Against a background of flatlining national economic growth, Lebanon’s retailers have suffered a double blow this year, with many big-ticket shoppers from Europe and the Middle East avoiding Beirut for their annual shopping sprees, put off by the regional unrest.
But these challenges have not checked the rapid expansion of the luxury retail sector, a vital element of Lebanon’s identity as a shopping destination. Instead, developing nuances in consumer behavior suggest increasing sophistication among buyers, subtly altering the strategies of luxury retailers.
“We can still rely on investor confidence in the Lebanese economy,” says Ziad Annan of AS Chronora, the local agent for Rolex, Girard Perragaux, Jean Richard and Tudor, among others. “Malls are still being built, and the national retail network is still expanding.”
Izzat Traboulsi, managing director at the Fashion Trading Company (FTC), which manages Hugo Boss Middle East, suggests that the national psyche plays a part in this buoyancy: “Lebanese in general are very competitive. They like to bring all the brands of the world to Lebanon, so even if people are not working in retail they want to bring this or that brand.”
Such confidence is necessary in a country where the commercial sector must always be prepared to rise and fall with the vagaries of domestic and regional politics, even in times of global plenty. At the Financial Times Business of Luxury Summit this year, Euromonitor International reported a slight improvement in global luxury retail sales, currently valued at around $210 billion, following the 2009 global recession. A key element of this growth is the sales performance of emerging markets, including the Middle East, with total luxury spending in these markets growing 43 percent in the last five years to a value of $30 billion, compared to just 6 percent growth in developed markets.
But Lebanon’s participation in this success is conditional on domestic and regional political stability, both in short supply in 2011. Few of the high-end fashion players interviewed by Executive would not admit to a very difficult year, especially in the first two quarters.
Barkev Atamian, the business manager of the Atamian group, which represents about 70 percent of the combined watches market in Lebanon at the fashion, luxury and exclusive levels, says that growth has been flat this year, affected by a change in the spending habits of visitors who are now “basically coming for business, for short periods”.
“If you don’t have a stable country you don’t have tourism. If you don’t have tourism, you cannot survive,” he says. Holding brands at a variety of market levels, Atamian can also clearly see the texture of the dips in profit. “It’s the medium-high which is suffering, because the people who [have been] spending maybe $1,000 are [now] spending $500 or $400. The [person] spending $10,000 on a watch is not that affected by the situation. It’s the $800 to $1,500 segment that is affected the most.”
Like the majority of retailers, Deemah Fakhoury of Fawaz Holdings (Shoebox, La Cave du Joel Robuchon and C&F, among others) notes that “it is only since October that the market has shown some potential growth,” giving some retailers hope for their numbers. But Karim Tabet of the Tabet Group, whose holdings include Frette, Zadig & Voltaire, Barbara Bui and Toywatch Middle East, expresses surprise that so many retailers are relying on December, even in a market defined by its seasonality. “Christmas… should be the cherry on the cake and not the most important month.”
It’s not all doom and gloom, though; Tabet’s fashion holdings performed beyond expectations this year, as have some other boutiques. Ziad Matta, chief executive officer of Boutique 1, which operates both a multi-brand store and mono-brand Missoni and Blumarine boutiques, reported “stellar performance” in some areas.
I dreamt I dwelt in marble halls
This uneven performance in 2011 follows an orgy of expansion in the retail sector in the last two years, with names like Chanel and Louis Vuitton only the most high profile of a “territorial expansion for all brands,” that is set to continue in 2012 and beyond, notes Fawaz Holdings’ Fakhoury.
Oliver Petcu, managing director of CPP Luxury Industry Management Consultants, has monitored the trend of big name international brand franchises in downtown Beirut. “Lebanon has been a battle ground, and I would even say [there’s been] a war of vanities between the three players [Aïshti, Luxury Clothing Company and Azadea] to secure franchising distribution,” he says. “This comes with a very high price and a business plan [that] makes it almost impossible for a store to break even earlier than four or five years from opening”.
Many retailers are thrilled with the developments, however, including W. Salamoon & Sons, who exclusively represent several high-end watch brands. Carole Salamoon describes the Beirut Souks enthusiastically as a “hub of fine Swiss horology.”
Rapid expansion and development outside the city center also continues apace, attracting its own fans and critics. Malls are popular with many local shoppers who want to avoid Beirut’s paralyzing traffic, and for brands like Hugo Boss, due to open at the new Beirut City Mall in Hazmieh at the end of 2012. But Alain Masri of J.M. Weston, a luxury shoe manufacturer that has maintained its store on Allenby Street in downtown since 2003, observes simply that “you have three malls coming in the next five years, and all of them are full of new brands. I don’t know if everyone will find a customer.”
This trend of expansion despite economic challenges is apparent across the Middle East. The annual research report by real estate organization CB Richard Ellis reported in November that “nearly three quarters of international retailers (71 percent) are planning to open more than five stores in the Europe, Middle East and Africa (EMEA) region by the end of 2012, with 20 percent of retailers looking to open 40 stores or more in 2012, compared to 18 percent in 2011.”
Beirut, however, is more politically vulnerable than the other Middle Eastern shopping destinations that make up these figures — Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.
Seduced by Solidere?
Solidere and the Beirut Souks are the cheerleaders for much of this flamboyant expansion. “If any high-end shop wants to open in Lebanon, there’s no other gateway than Foch, Allenby and other subsidiary streets,” says FTC’s Traboulsi. “It’s like Avenue Montaigne in Paris or Sloane Street in London or Fifth Avenue in New York; it is really the prime location for high-end brands.”
But like the rest of the sector, development is uneven and a poor 2011 has left some retailers uncomfortable, with most seeing the Souks as having a long way to go. “The downtown area is an incomplete project,” says AS Chronora’s Annan.
“We’ve grown accustomed to the desert-like landscape of Martyrs’ Square and the seaside sector, but the emptiness causes discomfort in the customer’s mind, hence the lack of footfall. The overall Souks area has seen more footfall this year, but to the consternation of most tenants spending is still disappointingly low, while the overall expense of operating in the Beirut Central District alarmingly continues to rise.”
CPP’s Petcu, however, sees the enthusiasm of retailers to sign up for mono-brand boutiques as a mistake rather than something that will work itself out, calling it “completely unjustified from a feasible business perspective,” and predicting that political volatility and competition from European shopping centers will soon force retailers to rethink their strategies. “In the following two to three years I would expect most of these brands to shift from mono-brand to multi-brand, unless retailers will continue to be able to afford losing money.”
Many local retailers are placing their faith in the slew of recently opened and imminent cafés, bars, clubs, cinemas and restaurants in downtown. “When the cinemas and food courts open is when they will see a big growth,” says FTC’s Traboulsi.
In 2011, the uneven entertainment offerings limited the Souks, in particular, as a popular destination for middle-income shoppers — the sort of buzzing central destination that its developers are hoping to encourage with ever more programs of exhibitions, concerts and other events.
But as Solidere’s quarterly reports showed, more than 30 outlets opened or were due to open by September 2011, as confident investors continue to choose downtown as the location of the moment.
I like it my way
Shoppers in Lebanon have always been slaves to luxury, but subtle adjustments in consumer habits and retailers’ communication strategies are emerging as the market matures. Sophie Salameh, the founder of Sophie’s Choice multi-brand boutique and café, stocks her rails with the “chouchoux of the international press”, up-and-coming young designers previously little known in Lebanon and the Arab world. Many of her pieces are special orders and limited editions, reflecting a global trend toward customization and individualization. This, says Salameh, is “the top of luxury… to be able to do things according to your choice and your taste.” Wealthy and stylish young Arabs educated abroad, in particular, are beginning to buy “what they like themselves, not what [the brands] are imposing on them.”
Amal Berri, manager of high-end fashion boutique Reem Acra, also notes that “alteration is half the work in this shop”. As a Lebanese designer who has had some success as a novelty brand positioned against such well-known names as Elie Saab and Zuhair Murad, Reem Acra represents another trend suggested by CPP’s Petcu — that of the success of Lebanese designers. “They have a unique ability to understand the mentality, taste and preferences of Arab consumers, in ways that Western brands cannot,” he said. “Lebanese designers boast a unique versatility, which translates not only in their creative design but also in the way they process raw materials.”
Communication with customers, Petcu notes, is a key advantage in the market, and Lebanese designers are in an advantageous position for “events, testimonials with local celebrities,” and so on. But most boutiques are currently revising their approaches to marketing, as high-end brands work out how to maintain their exclusivity online while taking advantage of the opportunities offered by new forms of media. “The way we communicate to our customers has radically changed, as we all need to keep up with the times,” says AS Chronora’s Annan.
Lache my vitrine
Can Lebanon maintain its relatively recent luxury retail boom? As a vital part of the country’s identity and economy, the commercial sector is the ‘vitrine’, or store window, through which Lebanon — with its long history of glamour and commercial success — wishes to show itself to best advantage, and which gives it a bright confidence even in troubled times.
Traboulsi, for one, believes that there is a depth to the sector’s service and the minds behind it that makes Lebanon stand out from the crowd in the region. “Not in terms of shopping offerings, but in terms of concepts and culture and vision, definitely in retail, Lebanon will always be the window of the Middle East.”
And yet, sales in 2012 are no more certain than those in 2011, says Annan. “I expect a status quo as long as the situation in Syria doesn’t improve, and the government fails to take aggressive action in rectifying the various pending issues we’re all familiar with.” But although “the situation might certainly lead to greater challenges, and fewer opportunities,” it comes down to the fact that “Lebanese customers are a resilient bunch, and the retail industry is solid.”
Retailers in Lebanon speak from long experience, and have learned not to watch the political scene too closely. Berri echoes many when she says that in Lebanon “if you want to wait for the right time you will never open” — so open they will.
