Consumption is keeping Lebanon alive. As a major contributor to gross domestic product, the Lebanese penchant for luxury puts the shine on the country’s numbers, financially precarious as it may be for the individual. At the close of 2010, after years of waiting and false starts, the highlife has found a true home in the revived downtown Beirut. Still, the current conditions, which have the potential to carve Beirut a place among the world’s great retail cities, are not assured.
With Beirut Souks — Solidere’s consumerist dream — at the center of it all, downtown Beirut rivals, at least in names, the great shopping districts of Paris or New York. The 200-outlet complex began its very soft opening in October of 2009 and has now seen its first full year of operation. Persistent delays and mismanagement of initial space allotment, especially in the Gold Souks section, made for a rocky start, but on the whole, retailers have been keen to move into one of the final puzzle pieces of downtown Beirut’s rebirth.
“Of course the companies were thrilled when we proposed to them the mono-brand boutique concept in Lebanon, especially in Beirut Souks, which is the ideal place to be, in the heart of the city,” said Barkev Atamian, business manager for local luxury watch empire Atamian. His company now dominates an entire corner of the Gold Souks with IWC Schaffhausen, Jaeger-LeCoultre and TAG Heuer mono-brands and a multi-brand boutique containing watches from Breguet, Blancpain, Glashütte Original and Ulysse Nardin.
Despite congratulations from many foreign brands happy to have a centralized home of luxury in a desirable market, the Souks still stand as a disappointment to some.
“To be quite honest the souk is not up to our expectations yet, but we think that there is a future for it,” said Izzat Traboulsi, managing director of Hugo Boss for the Middle East.
The Souks ‘value-added’ features such as a cinema complex and many of its promised dining locations and cafes are conspicuously absent. Solidere’s General Manager and Chief Financial Officer Mounir Douaidy told Executive last September that the northern section of the souks, set to contain a 14-screen cinema and a department store, would be completed by the end of 2011 — one year to go.
“It’s still a mess because there are some missing cafes,” said Traboulsi. “The cafes [that do exist] are on the edge of the souks… we don’t have any cafes as a stop in the middle.”
In addition to the lack of patron-enticing entertainment venues among the retail spaces, the mixed price tag of retailers within the complex makes luxury retailers less willing to choose locations in the thick of it. This means that some truly top-end retailers are still looking for a presence outside of the souks on the outlying streets of Foch, Allenby and Park Avenue.
But these streets pose yet another challenge for the retailers who want to keep company with their contemporaries; each building and sometimes each space has a different owner, whose interests and ideas do not necessarily tally with the vision for the area. So, the new challenge with the growing presence of luxury retailers downtown is keeping the area on message.
“If somebody is going to be paid $1,400 per square meter they don’t care if it’s a high end place or a shwarma place,” said Traboulsi.
Although a hefty per-square-meter price tag should keep the falafel stands from downtown for now, a lack of a central unified plan means that at any given moment these top-end retailers could find themselves with a neighbor not of the rarefied company they would usually keep.
Furthermore, rising rent prices in an area with a finite amount of attractively located, ground floor space could jeopardize the future health of Beirut’s luxury center.
“The only issue we are facing now is, since the demand is a little bit big, the prices are tending to go high also. Today [rent] is representing a very big part of the turnover, which is not normal,” said Antoine Eid, chairman and chief executive officer of Joseph Eid & Co. — which owns the Alberta Ferretti, Faconnable and Lanvin Men’s boutiques downtown — to Executive in July.
Eid said that today, rent for a boutique in the Beirut Central District (BCD) represents 7 to 10 percent of revenue. This in itself is a bit too high for comfort and, with rents increasing, Eid is worried.
“We think that this is dangerous because maybe some of the companies will not be able to sustain these rents for a long period of time and it would be a pity to see some of them closing,” he said.
And on top of the geographical and spatial dynamics of downtown, political dynamics, as ever, have their role to play.
Hotel occupancy rates in August dropped from 75 percent in 2009 to 43 percent in 2010. Likewise, rates in September dropped from 62 percent in 2009 to 53 percent in 2010, according to international consulting firm Ernst and Young.
Though Ramadan’s August arrival this year was partly to blame, Traboulsi believes that inflammatory rhetoric from various political leaders and trepidation regarding the uncertainty of reactions to the United Nations’ Special Tribunal for Lebanon (STL) scared away some prime tourist dollars. He estimates that Hugo Boss saw a 10 to 15 percent drop in sales in August and September from last year, when development and tourism trends predicted growth.
It’s not just complicated forces like politics that impact luxury sales; even simple forces like weather can, and have, hindered retail sales this year.
“We got the fall merchandise and we are still having summer. There is no appetite from the clients,” said Traboulsi.
The seemingly constant openings and events celebrating fashion in the BCD in 2010 encourage the idea that it is the only place for luxury in Beirut. But this centralization of luxury downtown has taken focus away from other areas of the city and frustrated some established proprietors.
Grace Sehnaoui, brand manager at E and E group which runs TOD’s, Hogan and multi-brand boutique Kamishibai, said when Beirut was beginning to re-establish itself in terms of a luxury retail destination after the civil war, development was haphazard and scattered around the city. With the new centralization of luxury, many of the high-end retailers who appeared early on now find themselves somewhat isolated among the riffraff.
“Outside of [ABC Ashrafieh] it’s quite dead now,” said Traboulsi. “Joseph Eid and Via Spiga had luxury stores [near Sassine], today they don’t function as before because all of the luxury [brands] have moved downtown where it is done in a proper way. Now whenever a premium brand wants to open a shop, the only destination they have is downtown Beirut.”
Sehnaoui’s Kamishibai sits down the block from Joseph Eid near Sassine and is surrounded by a random smattering of salons, cell phone shops and, most frustrating to her, banks.
“When it’s a shopping area it should be a shopping area,” she said. “The banks here have beautiful [locations]. They are huge and on the ground floor because they are the best paying.”
Luxury brand managers and owners have little hope for the success of any other ground level, open air shopping districts in Beirut, as a coordinated effort to create shopping streets is unlikely. The very fact that there are far more players in the game today than there were five years ago is a testament to Lebanon’s flourishing luxury retail sector.
But the forces threatening sales still dictate success and the concerns of the industry’s leaders suggest that this is no time to sit back and relax. With the resolution of the STL pending, Traboulsi said: “In Lebanon I don’t see any growth [for 2011]; we see it as a stable market for the moment.”