BW Confidential - Issue #7 - July/September 2011 - (Page 18)

Interview Chalhoub Group co-ceo Patrick Chalhoub Focused for the future Following years of fast-paced market expansion, Chalhoub Group, the Middle East’s leading luxury distribution and retail company is preparing for slower, yet more sustainable growth in the region. Co-ceo Patrick Chalhoub tells BW Confidential about his plans for a more streamlined group and how the beauty and retail market in the Middle East is evolving by Oonagh Phillips T he Middle East beauty market may have quickly returned to double-digit growth following the financial crisis, but it seems that the frenetic pace of expansion seen between 2003 and 2008 has come to end. Growth in the market is now more likely to be in 10% range rather than the heady 30% increases enjoyed in the not-too distant past. In short, the region is beginning to take on signs of a more mature market. This is something Chalhoub Group, the Dubai-based luxury distribution and retail company knows only too well. To better prepare for the future and secure long-term sustainable growth, it has put into place a large-scale review of its systems and spending, which includes a revamp of logistics and supply chain, the implementation of a new ERP system and pouring more resources into market research to better understand the evolution of product categories and consumers in the region. This review, instigated at the height of the crisis, called for a hefty investment (to the tune of around €30m) at a time when market growth was declining. The move took its toll on the bottom line, with group profit down by 80% in 2009, but it’s a strategy that co-ceo Patrick Chalhoub says will enable the company to be better positioned for the long term. That is not to say the group was not well-positioned to begin with. Chalhoub is the leading luxury and beauty distribution and retail group in the Middle East. It distributes more than 280 brands (52% of its business is in beauty), has joint ventures with Parfums Dior, Puig and Coty and operates 350 stores, including a joint venture with Sephora and its own 80-door beauty chain, Faces. The group does not publish figures, but it is estimated that sales are now more than €1bn. Chalhoub claims that its beauty distribution business represents around 30 to 40% of the $1.5-$2bn selective cosmetics and fragrance business in the region, while its beauty retail activities (Sephora and Faces) have a combined share of 19-20% of the modern distribution market. Although competition is fierce, industry watchers say that Chalhoub’s regional expertise sets it apart—the group operates in 14 countries in the Middle East. This, combined with a more streamlined company, will likely mean that growth, albeit slower than in the past, looks assured for the years to come. 18 How is the Middle East market performing following the financial crisis and in light of recent political unrest in some countries? From 2003 to 2008 the Middle East and particularly the GCC (Gulf Cooperation Council countries) saw very strong growth in the economy—it is what we now call a frenetic period. As a group, during this period we saw 20-30% annual growth every year, which is very challenging to manage. The effect of the crisis in the West on the GCC was more of a slowdown rather than a real recession. You need to make adjustments for a slowdown. We had two things in mind: to position ourselves for the long term and to come through stronger than before. We re-focused on our activity, our stores and our people; optimized what we have and cut the fat where we could. But at the same time we kept investing. We increased investment in four areas. First in our internal processes to move to a new ERP system; the second area was in our people—we opened a retail academy in Saudi Arabia and tripled investment in our employees. The third area was our market knowledge. There is a new consumer dynamic and we need to make sure that we understand it so we increased fivefold our investment in research. Lastly, we maintained our marketing investment, but were more focused, going closer to the consumer and building one-toone relationships rather than being very general. We finished 2009 with sales down 1% in a market that was flat. We were down 80% in profit, but this was a choice as we maintained investment. The year 2010 was surprising because luxury and beauty came back to nearly the same level as 2008, partly because luxury consumers had postponed purchasing and began buying again and also because in the Middle East there was growth, fueled by oil prices and government spending. In 2010, we forecasted 8% growth, but finished the year at +16%. We didn’t recover our profit of 2008 and we’re still running at -30% to -35% of 2008 profit. For 2011 we budgeted +11%, but at the beginning of year there were worries about what was happening in July-September 2011 - N°7 - BW Confidential

Table of Contents for the Digital Edition of BW Confidential - Issue #7 - July/September 2011

Cover
Comment
Contents
Update
- Brand & retail news recap
- Companies on the move
Take note
- Market facts, figures & trends
Best of BW
- Highlights from our e-publication
Launches
- The latest in fragrance, skincare & make-up
Interview
- Chalhoub Group co-ceo - Patrick Chalhoub
Insight: Haircare
- Category overview
- Prestige retailing
- The latest trends
Wellness
- Wellness & spas
- Spa case studies
Retail
- New store concepts
Market watch: US
- Analysis: Market overview
- Department stores
- Sephora
- Drugstores
Radar
- Six up-and-coming beauty brands
Packaging
- Make-up market analysis
- Make-up trends
Last word
- G-group managing partner Judy Galloway

BW Confidential - Issue #7 - July/September 2011