From the perspective of consumer markets in Lebanon today, there are two classes of people: 1, those who can no longer carry out basic transactions in a consumer economy, and 2, those who are lucky enough to still go shopping, without knowing how long their luck will last. The large and growing first group includes those residents who depend to varying but overall increasing degrees on food aid, and those store keepers who have been forced by the economic crisis to shutter their small stores. The number of destitute families today is innumerable in exact terms but assumed to be in the hundred thousands; the store shutdowns by many estimates are reaching up to 10,000 points of sales, numbering between one third and 40 percent of traditional retail outlets. Their retail experience is existentially nil.
The second group, those who are still in luck of having access to printed paper currency (the perception these days is that of paper, more than that of currency) still includes many city dwellers in Beirut and elsewhere, judging by the visual evidence of crowded streets, socially distanced holiday fairs, and supermarkets in the Christmas season of 2020.
However, from a perspective of retail shopping as the quintessential modern activity in pursuit of economic satisfaction, the experience of the shopping class today is a rather sad mixture of opportunism – a combination of bargain-hunting and hoarding of basic food and household items in bounded rationality – and frustrations, from the sudden disappearance of brands and items that used to be abundant on the shelves to having to frantically calculate costs and compare prices against the available real budgets. Those personal wallets after all look deceptively large in lira amounts but have next to no purchase power when compared to the relative stable purchase power of the last 5 or 10 years. Ergo, the average retail experience this year is either absent or, in the fortunate case, a mixed bag of pains and excesses.
From the vantage point of profit-seeking retailers, consolidated retail turnovers have posted a sharp decline in the past 12 months, between third quarter of 2019 and third quarter in 2020, with all sectors of retail witnessing a “continued – and even worsening deterioration”, as stated by retailers and trade analysts in statistical documents that are rife with very disturbing numbers. The Beirut Traders Association – Fransabank index of retail activity in Lebanon (BTA-Fransabank Retail Index) in this regard paints a picture of steady erosion of retail volumes over the ten years between the beginning of 2011 and the third quarter of 2020.
THE RETAIL INDEX
The index fluctuated from the starting line of 100 points in the first quarter of 2011 – a quarter that predated the Arab Spring unrest and recurrent malfunctions of the political system and top institutions in Lebanon. By third quarter of 2019, the nominal index had receded to 49.57 points and the inflation-adjusted index to 45.04 points. While seriously worrying, both the nominal and inflation-adjusted index readings at this point in time one year ago were comparable to the two previous quarters in 2019 and also the first two quarters in each of 2016, 17, and 18 when the index had dipped below the 50 points mark.
Over the four following quarters – Q4 2019 and the first three quarters of 2020 – however, the index fell off the cliff, dropping to less than 40 points (nominal) in the fourth quarter of 2019, then deteriorating successively further to 31.5 (Q1), 21.8 (Q2), and 21.9 points by the third quarter of 2020. While the nominal index thus suggests a near stabilization at low-level between the second and third quarter of this year (20 retail categories were still shown as receding quarter on quarter by between 5 and 90 percent, but the three retail categories of stationary/office supplies, used vehicles, and medical equipment reported increases when compared to the second quarter), the inflation-adjusted index number collapsed to 5.52 points in Q3 of 2020, down from 33.96 points a year earlier. In combination with the failures of negotiations and absence of government action except for valiant attempts to stem the rise of Covid-19, the report’s wholly cheerless opening line was that the third quarter of this year for Lebanon “was catastrophic in all aspects”.
Khoury Home, confirmed to Executive not long ago that the chain adjusted to the challenges of 2020, even before the full extent of the crises could be anticipated. The company of then 450 employees, according to its chairman Romen Mathieu, decided to downsize in the summer of 2019, shift more into e-commerce and change the retail model. “It was hard to let go of about 200 employees at the time, closing over five showrooms, and right-size the administration. But every single employee got his full benefits at the time, with commitment to every employee that they would have the first right to rejoin the company if it were to expand again. When the thawra started, our competitors had big issues because they had large expenses [at a time of] slow business. We were already up to speed in e-commerce and terms of organization and flexibility,” he says.
“After the thawra, the economic crisis and the failure of the Lebanese lira, the banks, the Beirut blast etc, we have been sustaining a very good business adapted to the situation and ready to pull up again – not like before, the business model will be different to not only cover Lebanon but hopefully also a number of countries around Lebanon, with the knowledge that we have developed,” he tells Executive.
TRADITIONAL VS MODERN
One changed reality appears to be that modern retail and traditional retail have been thrown into a new dynamic, one that is reducing the role of traditional players in favor of more professional operators. The sudden death of so many small retailers in Lebanon – think “traditional retail” to be represented by a standalone shop or small family-owned network – is a huge problem for Lebanese society.
About this, even the country’s largest supermarket operator, the Grey Mackenzie Lebanon Group that owns Spinneys, is adamant. By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants. We have talked about free competition and having as much competition as we can, and this was working before all of this started. Now, due to inflation and [because many traditional retailers were] not making all the right decisions, or being forced not to make the right decisions because the circumstances are extreme, everybody as a sector is looking at traditional trade to make sure that they are able to survive. We hope that we can help,” says Hassan Ezzedine, the chairman and general manager of Grey Mackenzie.
For big players in modern retail – think chain stores or supermarkets – the crisis forced them to work much harder to keep their shelves filled with goods that the consumers would accept and could somehow still afford. But the changing retail landscape also means that there are opportunities for the swiftest and best capitalized players to acquire market share and expand, where, before the crisis many expansion attempts had been unsuccessful.
The challenge now is to reinvent Lebanese retail paradigms, as behavior changes have been forced on consumers and as the country is by necessity shifting towards more rational solutions of modern retail at the expense of cherished shopping habits. New business models with inclusion of salient online and offline strategies and considerations of exports (including brands of agro-foods that are really produced in Lebanon and not just packaged or labeled here) will indubitably be challenging to implement from the tiny Lebanese market base, but the retail crisis of 2020 does not preclude that some groups will convert these challenges into platforms of growth.
By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants.”