For Chalhoub Group, Saudi Arabia offers luxury potential

What: Patrick Chalhoub explains the Group’s strategy about KSA.

Why it is important: More than any other market in the region, the country has a very high potential, but also significant entry barriers.

Patrick Chalhoub, group president of Chalhoub Group, identifies Saudi Arabia as a significant opportunity for luxury retail, given its young and growing population of 27 million, most of whom are under 30. He credits the Saudi government's Vision 2030 for creating favorable conditions through rapid liberalization and modernization, which has been well-received, particularly among the youth. This societal shift is enhancing business prospects generally but presents unique challenges for the luxury sector.

Chalhoub highlights that the luxury market in Saudi hasn't expanded at the same rate as other consumer industries. Saudis now have diverse options for spending, from travel to entertainment, leading to a reduced share of luxury spending. The rapid pace of societal changes has outstripped the development of necessary retail infrastructure, posing challenges in providing genuine luxury experiences. Consequently, Chalhoub Group has opted to concentrate on enhancing the quality of service in existing stores rather than expanding further.

Additionally, the high VAT rate of 15% in Saudi Arabia, compared to about 5% in neighboring countries, coupled with superior shopping facilities elsewhere, makes it less appealing for luxury shopping. Chalhoub also mentions challenges in employee training and retention, intensified by the nationalization program requiring businesses to hire Saudi nationals.

Looking forward, the group is focusing on a full omnichannel strategy, particularly in beauty sales, which have seen significant growth online. The implementation of AI-driven hyper-personalization is a key strategy for the next five years, aiming to enhance customer loyalty and improve the overall shopping experience.