Strategy Bites: Paolo Lomonaco, Chief Financial Officer, Chalhoub Group Lomonaco speaks to LIRA Strategy Partners founder and Managing Director Raffaella Campagnoli on what it means to be doing business in the Kingdom of Saudi Arabia.
By Raffaella Campagnoli Edited by Aby Sam Thomas
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Strategy Bites is a series of interviews that LIRA Strategy Partners founder and Managing Director Raffaella Campagnoli is conducting with some of Saudi Arabia's most notable business executives for Entrepreneur.com. In this edition, Paolo Lomonaco, Chief Financial Officer, Chalhoub Group gives his take on what it means to be doing business in the Kingdom.
Could you please tell me about your role, business, and its objectives within the Saudi market?
Chalhoub Group is one of the leading partners for luxury across the Middle East. As an expert in retail, distribution, and marketing services based in Dubai, the Group has become a major player in the beauty, fashion, and gift sectors regionally. We count over 65 years of history in the industry, managing more than 300 brands, 750 stores, 20 e-commerce sites, together with 12,000 employees.
Our expertise is based on different pillars: the distribution business for the beauty segment, which is seeing us as leaders in the GCC, especially in Saudi Arabia, and the retail one, where we have developed value owned brands like Level (shoes), Faces (beauty) and Tanagra (accessories) together with a number of franchising stores and joint ventures, which is positioning us as the largest luxury player in the region.
My role as Group CFO is not only supporting the shape of the overall group strategy, but also driving the business acceleration towards the new trends and opportunities the market is offering. In this perspective, we launched in 2017 a significant transformation project called SHIFT, with a vision of transforming the Group from being a traditional local luxury brick-and-mortar retailer into a hybrid retailer bringing luxury experiences at the fingertips of our customers everywhere. The main objective was to accelerate the Group responsiveness and agility towards the market evolution: digitalization, localization, development of enhanced customer experiences, composed by digital and in-store experiences
The Kingdom represents for us a key strategic priority, leveraging on our position of the leading luxury player in the country, our ambition in the long term is to shape the beauty and fashion industries in Saudi Arabia, and we are targeting to double the size of our local Saudi business in the next five years.
As a Dubai-headquartered enterprise aiming to become a leader in the KSA market, how is your entity embracing the country's Vision 2030?
Well, Vision 2030 is the key reference point for our development in the Kingdom, because it embraces perfectly with our customer strategy based on focusing on people, making an impact, partnering, and respecting the planet. In this perspective, the COVID-19 pandemic really accelerated a transformation that we had already planned to implement considering the significant challenges on travel.
We have seen a 20%+ sales increase in Saudi since 2019- this phenomenon has been driven by the so called "repatriation' effect, which moved our national customers to buy in their own country: it's not Dubai, London, or Paris anymore as main shopping hubs for Saudi nationals, but their own country. This meaningful shift offered us the opportunity to capitalize on a deeper understanding of the market, and to accelerate the market entry strategy we had already shaped.
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We have a locally dedicated team, and we are still hiring local talents- the understanding of consumers' behaviors, their preferences, their main shopping spaces are going to be driven by our Saudi team. This is the only way to win the market considering the impressive transformation happening both in the national culture and at infrastructural level. We are also searching for new national brands, not only to support the development of local talents in the region, but also internationally. We believe that the creation of strong local fashion and beauty ecosystem is one of the most important contribution we can offer according to Vision 2030 objectives.
We are also willing to double our e-commerce presence in the country in the next few years: this means not only reinforcing the existing partnership with players like Farfetch, but also investing in warehousing, logistic infrastructure, fulfillment, and e-commerce last mile service that will drive Chalhoub to enhance the local business experience on these capabilities. We are planning to open concepts, especially Level, in the Kingdom. This is going to be linked to the enhanced presence the Group is planning to have within the new projects the Public Investment Fund (PIF) is developing together with the local private entities.
We have recently launched our new loyalty experiential program, MUSE, for Saudi, together with a dedicated customer resource management (CRM) project. We believe the Kingdom will become one of the main hubs for the future of beauty and fashion shopping in the GCC. We want to get closer to our customers, have a direct relationship with them in an exceptionally unique manner. Last but not least, we might consider opening in the future a new, bigger office also in Riyadh, as the business focus is moving more and more to the capital; hence, we might need and additional space to the main office recently bought in Jeddah.
What are the key challenges you are seeing when it comes to the business landscape in the Kingdom?
We completely embrace the Vision 2030 plan, and for this reason, we are confident that our challenges are soon going to be solved or transformed into opportunities. The main challenges we are facing can be summarized in two points:
1/ Hiring talents Saudi Arabia is still developing specific industry-related capabilities such as e-commerce, last mile delivery, fulfillment, merchandising, digital enhancement. So, now, we are recruiting international talents aimed not only to develop the current operations, but also to train and upskill the local workforce on those industry-focused competencies.
2/ Identifying local digital transformation partners which could help us on local execution In order to remain relevant, we are really designing new experience models based on a retail hybrid value proposition where the digital interaction constitutes a relevant element within the customer journey. Driving innovation and change means also identifying meaningful experienced partners on key drivers like training and development, technology delivery, analytics, and data scientists.
What impresses you most about Saudi Arabia's plans for the future?
The Kingdom of Saudi Arabia is facing an impressive and unprecedented transformation, which is a human and cultural shift towards new opportunities for the country and its population. Chalhoub is willing to be part of this flourishment, driving the innovation and change within the beauty and fashion industries. I am sure that the enhancement of technology, the main facilitator of this evolution, will enable us to drive a faster, more agile, and relevant change to delight our customers through a great local Saudi team.
