"The dropping numbers of tourists, the decline in the country’s financial inflows and the plunging consumer confidence have placed the Lebanese fashion retailers in a critical situation,” says Jamal Rayess, general manager of Hamra Shopping and Trading Company. “Confronted with these challenges, we were compelled as usual to think outside the box and improvise ways to counter the rising difficulties.” With these words, Rayess effectively summed up the state of retail in Lebanon in 2012.
Fewer tourists to buy
The third quarter of the year, the peak of the summer season, was when the retail sector was hit the hardest with the significant decrease in tourist numbers, following Arab countries warning their citizens not to visit Lebanon. This was evident first by the deep drop in the percentages of visitors reclaiming their value-added tax upon their departure from Lebanon, as the numbers from Global Blue indicate. Also, the latest numbers from the Lebanese Traders Association-Fransabank index indicate that retail activity dropped 8.5 percent compared to the same period in 2011.
The report attributed this drop to: “…the apparent decrease in purchasing power and to the high reliance of the Lebanese economy on Gulf tourists’ spending who were absent from Lebanon in this quarter due to the regional and internal turmoil.”
“For the retail sector in Lebanon, 2012 was not a good year,” says Mher Atamian, manager of Atamian Group, a distributor and seller of luxury brand watches and jewelry. “There are areas which witnessed a steeper decline in activity and sales than others, especially those which somehow depend on tourism such as Downtown Beirut or Verdun.” He adds that areas catering more to the Lebanese, such as the malls in Dbayeh, performed better this year.
Any hopes of making up for those lost tourists and expats during the Adha holidays were dashed by the bombing in Ashrafieh and subsequent events that kept would-be tourists away. “The bombing right before Adha ruined our hopes for an increase in activity during this period,” says Sophia Salem, owner of Sophie’s Choice, a fashion boutique and café concept in Beirut Souks. “With the high rents we have to pay in Downtown, we need all the activity we can get and instead we have demonstrations occurring right next to our businesses. People have the right to protest for what they believe in, of course, but Lebanese in general should be more aware and act more responsibly.”
Said Daher, chief executive of Azadea Group, owner and operator of leading international franchise retail concepts in the Middle East and North Africa region, says its stores in Lebanon “were doing well until the explosion in Ashrafieh… when business became slow.”
“We are hoping for a recovery [over] Christmas and New Year’s,” he says.
The sporadic turmoil around other parts of the country was another factor negatively influencing the retail sector in 2012. Daher explains: “Our stores in the north and in Saida were unfortunately impacted by the tensions there. But we always have challenges, and I believe that at the end the market migrates.” Atamian added that areas such as Tripoli and the Bekaa, where the conflicts in Syria spilled over internally, saw business being affected even more than Beirut.
Diluted purchasing power
Not all shoppers were equally daunted by the crisis. “Despite the events of the year, we… are still doing quite good overall compared to other companies in the retail business,” says Atamian. “The high-end consumers were less affected than the mid-segment, as those with a high purchasing power were still affording and buying their luxury brands.”
Hassan Moustapha, Vertu regional manager of Middle East and Africa, also speaks of those with high purchasing power, saying: “The growth we saw this year was mainly fueled by the increased demand for our signature line of smart phones — valued at $13,000 — from visiting expats residing in the Gulf.”
However, Daher, whose brands of clothing stores mainly cater to mid-range shoppers, says they still performed well. “Before opening Le Mall Dbayeh we had no decline in our year-to-date comparative sales between 2011 and 2012. Compared to others in retail, we were not as affected by the events of the year,” says Daher, adding that Le Mall Dbayeh’s opening cannibalized business from their other stores, creating internal competition.
“This year everything became more expensive as people’s purchasing powers decreased,” explains Imad Shakker, owner of Bellio store in Mar Elias and wholesale importer of Turkish fashion items. “Therefore, the medium to high-end shopper saw she could no longer afford to buy those high costing items and had to buy from less expensive stores. Stores like mine benefit from this as we are affordable.”
Retail’s hard knocks
While Beirut still maintains its reputation as a trend-setter for fashion in the region, other Arab cities are surpassing it in terms of sales and activities.
“Our stores in the region are performing better than the ones in Lebanon. The Emirates benefited greatly from the turmoil in the region as it saw an increase in tourists and in retail sales,” says Daher. “It doesn’t mean we are complaining about business versus 2011, but I know for a fact that in Lebanon the entire retail industry should be doing better.”
Salem acknowledges that 2012 has been a harsh year for Lebanon in retail terms, but believes the year’s damages can be somehow minimized if the Lebanese are more aware and think of their country first. “The number of Arab tourists decreased significantly this summer and the retail sector suffered from this loss of revenues, but we have to deal with it and move on,” she says. “The more aware and responsible Lebanese are, the more we will be able to have some damage control.”
And yet stores still open
Despite everything, this year witnessed the opening of two major malls on Dbayeh highway. “We are opening ABC Dbayeh in quite challenging conditions, but this is Lebanon, and if you want to wait for five years of stability, you will probably never start a new project,” said Robert Fadel, owner of ABC, in a July interview with Executive, before ABC Dbayeh’s grand opening.
International brands also carried on with their strategic plans despite the crisis, with Montblanc expanding into Verdun with a three-story boutique, and Armani Store launching its first complete outlet in Lebanon in the shopping area downtown.
“We believe Lebanon is the perfect entry point for our brand in the Middle East because the Lebanese man is very aware of his appearance, is well traveled and appreciative of superior quality products,” says Nadim Chammas, chief executive of Menawear, distributor of Slowear in the MENA region, adding that though they certainly had concerns regarding opening their boutique store in Downtown in September, they decided to move on with their plans because they had confidence in their brand and in the market itself.
Looking to 2013
In such conditions, talking about the future becomes difficult as so much is uncertain. “Planning in Lebanon has become very difficult,” according to Atamian. “All our brands expect plans and targets from us for next year and the reality is that plans are meaningless when one political incident can alter your course. Realistically, we expect 2013 to be the same as 2012.”
Yet those interviewed are continuing with planning for their companies’ growth in 2013, seeing this as the only recourse they can take.
“For 2013, we will continue relying on our longstanding experience as well as our internal strategies for the development of our luxury division,” says Simone Jean Tamer, member of the board at Tamer Frères. “Keeping the crisis in mind, we will continue investing professionally regarddless of what happens around us.”
Others, such as Grand Store’s Rayess, advise those in retail to be innovative and embrace the opportunities offered by social media platforms to attract clients who are now “more careful about the purchases they make.” He also suggests e-commerce as a strategic way for retailers to expand their client base.
Although admitting that 2013 will not be an easy year for retail, Slowear’s Chammas sees the planned openings of more malls in and around Beirut as a positive sign which will hopefully bring some dynamism to the sector.
Daher sums up the retail industry’s forecasts for 2013 by saying, “It is challenging, and I am not that optimistic, but we have to have hope for the future.”