A luxury retailer in Dubai has had enough of talking about the Great Divide between online selling and brick-and-mortar. As far as it is concerned, it is a divide that could do with a dismantling … at least within its operations.
The Chalhoub Group has set a 900-day timeline from January 1 to bring about the transformation across its entire network and its 13,000 members to be on-side with the changes. The transition is split up into 10 phases of 90 days each, which would make it easier to tick off the progress attained and also make changes where needed.
The reason for all this? “I don’t care if a consumer sees something online and buys offline — All I want to see happen is the Group facilitates the buying part,” said Patrick Chalhoub, Joint CEO at the entity that carries his family name. “Going forward, there can be no frontier between physical and digital. Consumers are always navigating between the two.
“Our intention is clear — to reach the customer in the way he will know the brands we carry and of their prices and availability. It should not matter to me whether he does this browsing at one of our physical stores or the site. We need to use different processes to make us quicker or more relevant to our customer. That’s why we are turning hybrid.”
In preparing for this, the Chalhoub Group did not take any half measures. It pulled the plug on its “digital competence centre” that was set up earlier to oversee an online selling strategy for the Group. (The Group’s strengths are in fashion and accessories retail, plus its own network of department stores. More recently, it has been getting a taste for fine dining concepts as part of a diversification.)
From now on, all plans and processes the Group will work on needs to apply across both online and brick-and-mortar. But won’t the online selling come at the expense of profit margins?
“In the physical world, in luxury retail, you aim for a conversion rate of 15 per cent,” said Chalhoub. “That is out of 100 people passing the store, about 15 enter and buy.
“In the online world, conversion rates are as low as 0.2 per cent for high-end retail. And there are the costs involved in attracting web traffic to your site. In fact, you would be paying much more to actually acquire a customer … even more than in a mall.
“Most of the pure-play digital retailers are losing money. But they are still using funds to build their customer databases and building connections. They are ready to keep on investing.
“Prices, online and off-, will depend on the retailer’s conversion rates, and the cost of acquisition. But digital retail has created a glasshouse.
“Retailers cannot give a certain price without the customer being able to browse on digital. And then you better have a justification on why your price is higher. All retailers will have to be pertinent with prices. Those who fail to understand it would have failed in everything.”
UAE and Gulf retailers are still trying to find the right mix between online and physical retail operations. With traditional retailers, the majority still seems to have just a token presence online, and even those that have built up scale are far from making money through it.
The Chalhoub Group expects major changes in its future revenue flows from the 900-day makeover.
“When we made our assessments, we were 3 per cent hybrid (sales done through a mix of online and offline processes), he added. “Within five years, 70 per cent should be from hybrid, only 25 per cent derived from our physical stores and 5 per cent from pure online. All I want to do is be relevant to my clients … at their fingertips.
“I believe in the bottom line and in marketshare; with the top-line numbers, there are always outside factors controlling it, such as state of the economy, consumer sentiments, etc”
Even on completing the 900 days, one constant will be change will continue to happen. Chalhoub is game for that — “Everything has to be transformed and not just between Point A to Point B. Point B will also continue to change.”
Mall owners seem more willing to listen to reason
It may have taken quite a while, but mall owners in the UAE seem to realise they cannot keep on asking for higher rents without cause.
“Today, there will be more willingness for adjustments — a year ago, I wasn’t sure,” said Patrick Chalhoub. “We will soon have a 60 per cent increase in retail leasable area in this town, But I am not ready to put another store just to lose money.
“If my cost is not relevant, I will not go. The biggest issue with high rents is that it is killing some of the points of retailer differentiation. Lots of choices that were there in the past at the malls are disappearing.
“You cannot have a situation where rents are based on sales and increase when retailer sales increase but don’t decrease when their sales drop. It’s not logical.”