The Chalhoub Group, the franchise partner for luxury brands such as Louis Vuitton and Fendi in the Middle East, is focusing on boosting its market share as lower economic growth and a shift in tourist mix affects revenue.
The first two months of 2016 were flat compared to the same period last year, when generous handouts by the newly appointed Saudi King Salman helped Saudi shoppers to spend on luxury goods, said Patrick Chalhoub, the Chalhoub co-chief executive.
The group, which operates more than 650 stores in 14 countries, expects to eke out modest growth this year. The oil price rout has slashed government expenditure in the energy-exporting Arabian Gulf region and lowered economic growth, crimping the spending power of consumers in these countries.
“I am telling my team not to focus today on what figures you are going to have,” said Mr Chalhoub. “I do not want them to focus their time into making budgets. I want them to focus their time on doing a good job and then to gain market share, rather than lose it.”
Mr Chalhoub said the company may add some 60 stores this year while closing others, depending on their profitability.
He did not say which stores would close.
Mr Chalhoub also cited the change of mix in tourists in the UAE, the main tourist destination in the Gulf, as a key challenge to luxury retailers.
For example, the trickle of Russian tourists, traditionally big spenders on luxury products, is affecting the UAE tourism industry because of the strengthening of the dirham, which is pegged to the strong dollar, against other weak currencies such as the Russian rouble and the Chinese yuan.
“We have less Russians who were strong spenders in the retail market, especially into luxury goods,” said Mr Chalhoub. “[There are] more Chinese but from the lower and middle class who spend less, but perhaps more of GCC nationals, more Indians and Africans. We have to adapt to this change in the tourist mix.”
Last year, the number of tourists to Dubai from Russia, CIS and eastern Europe dropped by 22.5 per cent compared with the previous year, according to figures from the government-run Dubai Tourism.
Meanwhile, 450,000 Chinese tourists travelled to Dubai last year, up 29 per cent from a year earlier.
The group does not expect to expand into new markets and will focus on its existing business for the time being.
“In this market situation, for me the focus is on running the existing business, so I’m much less bullish on expanding,” said Mr Chalhoub. “The market situation will remain complicated and we have to adapt to the changes. We don’t expect it will pass and come back again as before.”
Overall, the UAE retail market is forecast to grow at a compound annual growth rate of 5.2 per cent between 2015 and 2020, according to the data provider Euromonitor International.
The retail market in the UAE was forecast at $49.7 billion last year, with luxury retail accounting for $1.73bn, according to Euromonitor.
“Lower growth is expected during the short and mid-forecast period,” said Diana Jarmalaite, a research analyst at Euromonitor. “The latter period will be highly affected by the economic uncertainty that is caused by all-time low oil prices, as well as unfavourable currency exchange rates in Russia, euro zone and China.”
In the Gulf overall, the retail market is expected to slow through 2020 because of security in the region and the expected implementation of a value-added tax in 2018 across the region.
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