According to Patrick Chalhoub, the president of the leading Middle Eastern luxury retailer Chalhoub Group, Saudi Arabia presents an unparalleled opportunity in the realm of upscale commerce. With a burgeoning population predominantly under the age of 30, and effective government strategies, the kingdom offers promising conditions for sustained growth in the sector.
Chalhoub cautions against the temptation to expand too rapidly, emphasizing the importance of time in the maturation of a market. The nation’s Vision 2030 seeks to reduce its oil dependence by fostering economic diversification, resulting in a rapid liberalization and modernization that has garnered widespread support, especially among the youth.
While this openness bodes well for business in general, the luxury segment has seen growth lag behind other consumer industries. The competition for discretionary spending is intense, with Saudis having a plethora of choices ranging from travel to entertainment, leading to a reduced expenditure on high-end goods.
Chalhoub highlights the challenges faced in delivering an authentic luxury retail experience. Despite the initial excitement and significant investments, the pace of retail infrastructure development has not kept up with market growth. Consequently, Chalhoub Group has made a strategic shift to concentrate on enhancing the quality of the shopping experience in fewer locations, working towards establishing a genuine high-end consumer journey within the kingdom.
The business climate for luxury retailers is further complicated by the high cost of operation, including a substantial value-added tax (VAT) rate of 15 percent. This contrasts with neighboring countries that not only have lower VAT rates but also boast glamorous shopping centers, attracting Saudis for weekend shopping excursions.
Furthermore, Chalhoub points out the difficulties in staff training and retention, exacerbated by a nationalization initiative requiring the employment of Saudi nationals, a workforce that has recently seen the inclusion of women. The group’s focus remains on delivering an exceptional luxury experience, prioritizing quality service and product offering over expansion.
With a sharp focus on omnichannel strategies, the Chalhoub Group is adapting to the kingdom’s high mobile usage rates. For example, their beauty segment is witnessing robust e-commerce activity through their application, supported by a modern fulfillment center that enables services like two-hour deliveries. Looking to the future, the group aims to harness artificial intelligence for hyper-personalization, enhancing customer loyalty and revolutionizing the luxury retail experience across all channels.