Capturing the growth potential of fashion in the Middle East

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In scouring the globe to identify growth opportunities in the coming year, most fashion executives who responded to the BoF-McKinsey State of Fashion 2023 survey cited the Middle East as a region more promising in 2023 than in 2022. Indeed, luxury fashion sales in the Gulf Cooperation Council alone reached approximately $4.2 million in 2021, a 39% increase from previous levels. 2019. The future growth of the region is linked to the return of international tourists and the acceleration of e-commerce, among other factors.

To capture growth in the region, brands will need to step up their localization and personalization strategies, according to Patrick Chalhoub, Group Chairman of Chalhoub Group, a Dubai-based luxury goods retailer and distributor set up by his father. in 1955 and today the regional distribution and franchise partner for hundreds of global fashion and beauty brands, including Dior, Tory Burch and Yves Saint Laurent, as well as joint ventures with LVMH, Christian Louboutin and Farfetch.

While growth prospects are strong in the GCC region, Saudi Arabia, where luxury sales are seeing double-digit growth, stands out for Chalhoub’s top executive. He sees the fashion industry playing a role in the country’s vast Vision 2030 program to modernize and diversify its economy.

BoF: As a seasoned fashion executive in the Middle East, you have witnessed many economic and social changes that have impacted the fashion market over the years. What has a significant impact today?

Patrick Chalhoub: We live in very interesting times in the Middle East. Because current economic developments are unlike anything we’ve seen in many, many years, there’s a lot of wealth coming from additional oil revenues. The Middle East, and the GCC in particular, is becoming an international business destination, but also an international tourist destination, with initiatives like the Red Sea project [on Saudi Arabia’s west coast] which will add thousands of hotel rooms by the end of this decade.

What the fashion industry needs to do is ensure that we maintain relevance for our local customers. Imagine that historically – before 2020 and 2021 – two-thirds of luxury spending by GCC shoppers happened overseas because they may not be getting the experience, service, choice or travel. they wanted when shopping locally. We need to make sure that we don’t decrease the amount they buy outside the GCC, but increase the amount they buy locally. [We need to] be there to fulfill what they want more.

BoF: There are well-established consumer markets in the GCC, but what about, for example, Egypt, where the government is investing in the development of new cities and major infrastructure projects?

pc: There is certainly movement in Egypt in terms of economic development. All these projects that are happening along the Red Sea – with the opening of all these new hotels – are an important part of this desire to become a more attractive destination for tourists from all over the world.

But that comes with short-term challenges that are probably more complicated than in other countries. Energy is expensive, inflation is high, the exchange rate is difficult [with the Egyptian pound weakened substantially against the US dollar in 2022]. In Egypt, there are still a lot of cumbersome administrative procedures to do business, often for the wrong reasons or reasons inherited from the past that tried to limit imports to help develop local manufacturing. I’m not sure that the measures taken 30 years ago are still relevant today, but changing them is still complicated. So Egypt is there to develop but it is something that must gradually be built and developed in our field of activity. [in the luxury fashion market].

BoF: Localization seems to be a big theme for global brands around the world, with consumers increasingly buying local brands steeped in local culture and heritage. How do you see this playing out in the Middle East?

pc: There is a movement in the Middle East, but not a national pride movement like in China. We want to buy locally… and we have seen a proliferation of local fashion designers but we need to continue to develop them. We are just getting started with this.

Our group is actively involved in supporting local disruptive brands in the start-up phase. We recently created the Fashion Lab, an open innovation platform. Our regional incubator has supported start-ups ranging from Dania Shinkar [handbags] at Noms Life [lifestyle brand] and Kaf by Kaf [ready-to-wear] with Cones & Rods [eyewear].

BoF: What can global brands do to ensure they are in tune with their Middle Eastern customers?

pc: It helps brands review and revisit how business is done and what kind of experiences are relevant to the Middle East. We already see it. For example, the end of the Ramadan fasting period is very festive, and we see a lot of specific collections made for that. Probably 60%, 70% of brands have created a cruise collection just for this specific celebration.

We find that brands are much more interested in specific or personalized events and activations. I have never seen so many global events led by luxury brands that resonated with GCC audiences as I did in 2021 and 2022. Brands like Chanel, Hermès, Louis Vuitton, Cartier and Tiffany have worked on local strategies to engage consumers in the region through collaborations, dedicated collections and immersive events in iconic locations like Al-Ula in Saudi Arabia. However, a lot of customization is required in this region. Middle Eastern customers will build their trust in big brands, but they need [brands to provide] points of differentiation.

BoF: How are customers in the region different today than before the pandemic or at the height of the pandemic? What will the new consumer profile look like in 2023 in terms of demographics and purchasing decisions?

pc: [Generally] we are seeing more confidence in our consumers. The younger the consumer, the more we see it. They are still committed to branding, but less so. They also have more curiosity and are therefore more eager to try a new brand, even a local fashion designer, rather than a global one. We also see more and more customers mixing brands and products, because of this assertiveness in expression. They don’t think they have to be dressed head-to-toe in just one brand.

In terms of product categories, there is a big increase in jewelry. I hear it’s not just in the Middle East, but all over the world. Jewelry has always been hugely important in the Middle East, but not designer jewelry, like it is now. It helps that brands become more and more creative.

The customer journey is also adapting. People often like to go to the shops of [groups], with family and friends, so they need more places to sit, more space, and not just at a counter for people in a hurry. We really need to make those kinds of adaptations.

BoF: Unlike other parts of the world where e-commerce growth is returning to pre-pandemic levels, e-commerce appears to be accelerating in parts of the Middle East. What powers this?

pc: The story behind this is that we are quite behind other regions in terms of the percentage of sales made through digital channels, for a variety of reasons. For example, the content may not have been relevant or there was not enough choice. All of this is improving: the customer experience itself, the availability of products, the relevance of content. That said, what we’ve seen in 2022 is that there’s more growth in brick and mortar than in e-commerce.

There is another aspect of brick and mortar that I would like to mention. For developing countries, real estate development is often a challenge. When there is an increase in demand for property – as we have seen in 2019 and again in 2021 and 2022 – you have a shortage of supply, which not only drives prices up, and any new development will take five to seven years to complete. We are now in a cycle where there is much more demand in certain cities, such as Riyadh [Saudi Arabia] and Doha [Qatar], that others. We really need to be more proactive and creative about how to resolve this tension, because there’s a shortage of locations, and maybe that requires a different way of thinking about different consumers.

BoF: Chalhoub Group recently announced the acquisition of a majority stake in Threads Styling, an online, personalized, chat-based luxury fashion and jewelry shopping service. How does this fit into the group’s overall strategy to develop its digital capabilities?

pc: We are getting into the digital world quite late. Before the pandemic, e-commerce represented around 1% of our turnover; today it is around 10%.

The group represents and manages more than 80 websites and e-commerce applications for joint venture partners and brands in the [Middle East-North Africa] Region. And since 2018 we have joint venture partnership with Farfetch in GCC and Levant [Egypt, Jordan and Lebanon], which includes an Arabic-language site. But we have a lot to learn to get closer to the digital native consumer… that’s what we find fantastic about Threads Styling. It’s really about customerizing, caring about our customers, connecting with them, and keeping the human touch, even though we all have digital devices.

This interview has been edited and condensed.

This article first appeared in The state of fashion 2023an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company.

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