UAE. On the recent opening of the first of 16 planned 'new generation' Paris Gallery department stores in the Middle East, Paris Gallery Chairman and Managing Director Abdullah Al Fahim reveals his plan to be the Middle Eastâ€™s number one beauty player.
The UAEâ€™s leading retail chain Paris Gallery, owned by Al Fahim Enterprises, opened its first 'new generation' Paris Gallery department store in Dubaiâ€™s Ibn Battuta mall in September. This store is the first step in the Al Fahim groupâ€™s US$200 million strategy to build 16 luxury department stores by 2007. Of Paris Galleryâ€™s existing 21 outlets, 15 will gradually be revamped to fit the new concept, while the remaining six - those smaller than 300 square metres - will carry the groupâ€™s second banner Karisma, which offers beauty along with some accessories, and will boast a chain of 30 stores by 2007.
This strategy, is certainly timely given the aggressive expansion plans of local perfumery chains Areej (Ghadeer Trading), Faces (Chalhoub Group) and Va Va Voom (MH Alshaya), and the arrival of department stores Debenhams, Saks and Harvey Nichols.
Yet questions remain: as retail shifts to newly opened malls, will the retailer close stores in malls abandoned by consumers; does this expansion into very large stores bring the sales per square meter to a dangerously low level; and will brands be willing, or able, to keep up with the investment in new stores necessitated by the regional retail expansion? BI-ME and its sister publication International Cosmetic News-Middle East (ICN-ME) put these questions, and others to Paris Gallery Chairman and Managing Director Abdullah Al Fahim.
ICN ME: Your stated strategy is to invest US$200 million to create 16 department stores by end 2007, is that still on track?
Yes. By the end of 2005 we will have two department stores, one in Abu Dhabi and one in Dubai (Ibn Battuta). By the end of 2006 we will total ten. There will be three stores in Saudi, four in UAE, one in Bahrain, and two in Qatar. All of the planned 16 stores will be in Saudi Arabia, UAE, Bahrain or Qatar.
You mentioned that you plan 30 stores under the Karisma banner by the same time, how many do you have at present?
Yes we are still on track with this. At the moment we have four Karisma stores in operation and the rest will come, we will convert our existing Paris Gallery stores that are smaller than 300 square metres to the Karisma banner.
What about the very successful Paris Gallery store in the Deira City Centre in Dubai, which, although small, does phenomenal sales?
We have not decided the fate of this particular store yet.
With so many malls being built in the UAE, it is inevitable that traffic in older malls will fall dramatically, will you contemplate closing stores in these malls?
Yes more and more [of these malls] they will lose their traffic. As for closing stores, it is too early to judge. I would say [rather] that we would convert these smaller stores Karisma?
Why are you absent from the Mall of the Emirates? Was this a strategic decision, and will you put a Paris Gallery in later?
We see other malls as more strategic than that mall. We did our research and found that Dubai Mall has many more strategic brands and was a better choice for us. The Paris Gallery strategy of moving to high luxury department stores, with a high investment, means that it is not sensible for us to invest in both the Dubai Mall and the Emirates Mall when they are next door to each other. So we chose the Dubai Mall.
You are building very big stores, do you face an issue profitability in terms of sales per square metre?
No, because Paris Gallery is not just a traditional retailer. We want to expand the industry and the market by providing a better retail environment, better product assortment, better service and for this we need to undertake much more investment on the ground in terms of space and facilities.
That is a very expensive business model for you!
Yes, that is the difference between Paris Gallery and any other retailers. The traditional retailers build shops just in order to sell in the short term, but for Paris Gallery we want to expand and grow the whole industry.
Does this model apply also to Karisma?
No Karisma will be more of a traditional store, selling regular cosmetics and fragrances and competing with other perfumeries on the market. But Paris Gallery will instead compete with the top luxury segment of department stores in the Middle East worldwide.
In the new luxury department stores, will you be discounting products or will you stick to a policy of selling at full price?
Our policy for Paris Gallery in the UAE market for the past five years has been non-discount on [any product sold from] the cosmetics houses. The strategy was also to have no discount on the fragrances. But unfortunately we did not get the support from suppliers, brands and local distributors, and consequently the strategy was difficult to maintain. Our average discount is [currently] 10% and up to 15%.
You are obviously in a major investment stage at the moment. When will you expect to see return on these investments?
Our retail works on a ten-year plan. Our objective is to break even after five years breakeven, and then another five years to get a complete return on investment.
As larger groups like yours invest so heavily. Will small retailers who cannot expand as fast as you be forced out of the market?
The smaller players will lose their share of the market. For example when Carrefour came to the market, thousands of small groceries closed down. It is clear that as larger retailers come into the market the smaller ones will lose their place the customer will find better service, better brands so why would they go to smaller retailers.
Paris Gallery Department Stores will sell have fashion and luxury accessories, alongside perfume and cosmetics. Which category is driving the traffic?
Our consumer is a luxury consumer so they are looking for Chanel, Dior, Shiseido in skincare and Fendi and Cartier, Montblanc in accessories. This is the same category of customer.
Were you never tempted to split the two sections, accessories and beauty in to two separate retail concepts [as Allied did with Tanagra and Faces]?
No we never where, we will keep both these sections together under the Paris Gallery banner.
Has it been difficult to persuade brands to invest in your long-term vision?
You have two categories of suppliers. The first understand our vision, want to develop strategically and their business is growing strategically. Other brands are traditional, their vision is short term. We focus on the first group who want to enter a long-term partnership on the market.
Which do you see as the country with the most potential in this region?
There is great potential for growth in these markets, especially the GCC market. Saudi Arabia, the UAE, Kuwait and Qatar are high growth markets, Bahrain and Oman do not have the potential at moment. Egypt, Syria, will take a big change to realise their potential. Lebanon, again there is potential to grow in the future despite its current difficulties. We are not investing there for the time being but in the long-term yes.
You have big plans in Saudi Arabia. How do you see this market evolving?
First some of the smaller retail players are getting out of the market. Second, the Paris Gallery environment is expanding the size of the market, by offering better merchandising, customer education and shopping experience.
There are currently many smaller players in the Saudi beauty market, will that change within the next five years?
Maybe it will take 15 years. We believe the market will segment in to the high end market for skincare and cosmetics nad high end fragrances, key players in this segment will be Paris Gallery Harvey Nichols Saks and some Gazzaz outlets. Then the second line will be retailers like Faces, For You, and VaVaVoom and Karisma. The third group will be souks, which I believe will focus only on perfumery. The market will move slowly away from the souks.
You claim up to 70% market share in luxury beauty in the UAE, how do you plan to protect this share given the marketâ€™s current growth?
The market is growing, and the competition is more intense but I believe we will maintain our market share. In Saudi Arabia we have four stores, we already have a fair share of the market, but we will certainly grow this.
Where do you believe your group will be five years time?
I believe our group will be the number one beauty player in the Middle East region. To be regional you need three strong platforms, the legal basis, financial resources and operational capacity. Some companies have the finances and the operational structure and no legal basis. We are one of the few groups with all three of these factors.