good delivery. But the digital experience will need to continue being improved with augmented reality, with artificial intelligence, and there are a lot of things that we can do, some of which we don’t even know yet.
Then we move onto the physical experience. Is the current experience satisfactory? No. Today, customers go to the store for an experience otherwise they buy digitally. If they visit the store it’s because they want to be inspired and have a human connection and a service. All of this considered; retail, be it physical or digital, will continue but we need to transform these experiences and move forward. If customers are in a store they don’t want to wait. They want to pay in the most efficient way. If I am offering a discount I must make it a good discount. If I am offering an experience, a service, a connection, a discovery, I need to give it to the customer and make it a great experience. Execution is more difficult than talking about it. It’s complicated and it requires investment in many places. But in terms of intellectually, I have never seen a more interesting period across my entire career. We are questioning ourselves about how to do things moving forward. I honestly think we are discovering a new retail, which requires us to really delight our customer. Even in a digital world human touch will be so much more important than ever before.
What would be your advice on what makes a successful business model today and what would you advise entrepreneurs?
It’s a difficult question but having said that it all starts with an idea and a vision. You must have a real conviction that your idea is meaningful. Once you start with this idea you need to conceptualise it and make sure that it has traction and that’s when it will become a business. At the part between the idea and the conceptualisation, a lot of people will abandon their idea because they are afraid, or they don’t have the means etc. You must have the courage to take this idea to conceptualisation. Then when you get to this point, you need to be persistent and make sure that you make the necessary movements to make this idea happen and have this proof of concept to do it. Here again, some people would lose patience and not take it any further. For me, these are still the easy steps. The third step is asking how you are going to scale up your business and does it have the traction to do this? This for me is probably the most crucial part.
A lot of effort is being made today to create this eco-system of start-up ideas, but there is not enough focus on once it has been conceptualised, how you do you scale it up and move it from idea to what it could become? This is the part that requires a lot of belief in yourself, a lot of patience, persistence, fight and conviction. This is probably the most difficult step to making it happen and become successful. This is actually where I as a person would like to help support businesses. To help them scale up their concepts and make them a big success. My advice here is patience and persistence – and then you will fly!
What is something that you still aim to achieve that you haven’t done yet?
I was blessed to have inherited this Group from my parents and with my brother we developed it, unfortunately, he passed away and I continued to develop it with mistakes and successes. Now it’s time that we make this transmission to a younger generation including my son. When I speak about family and family values and the team transmission, this is probably the most difficult step because you think you can lead and grow, but there comes a point when you have to understand that you need to let go and put in place some building blocks for the future. So this is definitely what I want to succeed in.
Secondly, I think the community has given me a lot and we do try to give back, but something I would like to do more of is to find more meaningful ways to give back to the community. Be it through the scaling up I was talking about, or education, mentoring, humanitarian projects, looking at the sustainability of our planet and our people. I think there is a lot to give and I have a lot to learn on how to be able to do it.
What is a lesson that you will carry with you from 2020?
Apart from how to remain agile, one lesson I have learnt is that you have to keep your eyes on both the short term and the long term. During the pandemic, humankind has mostly been quite genius and reacted to the best of their ability. Often what we have lacked is to continue to think about what happens after. So we need to be able to continue having an outlook on the longer term as well as the shorter term. It is easier said than done.
A second lesson is that this movement of solidarity and collaboration, which we have seen everywhere, is incredible and it’s incredible that we are not about to have this same level of cooperation and understanding during normal times. We don’t need to have a pandemic to make this happen. Together we can collaborate and contribute and not only to face adversity, we can collaborate for the good as well.
What is a message you would like to send to your clients in the Middle East?
I believe that beauty is in humankind and as a Group, family and business, we love and care for all of our customers, we believe in them and we are sure that they believe in themselves. So together, we can be much stronger, and we can co-operate to make this world a better place.