Toni Traboulsi Executive manager, Middle East Luxury Group

E  Rumors of money laundering activities have sometimes beenassociated with some prominent Lebanese luxury groups in Lebanon. Some retail clients have also complained about unfair return policies and voiced doubts as to the original quality of goods sold by some of the luxury sector’s mammoths. How, as a member of the luxury retail industry, do you perceive these serious accusations and do you believe they reflect on the Lebanese luxury sector as a whole?

I am aware of these accusations but I believe that this type of talk is common in Lebanon when an individual or a company becomes very successful. However I really cannot say for sure if there is any truth to such allegations, but given that our industry is a very sensitive one and our market an extremely sensitive one, such accusations are certainly detrimental to the image of the Lebanese luxury retail as a whole.

Regarding accusations of counterfeiting, I do not believe it is practiced by large groups as you mentioned, but certainly by some smaller retail stores, some of which openly display copies of famous brands and are located in the vicinity of the Lebanese parliament. There should definitely be more of a governmental effort to rein in such unlawful practices that harm the Lebanese luxury retail industry. As for complaints about the return policies and quality of service provided by some boutiques, I believe that brand policies differ from one market to another and especially in Lebanon, due to the mentality of some clients who tend to abuse the system. We at MELG take, however, very seriously any complaint regarding product defect and immediately replace any faulty item, if sold at one of our boutiques. We also involve the manufacturer every step of the way.

Christiane Boustany Business manager of the fashion division, Malia Group

E  Do you believe that the financial crisis put an end to the luxury retail party in Lebanon? Or on the contrary, do you feel that Lebanon will be spared by the overall financial contraction?

I highly doubt the party is over for Lebanese retailers. And yes I do believe Lebanon still has major potential as a regional luxury shopping destination. One has to keep in mind that the country’s precarious political situation and permanent state of instability has reflected negatively on our growth and  left us lagging behind other luxury retail destinations for quite some time.

We’ve come a long way but we still have a lot to achieve. However, Lebanon’s position is unique in the Middle East; not only has it become an importer of luxury brands, it has been able, through a pool of talented Lebanese designers such as Elie Saab or Zuhair Murad, to export luxury to the world.

Grace Sehanoui Brand manager, E and E Group 

E  Do you believe that with the current economic crisis, there is more of a future for diffusion brands than for haute couture creations?

The world of luxury fashion will always be defined by haute couture. It is true that diffusion brands have today become part of a wider trend: the world’s luxury fashion houses are looking to grow through lower priced items dubbed as secondary brands. It is also interesting to note that some famous designers, such as Jimmy Choo, are entering the low cost retail market by creating special collections for other retailers, which are international companies like H&M. These diffusion lines, which have lower margins than luxury lines but higher volume, are growing in importance. But at the end of the day, many big fashion names rely on the visibility of their high-end brands and the glamour of their Paris, London or Milan défilés to bring in the numbers. While the strategy of some of the fashion powerhouses will be to expand in diffusion lines, because they can increase sales turnover, higher profit margins will remain in haute couture which, ultimately, help boost all other lines with the brand image they diffuse and the quality and creativity involved in their production process. Without haute couture there is no future for diffusion brands and I believe that the democratization of luxury will never be able to cross certain boundaries.

Izzat Traboulsi Managing director, Hugo Boss for the Middle East

E  How, in your opinion, should Lebanese luxury retailers position themselves in order to differentiate Lebanon as a luxury retail destination from other international shopping capitals such as Dubai, Paris or London, and what can they do to capture a larger portion of the Arab clientele?

As luxury retailers we need to focus, develop and further promote our downtown area as a luxury shopping destination. Beirut’s downtown is comparable to New York’s Sachs Fifth Avenue area — which is delimited by the 40th and 50th street quadrant — or the select Paris Avenue Montaigne. We definitely need to preserve and promote the exclusive character of our downtown area by building a proper brand mix, while staying away from lower cost brands that might hurt the luxury image we would like to achieve. Ultimately, Lebanon is, today, providing shoppers with a beautiful open air space, a naturally handsome setting that features glamorous brand names. We have been able to create a high-end destination that other countries in the Gulf can’t really compete with. Even in countries like Syria, which actually have a downtown area, it is very difficult for them to offer a similar shopping experience due to the setup of their urban areas, lacking proper brand mix and where shoppers will encounter sandwich eateries sitting side by side to luxury stores. Besides a naturally beautiful setting, Lebanon also has the advantage of the savoir-faire and know-how of big retail groups that define the meaning of luxury in our country.

Is the party over for luxury retail? In Lebanon, in spite of noticeable changes in consumer behavior, the answer seems to be a definite “no,” according to the  Fashion powerhouses interviewed by Executive.

“Luxury is a word eponymous to life, happiness and the highest standards of quality. Its intrinsic, rare and exclusive qualities are a reflection  of an individual’s status,” says Roger Mrad, owner of the Wadih Mrad company, exclusive agents of Cartier, Dunhill and Chanel, among other designer watch brands.

The Lebanese, who many consider the regional fashionistas par excellence, value all things luxury.

“The Lebanese are strong believers in designer brands,” says Grace Sehnaoui, brand manager at E and E, who operate international fashion franchises such as Kamishibai, Tod’s, Hogan and Vilebrequin. With the country’s political situation gaining stability, many Lebanese are rekindling their love for big spending.

“During the 2005 and 2006 period, which was marred by brutal bombings and violent conflicts, retailers understandably experienced a real freeze in consumer spending,” explains Sehnaoui. “That freeze is starting to thaw.”

Momentum created by the country’s renewed peace was somewhat counterbalanced by the global financial crisis, but, as Wajdi Abdel Hadi, Vertu’s regional manager for the Middle East and South Africa says, “things are definitely picking up.”

Different styles

Luxury retailers have detected differences in Arab and Lebanese consumer behavior.

Mrad explains that, in his experience, Lebanese tend to be loyal to their national companies and shop at home instead of abroad ­— a trend also noted by Izzat Traboulsi, managing director of Hugo Boss for the Middle East. Expats returning home accounted for much of their 2008 sales figures.

Retailers have also noticed differing customer demographics, depending on the location of their stores.

“About 80 percent of our customer base at ABC are Lebanese, while this figure drops to 70 percent for our downtown boutiques,” says Christiane Boustany, the fashion manager at Malia Holding — a Lebanon-based organization owning equity in various luxury stores, such as Secret Pon-Pon, Mariella Burani, Sebastian Shoes, Paul and Shark, Miss Sixty and the Facco jewelry brand.

Mrad adds that their ABC Ashrafieh location “retains about 70 percent of expatriate purchases, while they only constitute 40 percent of total sales at the Dbayeh store.”

Toni Traboulsi, executive manager at the Middle East Luxury Group (MELG) — representatives of brands such as Gianfranco Ferre, Just Cavalli, Giuseppe Zanotti, Plus IT and the 109 multi-brand store — notes that 60 percent of the group’s client base are Lebanese nationals, 30 percent Arab tourists from the Gulf and the rest is a mixture of various nationalities.

Karen Nehme, brand manager at Ferragamo, points out that their  downtown Beirut Bank Street store witnessed a 40 percent increase in purchases from Arab clientele, thanks to improving political conditions.

Sehnaoui says that in the case of her stores, it was Lebanese customers who usually drove the company volume.

“Arab spending accounts for increases in sales volumes during certain seasons, but not for more than a 25 percent spike in total sales during a given month,” she says.

Sehnaoui adds that demography is also evolving in terms of client age and gender.

“We are counting more and more young people as our clients, especially those currently residing abroad and who are slowly developing a taste for designer brands. More women are working and  thus increasing their spending habits,” Sehnaoui explains.

Toni Traboulsi says he had noticed that shoppers were more aware of budget constraints and seem to have less purchasing power on average.

However, Nicolas Ferneini, manager at the Joseph Eid Group, believes that the Lebanese aren’t necessarily spending less, but sticking to more classical styles while trying to trend them up with accessories.

Seasonal spree

“Our main challenge was the general negative economic spending mood that prevailed at the beginning of the global crisis,” says Chucri Cavalcanti, managing director of the Elie Saab Group. “Customers are more selective and up to date on  international fashion trends,” In spite of a change in consumer behavior, the downtown luxury destination seems to be bustling with regular activity. Many retailers are also rejoicing over the coming holiday season, noting stronger sales volumes are usually witnessed at either the beginning of the new fashion season or around the annual vacation time.

“Lebanese tend to seek the cream of the crop of every collection, which implies that they tend to shop right at the beginning of each season,” says Malia Holding’s Boustany.

According to Sehnaoui, E and E stores perform best during the summer season, which is noticeably longer than others and attracts significant numbers of Lebanese expatriates and Arab tourists.

Trabousli broke sales down further, specifying that for MELG, July and August represent about 30 percent of the company’s total sales, adding that December accounts for the highest percentage of monthly sales volume, with 17 percent of the company’s yearly turnover. At Elie Saab, sales peak during the yearly holidays and the summer season, and represent some 65 percent of total sales.

Izzat Traboulsi says that Lebanon has managed to keep attracting Arab shoppers because of the faith Gulf tourists put in the Lebanese flair for fashion.

“[Gulf] residents…enjoy shopping in Lebanon because they trust the Lebanese buyers tastes and trendy styles,” he says.

MELG’s Traboulsi says that most people managing brands in the region are of Lebanese origin: additional proof of Lebanon’s unique position in the world of luxury fashion.

But Arab trust does not seem to prevail when it comes to Lebanese retail ethics.

“Gulf shoppers have become much more educated in terms of the value of designer products they buy and unfortunately there has been some abuse on the part of some Lebanese retailers, who have deceived their Arab clients,” says Sehnaoui.

According to Mrad, trust remains Lebanon’s strongest brand.

“Lebanon’s luxury retail is all about a personalized approach, generally associated with local families,” he says. “As an example, if a customer buys a watch from Wadih Mrad, he is putting his trust in a family that has been in the business for three generations. We have to keep this tradition of personal relations alive, as it remains one of the Lebanese’s core strengths. “This type of approach does not exist [elsewhere] in the region, where the shopping experience has become more anonymous.”

Costly business

For most retailers, one of the main preoccupations remains the high rents imposed by real estate owners and companies around the downtown area. According to Izzat Traboulsi, rent accounts for some 30 percent of a store’s expenses.

“The luxury retail business is a highly profitable business in times of stability, but it also comes with a high price tag, as retailers have to disburse about $2,000 for every square meter rented in the downtown area,” he says.

This fact was underlined by Sehnaoui who says: “Rental costs represent a significant expense for retailers and are often diverted from marketing budgets.”

Property owners renegotiate contracts every three years, putting further pressure on retailers faced with ever tighter margins. According to Guillaume Beaudisseau, of Ramco real estate company, rents in downtown Beirut average $1,500 per square meter per year. The average floor-space of a downtown store is around 50 square meters.

Karen Nehme, brand manager at Ferragamo, says parking restrictions and security measures imposed by Solidere, who own much of the re-built downtown area, do not facilitate the work of retailers: “We are thinking of relocating deeper into the downtown area as our [Bank Street] store’s access has become quite difficult for our clients,” she adds.

Another concern voiced by retailers was the 10 percent value-added tax system.

“In Lebanon, VAT is paid by retailers upfront on the amount of the goods they import,” says Sehnaoui. “If a company imports goods worth $100,000, it pays the full amount, regardless of whether the merchandise is sold or not, with the difference being reimbursed later by the state. In France, VAT is only paid after the merchandise is sold. This has massive financial implications for retailers at large.”

In spite of the difficulties faced by luxury retailers, major fashion houses seem to be expanding massively in the capital, heralding what could well be — should the country’s fragile hold on peace remain firm — a new dawn for luxury fashion in Lebanon.

“The outlook…looks good, as is evidenced by in the upswing of tourism figures in Lebanon,” says Vertu’s Hadi. “I can’t find any reason restraining luxury retailers in Lebanon growing from strength to strength.”