How diamonds became an everyday trend

Illustration by Luis Grañena
Updated 24 September 2018
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How diamonds became an everyday trend

“North Riyadh will be the place to be,” declares Selim Chidiac, chief executive officer of L’azurde, Saudi Arabia’s biggest jewelry company and a glitzy reminder that the Kingdom has brands of its own to rival the global icons of the luxury business.

Chidiac was talking of the sudden boom in the Saudi retail business that is seeing malls open at an unprecedented rate. “There are so many new malls going up, like Riyadh Park and others. The prospects for the next 18 months are very exciting and dramatic,” he said.

Most of L’azurde’s shops in the Kingdom are in malls, with only a small number on the street or in souks, so the retail and leisure boom — sparked by the decree to allow women to drive and the re-opening of the Kingdom’s cinemas after a 35-year hiatus — is a direct boost to the L’azurde business.

But that does not mean Chidiac can just sit back and watch the business come rolling in. Despite the retail boom, the underlying economy is still suffering from the aftermath of the period of austerity ushered in by the collapse in oil prices in 2014.

“The consumer background in Saudi Arabia is still challenging. There have been lots of changes in the Kingdom, such as the removal of subsidies and perhaps some geopolitical concerns. But ultimately, what has been happening is very positive for the economy. Raising salaries and empowering women are good developments, and they will pay off in the medium and long term,” Chidiac said.

The influence of the regional macro-economy was shown in L’azurde’s recent financial figures for the second quarter of 2018. A overall rise of 13 percent in revenues masked a decline in Saudi revenues, compensated by a leap in the company’s important Egyptian business.

“Most of the growth came from Egypt. Saudi Arabia was actually 10 percent down, but the comparison is not entirely indicative — the same period last year was very big, boosted by the resumption of government spending and the Ramadan period,” he explained.

Chidiac is full of praise for the strength of the Egyptian division of the business, which has three factories, 12 shops and 1,200 employees. “Egypt has been a great story. We’ve been there for 20 years and it has seldom looked so strong before. Consumer spending is high and the stock market is strong,” he said.

“The government reforms of a couple of years ago and the IMF deal benefited the economy and stabilized the currency, which has made our exports easier. Better security enabled tourism again, and also helped attract foreign direct investment. There is now a growing middle class in the country with greater spending power,” he added.

The situation in Saudi Arabia is more complicated, but in the long term Chidiac thinks the country is in for a period of expansion.

“Saudi consumers are getting behind the reform program of Mohammed bin Salman, the crown prince. The economic situation is improving. For a while people have been going into shops to look around and ask about products, but slowly they are beginning to spend too.

“The empowerment of women is beginning to be felt. They are more mobile, and actively seeking jobs now. It is too early to judge the impact of allowing women to drive. It is only a few months now since the ban was lifted. But long term it has to be a good thing for the consumer economy,” he said.

The jewelry tastes of Saudi women — overwhelmingly L’azurde’s target customer — are changing subtly. The move is towards more affordable everyday pieces, such as the “Dream collection” — designed by Al-Anoud Badr, the founder of the fashion brand Lady Fozaza — which aimed to have a trendy edge.

“The Dream collection is our most popular line at the moment. They are the fastest-selling items for daily wear, ranging in price from 1,500 ($400) to 5,000 riyals,” Chidiac said.

More traditional lines are still a big feature, however. “Still our bestselling and most profitable pieces are wedding sets — complete ranges of necklaces, pendants, earrings rings. We had a very good Ramadan for these items. These can range from 15,000 to 100,000 riyals, but we’ve sold customized sets for as much as 1 million riyals,” he said.

The global trend toward more affordable everyday jewelry was the spur for the purchase of the Tous chain of jewelry stores, the most significant corporate development at L’azurde since the 2016 initial public offering (IPO).

“With Tous, we are entering the segment of affordable jewelry for the first time — the market for purchases of less than 2,000 riyals. This is the fastest-growing sector in the world at the moment. Women want smaller pieces for daily wear, and they want to change them more frequently. Tous is the leading affordable jewelry brand in Saudi Arabia, with 22 shops and 90 employees in the Kingdom, and we have bought a 10-year Saudi franchise,” Chidiac said.

Illustration by Luis Grañena

There was a second motivation for the Tous purchase. Since the IPO, L’azurde shares are about 50 per cent down from the listing price, and Chidiac has been looking for a long time for a deal that might add some momentum to the share price performance.

“The acquisition of Tous was a major event for us. We’ve been working on it for 18 months, ever since the IPO. The analysis and due diligence took more than a year. The logic of going public was to fund organic growth, and then we began to look at ways to grow non-organically.

“That’s why we did the acquisition of Tous — to give some value back to the shareholders. That has been a major concern. We are not considering share buy-backs. I believe the prospects for the Tadawul are pretty good, as long as there are no major external shocks,” he said.

The logic of the Tous deal should be immediately apparent to shareholders, Chidiac explained. “We paid 188 million riyals for a company that has revenues of 18.8 million riyals, so it is immediately earnings enhancing. We paid in part cash and part debt funded. Now we must consolidate it and grow it, while looking for other opportunities,” he said.

“Tous helps move L’azurde towards being a multi-brand company. We will add more brands, soon, but we should walk before we can run,” he added.

Those other opportunities include opening new stores in Saudi Arabia and Egypt, and perhaps more acquisitions. But there are always challenges in a business as fast moving as jewelry, where taste and fashion can quickly affect demand for the latest goods.

“Customers are becoming very savvy with their spending, looking for discounts and promotions. They are becoming very aware of their choice options. The most common thing we hear from a customer walking into a shop is “what’s new?”. It means we have to manage our stocks effectively.

“There are also challenges with employees — hiring, training and employment conditions. But that has always been the case,” Chidiac said. Most of the 700 employees at the Riyadh factory are Asian, he said, because “Asians have better technical skills in jewelry.”

And, as ever, the geopolitics of the region weighs over business decisions. L’azurde had an operation in Doha that was closed as soon as the confrontation began last summer over allegations of terrorism. Another possible acquisition deal in the UAE was stymied because of Qatari links, he said, without wanting to identify the target company.

Global economic factors also affect L’azurde’s business decisions. The gold price is not a major factor, because the company does not hold stocks of gold beyond its immediate need for manufacturing in Saudi Arabia and Egypt, but it can affect demand.

“It does affect customer sentiment when they see the gold price falling and they see the opportunity for a bargain. The dollar level and interest rates are bigger concerns for the economy and for our business,” he said.

 


INTERVIEW: Samir Chaturvedi, Chief Executive of Kizad, on the UAE becoming a global logistics hub

Updated 4 min 35 sec ago
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INTERVIEW: Samir Chaturvedi, Chief Executive of Kizad, on the UAE becoming a global logistics hub

DUBAI: Samir Chaturvedi is the old hand on the block turned into the new kid in town. The chief executive of Kizad — the Khalifa Industrial Zone of Abu Dhabi — is former senior executive of Jafza — Jebel Ali Free Zone Authority.
For 13 years, Chaturvedi helped Jafza to consolidate its place as the leading maritime-based industrial hub in the Middle East; now he is charged with developing a far more ambitious project in the UAE capital that — if all goes to plan — will eventually overtake its Dubai counterpart.
He is reluctant to use the word “rivalry,” preferring instead to emphasize the beneficial effects of competition and the potential for the UAE to become a global logistics and industrial hub.
“This makes it a very competitive sector — and that’s a good thing. Healthy competition provides customers with broader options and developers with greater incentives to improve their services and offerings,” he said. “Fortunately, we have a strong value proposition; the combination of Khalifa Ports’ assets, Abu Dhabi’s growing industrial sector, plus KIZAD’s innovation is a value proposition that is not typical for the region and puts us in an excellent position to thrive and grow,” he added.
Chaturvedi was speaking after a lavish ceremony last week that unveiled an alliance between China and Abu Dhabi to make the UAE capital the main regional hub for the “Belt and Road Initative” — the multibillion-dollar strategic investment program by the Peoples’ Republic to develop land and maritime trade routes along the path of the Silk Road — from Asia through the Middle East and into Africa.
Khalifa Port — the heart of the huge Kizad development — has joined with Cosco, the giant Chinese shipping group and port operator, to build a new terminal, backed by a 1.1 billion dirham initial investment, that will help to shift the center of economic gravity 50 km along the Gulf coast from Jebel Ali to Khalifa Port.
While some analysts focused on the duplication of port assets in the Emirates, Chaturvedi prefers to see it as a natural historical development of the UAE trading infrastructure.
“The same question was asked of Jebel Ali when it was being developed and Port Rashid was the largest port in the region. These infrastructures are created to bring in new trade and new business and create a better and more sustainable economy rather than just competing with each other,” he said.
The Cosco terminal is the second at Khalifa Port, and part of a 10 billion dirham expansion plan that will lift its capacity to 8.5 million TEUs — 20-foot equivalent units, the main metric of the shipping business — in five years’ time.
Chaturvedi said Khalifa Port has the potential and infrastructure to eventually get to 20 million TEU. Some 25 shipping lines use the port, including Cosco, the third largest in the world, and MSC, the second placed behind market leader Maersk. Jebel Ali currently handles 22.1 million containers.
Kizad is part of the UAE’s 2030 strategic development plan, but its horizon extends beyond that date. By 2050, it will be an enormous development, two thirds the size of the island of Singapore and at 410 square km, some eight times the current size of the Jebel Ali zone.
Chaturvedi believes that the existence of such an ambitious industrial and logistics project had an influence on the Chinese decision to back the new Khalifa terminal.

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BIO

Born: 1962, Delhi, India.

Education: Annamalai University, India.

Chartered Institute of Logistics and Design, UK.

Harvard University Graduate School of Design.

Career: Competent Automobiles, sales manager.

Lemuir Group (now part of DHL), general manager.

Maersk Logistics, India, manager and director.

Zim Integrated Shipping,
Hong Kong, project director.

Jafza and Economic Zones World, business development and vice president for Europe,
Central Asia and India.

Kizad, CEO

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“Undoubtedly, the opportunity to tap into the business network at Kizad and the rapidly increasing need for shipping services in and out of the zone was a key factor when Cosco was looking for a port to be a regional hub, as was the presence of so many Chinese firms at Kizad and the potential to attract many more,” he said. Part of the Chinese commitment is the creation of the largest container freight station in the Middle East at an investment cost of $120 million.
Kizad will be home to the full spectrum of industrial and logistics activities, ranging from the huge Emirates Global Aluminum plant to an entrepreneurship and incubation center to encourage smaller businesses and startups into the development. In between, there are specialized “cities” within the zone, offering facilities to companies in the construction, logistics, plastics, food and automotive sectors.
Automotive brands such as Toyota, Jeep, Dodge, Fiat, Honda already operate out of Kizad, with Ghassan Aboud, the international car trader, establishing its global hub there. On the day the Chinese deal was announced, Kizad also unveiled a plant that will build the first automobile tires in the region. “We are offering the complete spectrum, from micro-businesses to heavy industry,” Chaturvedi said.
With all that big business going on in a sensitive marine-desert environment, Chaturvedi is keen to emphasize Kisad’s sustainability credentials. The port was built offshore so that the delicate coral reef on the edge of the Gulf was left untouched, he said, and the zone’s masterplan stipulates requirements for environmentally-efficient facilities for desalination, energy usage and waste disposal.
“But any port is only as good as its connection network,” he added. Kizad — with its hi-technology port near the arterial E11 motorway and close to three airports in the UAE — already has good sea, road and air connectivity.
When the long-awaited Etihad Rail project is completed, Kizad will be able to plug into the planned rail network for the Emirates and beyond. By 2023, Chaturvedi estimated, “rail will take us to the fourth dimension.”
It is an ambitious strategy, and dependent both on sustained growth in the economy of the UAE and the Arabian Gulf region, and on world trade levels continuing to increase. There have been some doubts on both counts recently.
On the economic health of the UAE and the wider region, Chaturvedi is sanguine. “The global economy is facing a period of slower growth, which is a normal phase of any economic cycle. Despite economic pressures, regional container volumes grew at an annual rate of 6.4 percent in the last 10 years, and is expected to continue growing at a rate of 5.3 percent.
“Kizad is on track to drive the diversification of Abu Dhabi’s economy away from oil and gas. We currently contribute 3.6 percent to Abu Dhabi’s non-oil GDP and by 2030 we estimate that our contribution will reach 15 percent,” he said.
“This is still very much a growth region that is in the early stages of industrialization. This industrialization is driving the demand for ports and logistics services in the region and is one of the reasons why the GDP impact here is significantly higher than other parts of the world,” he added.
The increased worries about the outlook for world trade, with US-Chinese confrontation growing, is something he sees as outside the control of anybody in the region. “We hope that both countries come to an amicable solution. We believe in the power of collaboration,” he said.
The alliance with Chinese state-owned Cosco could be seen as an example of the “tilt to the East” that has been a feature of the global economy since the financial crisis.
The “Belt and Road Initiative” has been called the biggest infrastructure project in history, but it has also drawn some criticism from analysts who think the partner countries to the Chinese investment plans become too dependent on finance from Beijing. Chaturvedi does not share those concerns.
“We believe that China’s Belt and Road initiative is a positive one. It has the potential to create opportunities to provide the infrastructure that will drive global trade, encourage cooperation between countries, and promote prosperity for all.
“Through the new Abu Dhabi terminal, China recognizes Abu Dhabi’s position as a gateway for trade and investment in the Middle East. Being a hub means that Abu Dhabi is not connected to just China, but all Cosco ports around the world; a true connection with both East and West,” he said.