The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
DUBAI, United Arab Emirates — If ever there were a movie waiting to be made about a modern retail dynasty, it would be about the Chalhoubs, a tightly-knit merchant family whose unshakable drive has engendered the rise of a retail empire moulded by some of the most dramatic periods in recent Middle Eastern history.
Crisscrossing a half-dozen Arab countries during intense periods of conflict, prosperity and upheaval in order to sell European luxury goods, their 58-year-old business has mirrored many of the region's defining moments, while the firm's mounting profits have become entangled in a precarious web of royal patronage, nation-building and nouveau riche.
Founded in 1955 by Michel and Widad Chalhoub in a city now known for rolling reports of bloodshed, the Chalhoub Group began as a small outfit selling Baccarat, Christofle and Jean Patou to the elite of Damascus, Syria, in the wake of four successive military coups which followed the long-awaited ousting of the French colonial government. Shortly after the discovery of vast reserves of oil in the Gulf, Michel Chalhoub trekked through a still largely barren region to present his wares to the sheikhs of Kuwait, Abu Dhabi, Dubai, Qatar, Muscat and Saudi Arabia. Upon his return to Syria, the country had merged with Egypt to form the short-lived United Arab Republic and by 1965 the Chalhoubs were compelled to pack up and move to Beirut.
Patrick Chalhoub, chief executive of Chalhoub Group
In 1975, the civil war in Lebanon forced them to uproot the family firm yet again and relocate to Kuwait, where business flourished further and where the next generation entered the fold. Alongside their parents, sons Anthony and Patrick Chalhoub who are today joint CEOs of the company, witnessed their parents sign deals with Louis Vuitton and Chanel for retail distribution in the Gulf, thanks largely to the petrodollars that were pouring into the region. In 1990, when Saddam Hussein's army invaded Kuwait, their parents hunkered down while Patrick and Anthony set up a company in exile in order to keep operations running from the safety of Paris.
During the two decades that followed, the Chalhoub Group has become one of the biggest distributors of fashion and luxury goods in the Middle East, adding Ralph Lauren, Lanvin, Céline, Marc Jacobs, Lacoste, Saks Fifth Avenue Dubai and many, many more storied names to its portfolio. Today, from its headquarters in Dubai and offices throughout the region, it manages over 400 stores in 14 countries through a variety of joint venture, franchise, retail management and distribution partnerships.
"At the beginning of my parents' career there was no network of distribution. There were no retail stores and there were not many people who would under- stand and appreciate luxury and the refinement of it. My parents had to be in direct contact with their customers, which is very funny because this direct contact with the customer is exactly what we try to do today," Patrick Chalhoub recently told Lebanese business magazine, Executive.
Although most of Chalhoub’s competitors may not have stories that are quite as historic or breathtaking, they were all able to capitalise on a unique set of circumstances that have led to a powerful, decades-long oligopoly on the import and distribution of fashion in the Middle East, something which is still very much alive today. “They all benefited from being early to approach brands at a time when the Middle East wasn’t as high of a priority as other more developed parts of the world,” says Shashi Menon, publisher of Style.com/Arabia, Condé Nast’s first licensing venture in the region. “Gulf countries also have local regulations around foreign investment, which made such partnerships necessary.”
Among the countries of the Gulf Cooperation Council (GCC), Kuwait, Qatar, Bahrain and the UAE all have tight restrictions that cap foreign ownership of local retail business entities at 49 percent, compelling international fashion brands to team up with domestic partners who effectively hold a controlling share in the joint business. Saudi Arabia and Oman’s regulations are less strict but still cumbersome and complex.
"The local distributors were therefore in an ideal position to facilitate the launch of retail merchandising for these brands. For decades, this unique relationship has gone from strength to strength to the point where many of the most prestigious brands are now virtually owned by these families, which makes them the movers and shakers in GCC markets," explains fashion editor Jamila Halfichi, who ten years ago launched the fashion section of Asharq Al Awsat, a leading pan-Arab newspaper which is now distributed all around the Arabic-speaking world.
As a result, the luxury goods landscape in most of the Gulf region has been shaped by local companies — which have made the majority of investments and taken the biggest risks — through franchises or joint ventures. But those that succeeded reaped the rewards, trading off the exclusive right to distribute brands with global cachet and clout. In exchange, fashion brands were usually guaranteed a certain level of revenues and guided through exceptionally complicated markets at the expense of ceding significant control and a share of the profits to their local partners.
"Due to the sensitivities of the region and market-specific policies related to trade, it only made sense [at the time in the 1980s] that these prominent families and names would oversee the distribution of the brands. They slowly began to build their portfolios and as they went from generalists in trade to specialists in fashion brands, more and more luxury labels began to approach them," explains Haleh Nia, founder and editor-in-chief of the UAE-based online fashion magazine Savoir Flair.
Khalid Al Tayer, chief executive of retail for Al Tayer Group
But unlike Chalhoub Group, several of the other powerful distributors in the Gulf region have their hands in many pies at the same time and most got started in another sector altogether. Take Al Tayer Insignia, Chalhoub's main rival, which is also based in the UAE and led by Khalid Al Tayer. Although Al Tayer has long since built up an impressive portfolio of 60 luxury fashion stores in the region, including Bottega Veneta, Dolce & Gabbana, Giorgio Armani, Gucci, Saint Laurent and the UAE- specific licenses for Harvey Nichols and Bloomingdale's, the Emirati family firm originally started in construction and automobiles.
Just across the choppy waters of Khor Duweihin Bay in nearby Qatar, Almana Group has been the leading conglomerate, operating in industries as diverse as steel, travel, media, motors and real estate, since 1960. But it's the more recently created Almana Retail division which has given the company a more glamorous and gilded reputation under the guidance of its dashing general manager Wissam Al-Mana, who has opened flagships in Doha for the likes of Hermès, Balenciaga and Roberto Cavalli in spectacular new retail complexes like Porto Arabia in The Pearl Qatar development.
The longest-running conglomerate that has become a power player in the Gulf's fashion arena is Alshaya Retail, an arm of Alshaya Group, which has been in business in Kuwait since 1890, dealing in food, pharmaceuticals, hotels, automotive and general trading. Executive Chairman Mohammed Alshaya is perhaps most famous internationally for his partnerships with Starbucks, Boots and Office Depot, but in the fashion world he is the Arab king of the high-street, having a vast regional franchise network of stores for Topshop, H&M, Cos, Muji, Jack Wills, River Island and Next — not to mention a license for Harvey Nichols Kuwait.
Some of the comparatively smaller family firms are more localised and fashion-focused, for example Abdullah Binzagr's Rubaiyat, which has been opening multibrand Rubaiyat stores, as well as monobrand boutiques for Zegna, Brioni, Kenzo, Prada, Lanvin and many others in Saudi Arabia since 1980. Tony Salamé, founder and CEO of the Tony Salamé Group, planted the seeds of his mini-empire in the Levant beginning with his first Aïshti store in Beirut in 1989, before achieving wider penetration in the Lebanese market by opening larger format Aïshti and Aïzone stores. He later opened dozens of monobrand luxury fashion boutiques around Lebanon before expanding his footprint into Jordan, Syria (now closed due to the ongoing conflict) and a small presence in the Gulf.
In Kuwait, for several decades, now legendary insider boutiques like Najla Maatouk's Al Ostoura and Rachad Habib Tabiat's Al Othman have quietly been doing a roaring trade selling Western fashion brands, long before fellow Kuwaiti Sheikh Majed al-Sabah burst onto the scene with his flamboyant Villa Moda retail concept (which he duly offloaded in 2008 to DIFC Lifestyle Group just before the Dubai Debt Crisis). In recent years, there has also been a proliferation of small but influential niche boutiques across the region like Princess Deena Abdulaziz's DNA in Riyadh and Zayan Ghandour's Sauce in Dubai, making old distribution networks richer but more complex.
But disputes over exclusivity, market territory and the chain of command for fashion brands operating in Gulf markets have begun to cause friction in some quarters. Indeed, some of the younger businessmen and women in the industry have been increasingly vocal about their frustrations with what they see as inefficiencies in a rigid, if not outdated, system in need of alternative players, or at least an overhaul.
"A lot of these companies that are now operating in fashion are doing so in several totally different sectors and the person in charge of each division has been appointed based on the tribal mentality of business where each branch of the family gets one division, whether that's their particular interest, area of expertise or not," she says. "If we're talking petrochemicals, plastic piping, retailing or whatever, these companies were usually started by a father, uncle or a grandfather, 60 or 70 years ago, who saw it as a vehicle to bring the family into business. They were looking at business from an acquisition point of view based on numbers rather than a particular interest or skill."
“The next generation then looked at expansion opportunities in new sectors similarly, in that they asked themselves, ‘Will there be a return on investment in this or not? If there will, I’ll take it. If not, I won’t.’ They still relied a lot on personal relationships and loyalties, so they didn’t always base decisions on sensible business practices. This [approach] has only been viable for much of our history because the nature of business has not been as dynamic or as diverse as it is here today.”
Princess Reema says that brands from the West “have always looked at the Middle East as the Wild West. So naturally, they assess who’s who in the region and then, literally, ask themselves ‘Who can give me the biggest paycheque?'”
“That’s been the correct approach in one sense, but not in another. Yes, you will have your brand name plastered everywhere, but that doesn’t necessarily mean that you’re working with a company who can represent the ethos and identity of your brand in the way your customer wants it. The loser ends up being the consumer because they’re being spoken to as a number rather than a client.”
Princess Reema suggests that although she and others like her have admiration for the vast businesses built by many of the Gulf distributors she often works with, and although she is sympathetic to the reasons that inter- national fashion brands have kept quiet about the shortcomings of the prevailing system, she believes that change is afoot.
“From our point of view at Harvey Nichols, for example, it’s very difficult when we’re looking for a particular brand. We have to go to the individual who has the license for the brand in Saudi [Arabia] or in the region which can often cause a loss of a lot of time and sometimes miscommunication. So a lot of brands are now beginning to say, we will work directly with you, negotiate, come up with the terms, oversee the selling process and send our merchandise to wherever you need it. Why? Because, in some cases, it’s actually easier than having a middle man involved going through a much longer, complicated route. People are beginning to realise that the retail landscape here is changing.”
The growing ubiquity of e-commerce in the region is also having a dramatic impact on the old distribution system. Princess Reema says that her biggest competitors today are not other department stores or conventional retailers but FedEx and Aramex — shipping services that will get the product to your door in two days.
“Everybody has access to Net-a-Porter and Shopbop. So if the product on those websites is the same as what you have in-store, then you have to step up the environment and the service you’re offering your client. It’s a no brainer. It’s the most obvious, obvious thing. Your customer can either sit back and point and click or she can get in her car and come to you. So what incentive are you giving her to get in her car? Exceptional service, truly stimulating visual merchandising and a dynamic shopping environment — these are things the old distribution system hasn’t always incentivised.”
A version of this article first appeared in a special print edition of The Business of Fashion, published to accompany the launch of the BoF 500. To get your copy, click here or visit Colette in Paris, Opening Ceremony in New York, London and Los Angeles, Le Mill in Mumbai and Sneakerboy in Melbourne.