On a rainy day in mid-November 2018, Executive sat with the head of the Lebanese Traders Association, Nicholas Chammas, to hear his thoughts on the retail and trade sector in Lebanon. Given the amount of text messages Lebanese receive on a daily basis from stores announcing the latest promotion or the ever-increasing number of discount signs on storefronts, it was no surprise that Chammas told Executive that the retail sector is not doing well. His solution? The Lebanese should take advantage of those local promotions and shop more in Lebanon.
E How would you describe 2018 for the retail sector?
It was another horrible year for the economy in general, and the trade sector in particular. Cumulatively, we have been going downward for the seventh year in a row. So it has been a terrible trajectory for the trade sector.
What we are witnessing today is all factors going in the wrong direction. As traders, we have five factors that influence our business. The first one is revenues; our turnover has been declining persistently since 2011. The second factor is trade margins, which have also been steadily eroding [in part] because of the competition from Syrians who have opened their own stores and wholesale operations. Add to this the fact that there is zero pricing power with the traders, whereby you have discounts all year long. Typically, these two factors [revenue and trade margins] should go up annually, but in Lebanon they are decreasing.
On the other hand, you have three factors that typically should go down [in a healthy business environment] but instead are going up. The first factor is the overhead and general operational expenses, such as rent, labor expenses, or utilities—these have been going up due to inflation. Second is the interest rate: Because of the tightening monetary policy in the United States and financial considerations in Lebanon, interest rates have been skyrocketing, and this has impacted our business. The third thing that has been going up is taxes. In 2017, 22 tariffs and taxes increased and have negatively affected our business.
So all in all, 2018 has been the perfect storm for the trade sector.
E Is this across all sectors of retail?
In general, yes, it is the same scenario across all sectors. Consumables like food and everyday usage items have been affected less seriously than other sectors. Luxury and durables (such as cars and furniture) were heavily affected. Everything that can be postponed has been postponed for two reasons: [First,] the purchasing power is really not there anymore. [Second,] those who have money in the bank have negative expectations about the situation [in Lebanon], so the result is the same in that money is not being spent. Consumption is nose-diving, and this is a disaster for the retail sector, of course, but also for the economy at large.
E What do you propose as the solution?
Statistics by Global Blue (the private company specialized in restituting VAT in numerous countries) show that in 2017, tourists spent $3.5 billion in Lebanese stores. During the same period, Lebanese tourists spent $5.5 billion abroad. This does not include the money that Lebanese spent abroad at restaurants and for other services, which would drive that figure up to almost $6 billion.
Because of the devaluation of the currency in Turkey, for example, Lebanese are traveling en masse and doing their shopping there because it is cheaper than Lebanon. The Turkish lira had lost a lot of ground as we know, but since mid-August 2017 until now, it has regained 30 percent of its value, thanks to tourists like the Lebanese. But by benefitting from the sales and opportunities there, the Lebanese have undermined the Lebanese economy.
We need a booster for the economy, and this is why we are happy with CEDRE, for example. If it happens, let us say you have investments to the tune of $1.5-2 billion a year, but as we well know, investments are slow to materialize and impact the economy. Economically speaking, consumption is easier to awaken and faster to react.
What I am saying is that between today and the day CEDRE enters into force, we ought to spend more money in Lebanon. And the good news, as we showed, is that there is money that is being spent, but abroad.
E Although we said at the beginning that there is no purchasing power among Lebanese.
I said there are two factors. Part of it is that the purchasing power has definitely declined. The second one is that the purchasing power is being spent abroad. What I am saying is that for national emergency reasons, let’s say for the next two years, every Lebanese citizen should give Lebanon a second chance by collectively spending $1.5 billion in Lebanon instead of spending it elsewhere.
E What is the incentive? Why would they do that?
It is the case of the chicken and the egg. Whenever the Lebanese spend abroad, they are contributing to making prices more expensive locally. When traders sell larger quantities, there are economies of scale that enter into play, and at the end of the day, they reduce their prices. So the more volume, the more price reductions. We need to find a way to break this curse.
I am addressing this appeal to two parties. First to the Lebanese, telling them that in the coming two years they should spend locally in order to save the Lebanese economy. My second appeal is to the traders’ community to the effect that they should be reducing their prices.
E More than they are already reduced? We were just previously saying how there are already sales all year round.
They are already, but still, I want them to make a bigger effort because people always complain that it is cheaper [to buy things]elsewhere. We have to make a well-studied effort to have better prices, the best services, and create an atmosphere that is hospitable and conducive to good consumption activity by all Lebanese and foreigners.
E Practically, how will this be done?
It’s still too early to talk about the practical details. It needs an awareness campaign at the national level, and I intend to undertake that whenever a government is formed. Because this is the only way when you have an amount of money that is available. It is there because it is being spent elsewhere—let’s put it to use in Lebanon, since we are in dire need for this.
E But consumers are individualistic and tend to think of themselves before the collective good.
This is the whole substance of the campaign. Lebanese are now happy [with bargains abroad] and are benefitting at the individual level, but they are not aware that they are harming themselves at the collective level. We need to raise their awareness through the campaign.
E Last question, now that the war in Syria seems to be nearing its end, how will that impact the Lebanese trade sector?
It will impact it a lot. Lebanon will be the platform for rebuilding Syria, so it will be a huge opportunity—you are talking at least $200 billion in reconstruction. So Lebanon can participate in many sectors including trade, industry, transport, finance, and so on.
What I care about is surviving the coming two years, because after that you have the reconstruction of Syria and you have the oil and gas. And this is what this plan will do.
