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All in the name of Family

The luxury retail scene in Middle East is as volatile as it can get in the current economic scenario. While older players resume their supremacy, younger entrants are getting ready to shake their foundation. Will family businesses still dominate the retail landscape in the GCC?

At present, the GCC retail industry is on a renewal pathway, with the market and industry expanding and growing outstandingly. The shifting political environment, an extremely high per capita income, and top-of-the-line infrastructure makes the GCC region all the more attractive for retail investors, as evidenced by the dramatic increase in the number of international and regional retail brands in the region.

This growth has led to amplified rivalry, and retailers must constantly innovate themselves to guarantee that they stay ahead of the game. They must keep up with the latest economical and market trends that could affect their businesses, as well as the latest practices and technologies that could improve their operations and competitiveness.

While the financial crisis has had an impact globally, manufacturers of luxury goods and high-end services did not face problem in finding clients, especially in the UAE and the Gulf region. Middle East is the home of nearly 400,000 millionaires, which indicates the immense growth potential. Middle East consumers command huge amount of wealth, with some regions like Abu Dhabi and Qatar having the highest per capita income. As a result, people spent lavishly on luxury brands and up-market offerings.

The luxury goods business is anticipated to outperform the average global trade and has an extremely bright future. The luxury retail market is expected to show a CAGR of around 8% during 2011-2013.

The key players in the GCC retail market are majorly family-owned businesses. In this time and age, family businesses in the Gulf region find the challenge of functioning in a difficult global economic environment very hard. Most of them with a third generation, have a difficult transition of the business from the second to the third generation of family control. In order to stay alive, grow and compete with the many family-run firms that have kept their momentum and achieved enduring success in the global economy, these firms must discipline the new generation of entrepreneurs within the family and implement new strategies to manage both the family and the business.

Gucci store luxury shoppingThese same families also need to enlist outsiders and new talents, giving them the right amount of control when necessary. The selection of a change agent has to be in-line with the interests of the families – handing over time the reins in the best manner possible – to ensure success for the changes implemented.

Some of the big groups and family run businesses in the retail sectors are:

The Rivoli Group is a private company known for its diverse portfolio of international luxury brands and for its vast network of retail outlets within the UAE and the lower Gulf States. Since its inception in 1988, the Rivoli Group has been building a strong position in the fast growing retail environment of the region. In the process, the Group has become one of the largest importers and retailers of luxury brands in the Middle East and offers a wide range of product categories from watches and writing instruments to menswear, accessories, gift items and eyewear.

As the largest luxury retailer in the Middle East, Al Tayer Insignia hosts a remarkable portfolio of some the world’s best luxury brands in the fashion, jewellery and home categories. Headquartered in UAE, Al Tayer Insignia has successfully expanded operations to Bahrain, the Kingdom of Saudi Arabia, Lebanon and Qatar and currently operates over 85 stores across the region.

The Chalhoub Group merits its place as a major player in the luxury business in the Middle East due to its creators Mr and Mrs Chalhoub. The group was created in 1955 and is currently run closely by the family’s second generation. It will surely be highly interesting to see the third generation involvement. Within the next two years, the Chalhoub Group is going to open more than 40 stores in Abu Dhabi.

Porsche stand at luxury mallSince 1992, Majid Al Futtaim is a fast growing retail and wholesale company, catering to high street and middle upper brands. Al-Futtaim Group, one of the Middle East’s largest conglomerates, is expecting to sign acquisitions worth more than US$500 million in the coming weeks as it expands in Saudi Arabia and Middle East

Swatch Group, with its second generation settled in the Middle East, has a very strong link to the Rivoli Group. Yet, last week, the same Swatch Group said it was buying a 33% stake in Alzouman General Trading Co, a Saudi Arabia-based firm which distributes the watch company’s Swatch and Flik Flak brands. International family businesses see that their stake is linked to the growth of other markets, demonstrating that distribution loyalty is no longer a viable option for international expansion.

Since decades, these majors player represent a heavy competition in terms of large supply and infiltration of luxury retail market landscape in the Middle East. Their role is to distribute – whether as a franchise or through a joint venture with high profile brands in the MENA region – while, on the contrary, major European groups such as LVMH, PPR and Richemont own in totality or a part of their portfolio of luxury brands.

With the rich retail landscape in the area, one can only enjoy the changes occurring at the present time. Major players have to beware of the new entrepreneurs belonging to the old family businesses, who are already putting foot in the retail business with new rules, new blood and new strategies. For the settled groups, the danger is to stay put even if they invest heavily in opening new stores, get new acquisitions and make new joint-ventures. These groups benefit from their infrastructure, knowledge of the market, and their large network, which is lacking with the new players. Knowledge has to be nurtured, and not be taken for a non-changing factor. As for the new faces in the industry, their weaknesses is being young, impetuous and thinking that their assets can buy experience. A new cycle of growth has to be focused on stronger care for the client, value for money, quality and customer service.

HH Alexandra OrloffRussian and Spanish aristocrat, HH Alexandra Orloff, is the CEO and owner of Sacha Orloff Ltd, a consultancy offering services and products in luxury jewellery, watches, and fashion industry. Having worked in numerous prestigious luxury brands, she has enormous expertise in strategy development for luxury brands across emerging markets.