The trade sector is a fragile creature, susceptible to the vagaries of the market and those fickle human sentiments of confidence and trust. So it is little surprise that it has endured a bit of a tossing in the wake of the political crises and economic malaise besetting the country. Executive met with Chairman of the Beirut Traders Association Nicolas Chammas to hear how he and his colleagues are weathering the turmoil.
You have just received figures for the sector’s performance over the first quarter of 2013. How are they?
They show a clear downward trend in retail sales. The figures include more than 40 sub-sectors in Beirut and we have noticed for three quarters in a row a decline in retail activity. Internally we can point to the political cleavages and bickering and the security issues we face every single day and the absence of the government, which resigned late in the first quarter. This is not to even speak of the absence of the Arab tourists in Lebanon.
Is this trend a reflection of an actual contraction of economic activity or rather a reflection of low confidence and uncertainty over what the future holds?
Actually there are both. There is the wait-and-see attitude from the low confidence in the market, which is confirmed by the consumer confidence index. On the other hand, there is the lack of demand from the absence of the Arab tourists. In some commercial sectors that are related to consumer spending such as jewelry, clothing, fragrances, leather goods and so on, the contribution of tourists and especially Arab tourists is around 45 percent of duty free purchases. When these people are absent, we get hammered. The decline in the retail sector over the first quarter compared to the same period last year is 14.4 percent in real terms, which is huge especially when you consider that commercial activity accounts for around one third of the Lebanese economy. This talk of growth of 1 or 2 percent in the economy, I really don’t see it when we talk about the real economy. I can predict that if things continue going as we see them now, we will see negative growth this year.
Are there certain areas where the influx of Syrians, especially from the middle and upper classes, have buttressed retail activity?
They did boost retail, but in very limited sectors, essentially living essentials. But this did not compensate at all for the loss we have suffered elsewhere. The purchasing power of a migrant coming from a war zone is not a fraction of what it is with a tourist coming from the Arab countries. Even middle class families that come with some savings, they are very frugal with the ways they spend, perhaps over fears of worse days to come later on.
There is an excess in supply of retail space in the current market. Has this translated into a fall in the cost of leasing retail property?
No, unfortunately not, as many of the leases have been contracted from more than one, two or three years ago. We are stuck with these rates and this is becoming a very big problem for retailers as we have turnover coming down and other operational expenses going up and leases representing a bigger and bigger proportion of turnover. Unfortunately, the owners of malls and large shopping centers are not very flexible with us, even though there is some excess capacity.
What about new leases for businesses who are entering the market, relocating or expanding?
If there is any downward flexibility it is really very marginal, even though we have seen such deterioration in our work environment over this past period. It is becoming a big problem and it is likely more and more people will have to evacuate their rental places in light of these problems. We are facing a liquidity crunch in all of the commercial sectors, from mild to severe. In the best cases you have to pay your bills immediately and your receivables take a long time to come in so you have a mismatch in your payments and receivables. In the worst conditions we are suffering huge losses in terms of solvency. You know we have problems of liquidity arriving to solvency problems so you have structural deficits and we are witnessing more and more of this all the way to bankruptcies.
Minimum wage legislation was adopted about a year ago. Have you been able to pass on much of this increase in costs to the consumer?
We have not been able to pass on much of the wage increases as we simply don’t have any pricing power. The purchasing power of the population is so brittle you can’t increase prices. In fact we are seeing the opposite with retailers offering discounts at the height of the season just to clear inventory so as to be able to pay their bills and suppliers.
We are witnessing an increased clustering into new malls. What kind of pressure is that putting on retailers in traditional and dispersed locations?
This is absolutely the case and their business pool is shrinking. This is not unique to Lebanon but is happening everywhere and is now catching up in Lebanon. However, as it comes amidst a quasi-recession in Lebanon, it is a double whammy for the traditional markets. On one hand they are suffering a lack of business that is plaguing the entire nation and at the same time more business is being taken by the malls.
We think these two channels have to live side by side. We don’t at all want the end of the traditional traders as they are integral to the social texture of Beirut and Lebanon, but of course they need to modernize themselves and as such the financing from the banks needs to be there. The subsidized loans have benefited industry, tourism, housing, agriculture and so on but not the trade sector. There is a prevalent misconception that trade is mostly light assets, which is not the case. If you look at our balance sheets we have lots of fixed assets and there we would benefit from subsidized loans. Traditional retailers need some money to modernize themselves, just like we have seen in the restaurant sector in recent years.
Why have you recently released a branded card for the Beirut Traders Association (BTA)?
This is to help more of the traditional and smaller retailers. It will increase the loyalty between them and their customers. It will be a win-win situation with discounts and benefits for the customers as well as increased financial proceeds for the retailers. Most importantly, we are hoping this will stimulate much needed demand in the market, to somewhat offset the drop in external demand from tourists and expatriates and to tap into forgotten corners of the internal market. Since smaller retailers cannot bargain for good conditions vis-à-vis the banks it was important to have this co-branding between the BTA and Blom Bank so that all participants operate under the umbrella of the BTA.