Scent of success

Paris Gallery Group CEO Mohammed Al Fahim talks products, profits and taking the company public
Scent of success
Mohammed Ar Al Fahim, CEO of Paris Gallery Group
By Claire Ferris-Lay
Thu 10 Nov 2011 02:26 PM

Most days after school, Mohammed AR Al Fahim would work in a small perfume shop in Sharjah with his brothers. Al Fahim would take care of the day-to-day operations of the family-owned store while its other two employees would oversee the accounts and sales.

“We were all involved as boys in the business and for a while I used to open and close the shop, and buy the products,” Al Fahim tells CEO Middle East.

Today, as group CEO and board member of the Dubai-based retailer Paris Gallery, Al Fahim’s responsibilities include more than 40 cosmetic and beauty stores as well as a thriving distribution business, which accounts for 25 percent of its overall revenues.

He might have helped grow the family business into one of the most recognisable names in the region’s retail industry but Al Fahim still has big plans for the firm and in addition to growing the number of stores across the Arab world, he also hopes to take Paris Gallery public as early as 2012.

“When we IPO the main reasons is not to raise money — but that would be the byproduct, which is very positive — but because we want to be able to continue to maintain a leadership position,” he explains.

“To be able to continue you need to be financially sound and have efficient management. Globally, family businesses rarely last beyond the second or third generation so an IPO is a sort of safety net for us to make us more transparent, more structured and more accountable and effective,” he adds.

Plans to list Paris Gallery were first mooted back in 2008 but were delayed amid declining economic conditions. The Al Fahim family isn’t alone in delaying a listing; the number of GCC-family owned companies looking to go public plunged in the wake of the economic downturn. The total value of IPOs in the Middle East dropped 94.8 percent to its lowest in five years in the first quarter of 2011, Ernst & Young said in March.

And yet despite concerns of a slowdown in the global economy Al Fahim continues to forge ahead with aggressive expansion plans that will see the Dubai-based retailer open new stores in Azerbaijan, Iran, Turkey, Egypt and Iraq. While the political unrest in Syria has put a hold on expansion plans there, Iraq and the UAE are top priority.

Like many UAE family-owned businesses, Paris Gallery was established in more humble beginnings than it finds itself in today. Al Fahim’s father, Abdul Rahim Abdul Razzak Ali Al Fahim, established a cosmetics and beauty distribution business back in the early 1960s before branching out into the retail industry in the 1970s. But it wasn’t until his sons graduated from university that the Paris Gallery brand began to expand.

“In 1995 the whole family got together to say what are we going to do next because everybody has their own ambitions for the business,” recalls Al Fahim. “We got together and decided to focus on a partnership that would enable us to focus on retail.”

Coming up with the name, he says was more challenging. “We didn’t want anything that was related to the family; we wanted a trade name that could be expanded and understood internationally. Paris comes from our old perfumery store in Sharjah because we had a loyal base of customers and Gallery because we didn’t want to limit it to perfumery,” he explains.

The first Paris Gallery store, a 400 sq m outlet in Dubai’s BurJuman shopping mall couldn’t be further away from the outlet Al Fahim sits in today. The flagship store in Dubai Mall is one of the largest beauty stores in the region; a spacious, well laid-out homage to some of the biggest names in the beauty industry. In addition to the Givenchy, Chanel and Tom Ford counters, Paris Gallery has also stayed true to its roots by stocking a plethora of local Arabic perfume houses such as Ajmal and Al Ghali.

“We never wanted to duplicate; our goal has always been to be the leader. Our format is unique worldwide; we’re not a department store like Bloomingdales or Harvey Nichols — most of their business comes from fashion — and we’re not a specialty beauty store because we are more than that,” explains Al Fahim.

Paris Gallery might be better known regionally as a cosmetic and beauty outlet but today the group also counts fashion houses Etro, Salvatore Ferragamo and Burberry amongst its franchise partners in the GCC. Its distribution arm also means it works with local retailers, such as the Chalhoub Group and Al Tayer, to supply them products with those perfume houses it has exclusive partnerships with.

Al Fahim’s approach to his distribution business is simple; competition is good. “Our philosophy is to support the brand’s objectives and grow the business. If brands get their chance to truly be positioned in the right way and get the support they need, we’ll increase market share and the business grows,” he explains.

“Everybody wants to make the business work and everyone wants to make money but not everybody is consistent in what they want to do in terms of conflict of interest,” he adds.

Whatever Al Fahim is doing, he must be doing something right. Over 1.2 million visitors walked through its Dubai Mall store last year with at least 65 percent purchasing something. This year, Paris Gallery expects to see a twelve percent increase in overall profit on the back of increased spending.

“The number of walk-in customers and transactions has grown. It’s also very clear to us that the basket size is growing. This year we’ll be back to 2008 sales, which was a record year for many people in the industry. This year we may even exceed 2008 for the first time,” he says.

Much of this success of course comes back to the immense spending power of the GCC. The Middle East cosmetics and toiletries industry is one of the largest and most profitable in the world, worth approximately $7.2bn in 2008 and growing an annual rate of twelve percent, according to Euromonitor International.

The GCC has the world’s largest consumer per capita spend on perfumes – the UAE’s premium fragrance market alone was valued at $126.6m in 2009.

Even during the economic downturn, Paris Gallery would see women spending over AED1,000 ($272) on a specially created bottle of perfume. But it wasn’t just the expensive perfume that remained in high demand. Al Fahim says the ‘Lipstick Effect’ — a phrase coined by Leonard Lauder, chairman of Estee Lauder, for when women load up on affordable luxuries as a substitute for more expensive items of clothing during economic uncertainty — was evident even during the toughest economic climate in the UAE. “Women — no matter how the economy is — prioritise themselves and their beauty. If it’s an AED120 lipstick or a AED20 lipstick, they never let it go, they never leave it,” he says.

“Back in the last quarter of 2008 when this nervousness came into the market globally neither the cosmetics nor the skincare business was affected. Sales for niche products [high-end perfumes of around AED400 ($109)] grew eight percent.

“It’s understandable because those people who can afford and want to continue to take care [of themselves] they don’t care if it’s AED400 or AED600; it doesn’t affect their purchase power. We introduced brands in our network during this period, which were very successfully launched and it has continued,” he adds.

Those hours spent in Sharjah learning the business from the ground up have clearly served Al Fahim and Paris Gallery well.

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