By Lubna Hamdan
Chief executive notes that the biggest cost in digital business is the “acquisition of your customer”
Luxury retail giant Chalhoub Group says the operating costs of a retail e-commerce website are higher than those of a brick and mortar shop in the short term.
Speaking to Arabian Business, the group’s co-chief executivem Patrick Chalhoubm said building a site does not necessarily cost more than building a store.
“If I compare building a site to building a store, I wouldn’t say [the site] is more costly, but it could be as costly [or] less to similar cost. Then you have the cost of operating it. The cost of operating it is people. The cost of operating it would depend on the volume that you are going to be able to generate about it,” he said.
If a retail store cost $1m to build, Chalhoub said, a site would cost between $500,000 to $1m to build. On the other hand, if operating a store with a team cost a million dollars, operating an e-commerce website would cost more than the million, the chief executive said.
While the operating cost is higher, Chalhoub said it is not the biggest cost when it comes to e-commerce.
“The main cost is related to the customer acquisition; the marketing as well as creating a connection with the customer. This cost is very heavy especially because it is a cost per person. If you are in a mall… the traffic is coming to you. If you have an e-commerce site, you have to build your traffic and generate it. And this cost is the heaviest cost [in e-commerce].
"If you have a good website and you have loyal customers, then with time, it becomes very relevant. So to answer your question, in the short term, it is much more costly to operate an e-commerce site than it is to operate a store,” he said.
The chief executive said the region has not yet felt the digital transformation as strongly as areas such as the US, but said people are becoming much more engaged in e-commerce.
He added he is “not sure how much” Amazon’s recent acquisition of Souq.com would affect the luxury sector, stating it would most likely affect specialist websites instead.
The Chalhoub Group is one of the region’s leading luxury retail firms, operating more than 600 retail stores across the Middle East.For all the latest retail news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
"If you are in a mall… the traffic is coming to you". This to me is everything wrong with the attitude of retailers in the UAE.
The "if you build it they will come" thinking will quickly become irrelevant - if it hasn't already done so.
I agree with the above comment. Established retailers in the UAE already have the customer base. The real challenge here is not setting up a perfect e-commerce website to match the stores from the beginning. It's about understanding how e-commerce as a touchpoint will create value to the existing customers and then digitise these aspects to have a coherent experience with the stores.