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Mon 6 Dec 2010 04:15 PM

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Patrick Chalhoub

In just over 50 years the Chalhoub family have built one of the region’s most successful luxury retail groups. CEO Middle East talks to its Co-CEO.

Patrick Chalhoub
Brand builder: Patrick Chalhoub is proud to say that the group “was the first to enter the luxury market in this part of the world.”

Patrick Chalhoub’s offices are just what you would expect from someone who runs the Middle East’s largest luxury retail group. We might be in the middle of a huge industrial zone but you wouldn’t know it. Classic design pieces in muted colours, weighty fashion books strategically placed and French ornaments fill the vast space.

The office, just like the Chalhoub Group’s boss, Patrick Chalhoub — dressed today in a grey suit and Hermes tie — screams understated luxury. “We do understand luxury,” he smiles; his accent belying his family’s Syrian roots.

“I remember fifteen years ago customers would come to our boutiques and say ‘it’s very nice that you bought this franchise but do you know what? It’s not the choice and selection that we see in London and Paris.’ Today, I challenge you not to see the same collection here or even better.”

Much of the reason that the Middle East has the same selection of designer goods at the same time as the fashion capitals around the world is down to the man sitting in front of me. As the co-CEO of the family-owned Chalhoub Group, Chalhoub is responsible for some 280 luxury brands and more than 6,000 staff.

In the last 31 years the Chalhoub Group has established franchise agreements and joint ventures with hundreds of companies including Chanel, Louis Vuitton, L’Oréal and Christian Louboutin, taking the number of its retail stores to 350 across fourteen countries. Today, the Dubai-based group pulls in revenues of over $1bn, a figure which continues to grow, despite the slowdown of the global luxury market.

In 2011, the group hopes to increase its overall business by 8-12 percent, hire 6-8 percent more staff and invest considerably in the business. “We are looking at $30-40m of investment all over [next year]. That will not only be in new shops, it could be in refurbishment [and] improvement,” says Chalhoub.

Like most of the Gulf’s successful family owned businesses, the Chalhoub Group was established in much more humble surroundings than it finds itself in today. Founded in 1955 in Damascus by Chalhoub’s parents, Michel and Widad (who remain chairman and vice chairwoman), the firm had the Syrian franchise rights to sell just French three brands, Christofle, Baccarat and Jean Patou.

Back then the Middle East’s penchant for luxury wasn’t as well established so much of the business was conducted on a one-to-one basis. “Our group was the first to enter the luxury market in this part of the world, so we created a bridge between Western culture of luxury and refinement and the Middle East,” explains Chalhoub.

“At that time the business was very much about person to person contact and we would deal with dignitaries, royal family and leaders. Because the market was so narrow at the time my father and mother would travel around the region, mainly in the Gulf, during the 1950s and 60s trying to commercialise the products.”

Today, despite its size, the Chalhoub Group is still very much a family run firm with its CEO insistent that he would rather it remain privately owned than sell out to fund any growth it cannot afford. “We’ll limit our expansion to ensure we remain, not only financially independent, but also able to have the right resources in order to be able to do it,” he says. “If we move out of it [being privately owned], I’m not interested. I’d prefer to shrink, to stop expansion,” he explains.

Personal relationships with the executives that run and own the brands the Chalhoub Group work with is clearly of paramount importance and many of the executives that formed partnerships with Chalhoub’s parents during their 46-year tenure are now working with their sons, Patrick and Anthony who took over as co-CEOs in 2001. (Anthony is based in Kuwait and is responsible for Kuwait and Egypt operations)

The group continued to grow throughout the 60s and 70s and landed one of its biggest coups — a joint venture to establish the Middle East’s first Louis Vuitton store in Kuwait — in 1983. “I remember Henry Racamier, who was then president of Louis Vuitton, saying to me ‘it’s a very sad day for me to sign [this deal] because I have a lot of Kuwaiti customers but now we are opening up in Kuwait I won’t see them again,’” says Chalhoub. “A year later he said ‘I was wrong, since we opened in Kuwait I’ve never seen so many Kuwaiti customers coming into my store — when can I open another one?’ For us that was really the beginning of our franchise [agreements] with fashion brands.” Today, there are nine Louis Vuitton stores across the Middle East, which the Chalhoub Group and Louis Vutton operate together through a joint venture.

Despite being associated with so many of the world’s most prestigious names, Chalhoub insists the firm isn’t a brand collector. “We are not really brand collectors. Today, we are focusing and optimising our existing business so we really can get the best out of what we have, it’s not just about going after new franchise agreements.

“When we sign a new franchise today it becomes a much more structured way of thinking. Either, we feel there is a brand which has an undiscovered potential or if we are contacted, the screening process is always the same we ask ‘what can we bring to it?’ I get extremely excited at signing brands that are totally unknown [and turning] them into market leaders.”

But it’s not all been about building new franchises. Being headquartered in Lebanon and Kuwait in the 1970s and 1980s meant even before Anthony and Patrick became CEOs they were forced to make a number of difficult decisions about the company’s future, the biggest of which was to push forward the relocation of its headquarters from Kuwait to Dubai from five years to one year following the Iraq invasion in 1990.

“We had three options [when the Gulf War started]; wait and see, retract and perhaps invest in other places, and three the craziest idea of all was to say: ‘let’s go against adversity, the market still exists, we will continue to operate, we had already planned to move to Dubai, let’s speed things up’. Everyone said we were crazy and advised us to wait but the move to Dubai has been quite fruitful for us,” he smiles.

Dubai’s expensive tastes for designer clothes, luxury watches and fast cars accompanied the emirate’s five year real estate boom and the city emerged as one of the world’s most luxurious shopping destinations to rival London, Paris and New York. Sales at the Chalhoub Group for the five years before the onset of the financial crisis had been growing 20-25 percent annually. When the downturn finally hit the emirate, the group’s profitability declined 40-60 percent. In 2009, revenues in the luxury retail market declined 8 percent globally, according to the consultants, Bain & Co.

The steep fall in sales meant Chalhoub was forced to make some big decisions. But rather than retreating he ploughed more than $30m into restructuring the entire organisation. The money, which is being spent over five years, is being used to fund new information technology and management consultants as well as marketing, consumer research and staff training in a bid to cope with a more mature retail market in the GCC.

“This is what I call courage; it was like in 1990 when we moved. In a year where not a lot of things are happening do you have the courage to say ‘it is now that I will spend a lot of money on building for the future’?”

I ask him if he ever had doubts, he laughs; “To tell you the truth I had doubts myself; last year we really took a dip in profit because we were in expansion mode. The easiest thing would have been to cut where you can cut.”

Despite his initial reservations, Chalhoub doesn’t seem to regret his decision; he continues to spend heavily in marketing and despite closing down 50 stores this year, he has also opened another 50.

Dubai still has the largest concentration of the group’s retail outlets but the global downturn has meant a shift in sales, as well as customers. “Dubai is important for retail; it [represents] over 30 percent of the region’s leasable retail area and over 30 percent of the retail sale,” explains Chalhoub. “Until 2008 the Dubai market was divided into five sections of 20 percent; local consumers, expatriates, GCC nationals, Russians or Eastern European and the rest were made up by other nationalities such as Indian [and] Iranian. Today, it’s not like that at all. The biggest gross is coming from the locals, moving into the 20-30 percent range,” he continues. “It’s much more like a mature market. In a mature market you want at least 60 percent of your business to be locally based. Today it’s much more in line with reality.”

This shift also means that operations in other countries are becoming much more focused. Two years ago the retailer might have seen the biggest growth in Dubai, Jeddah and Bahrain, now it is Abu Dhabi, Doha and Riyadh, while Beirut and Cairo are seen as up and coming cities. In the summer the group opened stores for Louis Vuitton and Christian Louboutin, sealing Lebanon’s capital as the next big shopping destination. “Beirut is booming but it is not at the level that a country like Lebanon should be or was prior to the civil war. It still has a long way to go. There is very little good retail space at the moment,” says Chalhoub.

With the Chalhoub Group firmly behind the country’s luxury market it is unlikely to last for long.

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