Highs and lows in retail in 2005

Michel Abchee

Chairman and CEO of Admic, (the parent company of BHV, Monoprix and builder of City Mall in Dora)

E How has the retail landscape and shopping habits evolved in Lebanon over the past decade? What does the modern Lebanese shopper demand and how successful have retailers been at responding to this?

When we look at the development greater Beirut has undergone since 1995, we see significant changes. Back then we only had one major department store, which was ABC in Dbayeh, and a number of smaller shopping areas and stores scattered around the greater Beirut area. [Since then] we have subsequently witnessed two major developments: the build-up of the local infrastructure, which was accompanied by the build-up of the retail sector. Along with this development came a change in consumer habits: the one-stop shop gained momentum. Furthermore, the time of the consumer became less available, notably due to the increasing number of women who went into work.

Retailers responded by developing shopping malls, department stores and shopping streets such as the ones you have in Solidere and the upcoming Souks. There is also a greater concentration of retail in the capital now. Stores have followed the move of people from the outskirts of Beirut back into the city, at the expense of areas such as Kaslik.

It is worth stressing however, that this is not a new trend. The need among the consumers was there, but its development was slowed down by the war. Although it is 20 years late, what is happening right now is very positive: the retail sector is catching up with the Lebanese consumer.

Khalil Achkar

Country manager of Global Refund Lebanon

E How was business for Global Refund this year, and how did the drop in tourism affect the retail industry? How was the shift in nationalities choosing to visit Lebanon reflected in overall spending patterns?

Tourism ended up dropping less than expected – from January to October we only witnessed a 13% reduction. The most significant change was in the number of Saudis and visitors from the UAE, which both fell by 41%. Since the Saudis represent the biggest share of foreign spenders in retail, their absence made itself felt. This was compounded by the important decrease in the number of visitors from Kuwait and Egypt as well. While the tourists from Saudi Arabia, Kuwait and the UAE are the three top foreign spenders in Lebanon, the bulk of their retail shopping is with high-end stores, so the luxury segment of retail was more affected by their absence. Mid-range shops that cater to the Egyptians suffered from a drop in revenue due to their absence.

However, overall, sales did not go down by much for retailers and turnover didn’t drop. In part this is due to the fact that shops in Lebanon made more of an effort: they expanded their number of branches and invested more in marketing and promotions. On the tourism side, the number of Jordanian visitors went up by 82% in the June to September period after the authorities eased the visa restrictions for them. Subsequently, spending by Jordanian tourists in Lebanon increased by 48% in July compared to last year. Additionally, the Lebanese expatriates coming from the US, France and the UK spent more than in previous years.

Global Refund was aiming for 30% growth at the beginning of the year. That won’t be possible, but our revenues have been similar to last years. Although tourism dropped, more people are engaging in tax-free shopping, which covered our losses. In order to boost our growth figures for next year, we are implementing an in-store VAT refund system, whereby customers who purchase goods for five million Lebanese pounds or more can get their refund directly from the store.

Walid Saleh

Managing director of Phoenicia Trading Group, (that runs Beirut Duty Free)

E Duty Free shopping at Beirut Rafik Hariri International Airport has been one of the bright spots of the Lebanese retail sector this year. How did sales meet your initial projections and what areas performed best?

How do you intend to capitalize on these in 2006? What is your market share of the Lebanese retail market as a whole?

Overall it wasn’t a bad year, considering the events that took place. Our performance did not meet our initial targets, which were a 15% growth in sales from last year. But sales did increase by 4%, despite the fact that the number of passengers at Beirut airport dropped by 3.3%. The boost in sales came from an increase in spending per customer, which went up by 8% and an increase in our penetration rate: 12.5% more travelers shopped in our Duty Free stores.

We countered the drop in passengers by multiplying our promotional campaigns, as well as by investing more in the training of our staff.

Our cigars and cosmetics departments performed well, although they are traditionally our sales drivers, each representing approximately 25% of total sales. But the electronics department showed good sales figures as well. Both the performance of cosmetics and electronics is linked to the fact that we focused our efforts on boosting sales in these areas. With regards to cosmetics, we increased the size of the store, hired more beauty advisers and we expanded our range of products. We will continue focusing on this area, as well as on the sales of electronic products. Although the latter offers limited profit margins, it is an important area for the Duty Free from an image perspective.
For 2006, we will be increasing our marketing budget by 50%, with a focus on direct marketing. We will continue to improve our services, notably by investing more in the training and development of our staff. The cigar store remains the flagship of Beirut Duty Free and we will promote it through promotional campaigns.

We don’t compare ourselves to the domestic market in terms of performance – we only consider it with regards to prices, so as to set ours at 20% to 25% less. But we are not in direct competition with local retailers. The competition takes place between the airports. We view Dubai airport as the benchmark, and compared to them, we are quite competitive, especially with regards to our cigar sales.

Ronald Khabbaz

Vice-president of Khabbaz stores

E What should be done by both the private and public sectors for Lebanon to sell itself as a retail destination?

There are a number of things the government could do to promote Lebanon as a retail destination and assist local retailers in developing. Firstly, the authorities need to invest more in advertising overseas. Foreigners need to be informed about what this country has to offer.

Additionally, more should be done to encourage Lebanese expatriates to come back to the country. Promotions ought to be done, with discounts on airfares and hotels to bring them over, and the same could be done with travel agents, so as to have more cruise ships coming in to Beirut. The current government strategy for tourism lacks focus.

Secondly, the government needs to reduce the red tape, which can be stifling for retailers trying to expand. To cite a specific example, Khabbaz children’s wear is expanding quite aggressively abroad. We face obstacles when it comes to re-exporting our garments (which we manufacture overseas) from Beirut to the UAE. We have to unpack and re-assemble garments from containers on the spot down at the Port of Beirut where custom procedures are cumbersome and outdated. The government’s focus should be on facilitating procedures for goods destined for re-export from Beirut.

Finally, although I don’t know how much the government can do to ensure this, we need stability. During the stable years we had between 2002 to 2004, retail projects were mushrooming throughout the country … [and] there will be plenty of new and bigger malls in the coming years, as well as new brands that are waiting for the internal situation to stabilize so they can enter Lebanon. Once you get the stability, you get tourists, and the retail sector can continue to develop.

Nagy Hneine

General manager at Bassoul Heneine (BMW)

E How realistic is it that the government will reassess their policy of taxation, duties and fees on cars? What would the benefits be of reforming this policy and how would you recommend that this be done?

I certainly do hope they are working on changing it, as it makes no sense as it stands. The car registration fee should be eliminated altogether. It doesn’t exist in Europe, and there is no reason why we should have it. Scrapping it or reducing it significantly would bring in more revenues for the government as more people would buy cars, it would enable people to change cars more frequently and it would permit car rental companies to hold more cars. Should the car registration fee be lifted, we would immediately see a 30% to 40% increase in car sales.

This in turn will be beneficial to the environment. All new cars imported into Lebanon need to have a catalytic converter that limits engine pollutant emissions. With an increase in the sales of new cars, there would be a reduction in the number of used cars, which are the source of most of the traffic pollution that afflicts this country.

In Cyprus, they sell approximately 25,000 new cars a year. In Lebanon, we are only averaging some 18,000, whereas the market potential is of 35,000. The taxation policy is causing tremendous losses in revenue.

With regards to customs duties, I don’t expect a downright elimination of them, but reducing them from 50% to 15% to 20% for all cars would already make a big difference. For instance, if you buy a BMW in Lebanon today for 30 million Lebanese pounds, you end up paying an additional 50% of its value in customs, then 10% VAT and a 7% registration fee. We are hoping that through the Euro-Med association, Lebanon will eventually eliminate its customs duties and only have a VAT of 15%, as in Europe.