Dressing down

Lack of purchasing power makes a bad year for retail

It was a common sight this year to see sales assistants lounging on the doorframes of their trendy boutiques in Beirut, sleepily waiting for customers to walk in. Meanwhile, the public was assaulted by a barrage of text messages urging them to benefit from the latest sales, discounts, and ‘unbeatable’ offers. This was a hard year for the retail sector in Lebanon.

Retail’s issues are the same as those of other sectors: a lack of wealthy tourists hunting for the latest fashions, coupled with lowered local purchasing power which has caused many Lebanese to downgrade their tastes or skip buying all together, save for necessities.  

Figures from Global Blue Lebanon of purchases by tourists who reclaimed their value added tax for the first nine months of 2013 as compared to the same period in 2012, show a decrease in spending across almost all nationalities of tourists, with most significant drops coming from the Gulf Cooperation Council countries (GCC). 

Renata Zeidan, owner of Santiago Boutique, a multi-brand upscale boutique with branches in Ashrafieh, downtown Beirut and Kaslik, says her business has dropped 15 to 20 percent, mainly due to the decline in tourist numbers, especially the wealthy Syrians who used to come to Lebanon for the weekends and Arab and Turkish nationals.

Nadim Chammas, CEO of Menawear, distributor of Slowear in the Middle East and North Africa region, says that the initial plan was for the the Slowear flagship store in Beirut to act as a model they could present to others in the region. “I had many potential customers and clients who were supposed to fly in and see the store in Beirut but most of them cancelled their trip [due to the incidents we had last year],” says Chammas. 

MID-MARKET SUFFERING

Although Hamra Shopping and Trading Company (HSTC) expanded significantly this year, opening four new stores in Lebanon and two in Baghdad, its chief executive officer Rami Rayess says they were not immune to the effects of the current unstable political situation and they had a challenging 11 months, though they are still waiting for the increased activity the holiday season will bring to formally assess the year.

With purchasing power on the decline, and the internal situation showing no signs of improving, it was no wonder that Lebanese chose to spend less on fashion and luxury items this year. “Even Lebanese who have money are spending less because psychologically they are not in the mood to spend and are not going out as much,” says Zeidan.

Luxury goods in Lebanon, as is often the way, did not appear to feel the sting of the declining economic situation as deeply, and it’s still possible to hear, for example, of the latest $35,000 Piaget watch being sold to a local a few days after the model arrived in Lebanon, and of people spending thousands of dollars on a bottle of cognac. Executive’s special report on luxury goods in August 2013 concluded that the sector is performing relatively well. 

Instead, it is the mid-market that is suffering and Zeidan feels that this is a global problem. She describes how, when she was at Milan Fashion Week this year, it was only the luxury brand stores, such as Hermès and Chanel, and the mass market retailers that were busy while stores targeting the mid-market were empty.  

In Lebanon the challenge is felt more acutely, due to the added difficulties of local instability. This has caused retailers such as Zeidan to rethink their strategy and opt for less expensive brands without sacrificing quality. “Fashion has changed and the mid-market clients’ lifestyles have changed to the cheaper products worldwide and we have to keep up,” says Zeidan.

Still, although Lebanese mid-market shoppers may be opting for lower-priced retailers for everyday wear, they still frequent the mid-market stores for special items. Sales assistants at the downtown boutiques say they had increased sales during prom season and in the summer, Lebanon’s wedding season.

Looking back at 2013, Slowear’s first year of operations in Beirut, Chammas says, “The response was more than we expected from the Lebanese customers and I thought it would take more time to achieve this level of success with them. Of course we suffered from the fact that there were practically no Arab tourists this year and this part of the business on which we were also relying did not happen, but the rest was good.”

Lebanon saw the longest sales season this year with almost 52 weeks of discounted items, according to Nicholas Chammas, head of the Beirut Traders Association. The reason behind this was to clear inventories and make room for the new collection of season friendly items, though some items were sold at a loss, according to Chammas. A quick glance at shops during that period would show that, although many browsed the shops, few came out with bags in hand.

Considering the expenses retailers have to pay, some items cannot be sold at lower prices while still being viable. “This is why our clothes have to be expensive, considering what we spend to get them into the country, the rent prices we have to pay, the electricity bills and employee wages. The consumer cannot afford this but we cannot afford to have it cheaper as well,” says Zeidan.

PAYING THE RENT

Beirut is the 37th most expensive country for retail rent in the world, according to a survey by property consultants Cushman & Wakefield with locations such as downtown, ABC Ashrafieh and Hamra popping up in the list of the most expensive retail spaces in the Arab world.

“Prices in downtown are very expensive and are the same as those in New York which has a much higher volume of shoppers than Beirut. This is really too much and one wonders where we are heading,” says Zeidan. She adds that this is the reason one sees many empty shops in Central Beirut and although landowners are working to reduce the rent fees, they would still be considered expensive. 

The Beirut Traders Association, along with BLOM Bank, have issued a credit card that will encourage shopping in small and medium enterprises with reward points and hope this initiative will inject some much needed life into the sector.   

Retailers Executive spoke to are going ahead with their expansion plans, with Slowear expanding further into the Middle East and launching two points of sale in Dubai, and a new point of sale in Qatar and Kuwait and HSTC planning to pursue expansions in all aspects of their business both in Lebanon and in the countries where they are already in operation. 

 “On the Lebanese side, I am optimistic,” Chammas says. “Lebanon can always offer you a surprise. When everything is doing well, it unfortunately comes up with a surprise you didn’t expect and on the other side when things are bad you get a good surprise.”

Nabila Rahhal

Nabila is Executive's hospitality, tourism and retail editor. She also covers other topics she's interested in such as education and mental health. Prior to joining Executive, she worked as a teacher for eight years in Beirut. Nabila holds a Masters in Educational Psychology from the American University of Beirut.

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