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.”

For international luxury retailers battered by the financial crisis in Europe and the United States, the Middle East has an enduring allure and has remained, in spite of weakening sales figures, an essential market. Unlike other countries in the region, Lebanon’s luxury retail sector has shown resilience and solid growth in 2009, with the sector also seeing dramatic structural changes.

In 2003, the Middle East retail industry was valued at some $200 billion; by the end of 2008 this value had swelled to more than $400 billion, according to a report by the Bharat Book Bureau, a market research firm. While Saudi Arabia and the United Arab Emirates are seen as the most vital markets for retailers in the Middle East — a role they are expected to maintain in the coming years — Lebanon seems to have slowly emerged from its slumber, with many luxury retailers launching stores in Beirut.

“The luxury retail industry is a billion dollar sector in Lebanon,” says Wajdi Abdel Hadi, Vertu’s regional manager for the Middle East and South Africa. “Lebanese are known for having a penchant for luxury and branded items, which accounts for Lebanon being one of our most successful regions.”

“The future of Lebanon’s luxury retail is being drawn today, as can be seen in the flurry of new exclusive stores that are opening in the downtown area,” says Izzat Traboulsi, managing director of Hugo Boss for the Middle East.

The country’s retail industry is transforming rapidly, driven by changing market dynamics and increased political stability: a key element to Lebanon’s investment appeal.

The wealth of Lebanon’s massive expatriate population, who are avid luxury customers and often return home to shop, as well as the formation and aggressive expansion of large luxury retail groups — such as Aishti, Middle East Luxury Group (MELG), E and E, Malia and Rodeo Drive — have contributed to the growth momentum.

“We have been able to maintain our growth from 2008 to 2009, in spite of the economic crisis,” says Toni Traboulsi, executive manager of MELG, which boasts high-end brands such as Gianfranco Ferre, Just Cavalli, Giuseppe Zanotti, Plus IT and 109 multi-brand stores.

A year for growth

Roger Mrad, owner of the Wadih Mrad multi-brand watch stores — agents of Cartier, Panerai, Piaget, Chanel, Zenith, Frederique Constant, Bell & Ross and Dunhill — confirmed Traboulsi’s statement, adding that in spite of the fact that Lebanon’s luxury retail figures did not improve from 2008 to 2009, they fared much better than other countries in the region, which were plagued by sales losses — averaging between 40 percent and 60 percent in the luxury watches segment alone.

Chucri Cavalcanti, managing director of the Elie Saab Group, explained that at the beginning of the crisis sales in the ready-to-wear segment were affected for a minimal period of time, but the haute couture segment remained unscathed.

“Now that we are emerging out of this crisis, there is a definite up-turn in growth,” says Vertu’s Hadi. “Luxury brands are continuing to pour into the market, which is definitely a good sign.”

Karen Nehme, brand manager at Ferragamo, estimates that 2009 was extremely successful in term of turnover, and a year that brought “huge growth to the Ferragamo brand in Lebanon.”

Christiane Boustany, business manager of the fashion division at Malia Holding — a Lebanon-based organization that is part owners of companies such as Secret Pon-Pon, Mariella Burani, Sebastian shoes, Paul & Shark, Miss Sixty and the Facco jewelry brand — believes growth for the group’s luxury segment was in double-digit figures in 2009. Izzat Traboulsi puts this figure at 15 percent for the same period for the Hugo Boss Group.

“Sales literally took off in the last year, growing by as much as 30 percent,” says Grace Sehnaoui, brand manager at E and E, a company that owns franchises such as Tod’s, Hogan, Kamishibai, Vilebrequin and Pebbles.

Most luxury retailers interviewed by Executive showed optimism toward their future in Lebanon, so long as political stability was maintained.

“Sales by luxury retailers can achieve a 10 percent to 15 percent improvement in performance next year,” predicts Izzat Traboulsi — a figure that concurs with the regional estimation forecasted by the Bharat Book Bureau, which foresees growth of 14 percent in the Middle East between 2009 and 2013.

Boosted by solid growth figures in 2009, the Lebanese luxury retail sector regained its former dynamism, morphing dramatically to dovetail back into the Middle East’s retail culture, where smaller outlets have been progressively replaced by mega shopping malls.

The changing consumer demographics in Lebanon — with the emergence of a significant population of young professionals, largely employed in the oil-rich Gulf — accounted for an estimated $7 billion in remittances in 2009, helping to fuel the trend. This evolution translated to a shift from the traditional multi-brand stores to mono-brand luxury boutiques.

In Beirut’s downtown area, exclusive names such as Fendi, Dior, Feretti, Dolce and Gabana are popping up in the Carré d’or, or the “Golden Quarter,” stretching between Foch and Allenby streets.

Rumor has it that the Gharzouzi family is opening a Hermes store, one of the most exclusive luxury brands — it was the highest scoring in the Luxury Brand Status Index — while Louis Vuitton also seems to be joining the Beirut fray, choosing the Lebanese capital to host one of its new stores.

“Mono-brand stores are a matter of brand identity and image for luxury retailers, they do not compete with clients of multi-brand stores. On the contrary, they tend to push sales of products carried by multi-brand retailers,” says Mrad. “As an example, our turnover of Cartier watches increased by 27 percent when the Cartier boutique first opened.”

Boutique uber-alles

With the launching of mono-brand stores in Lebanon requiring larger investments, a semi-monopoly of segments of the luxury retail sector seems to be taking place.

“Small companies built on one or two brands can hardly survive in such a competitive environment and will eventually lose their representation,” says Boustany. As an example, Hugo Boss, which used to be distributed through one retailer, has started opening its own stores and diversified its points of sales.

“It is a matter of cost effectiveness,” says Toni Traboulsi from MELG. “Large groups have the infrastructure and the means to handle various brands. In such a framework, one buyer’s expenses can be spread over the budgets of several boutiques, thus minimizing costs significantly across the board. Additionally, management fees are also divided among the various stores and cost centers carried by one ‘mother’ holding company, making the process much more profitable.”

In spite of the growing enthusiasm of international fashion houses for mono-brand stores, Sehnaoui does not believe the trend is indicative of the imminent death of the multi-brand store in Lebanon.

“A few years ago we started witnessing a slow erosion of the multi-brand store concept. But recently it appears that the trend is reversing with a return to multi-brand boutiques,” she says. Sehnaoui underlined, however, that a growing problem for luxury multi-brand retailers around Lebanon resides in the fact that some fashion houses, which have been significantly affected by the global economic crisis, are distributing their products to more than one retailer, contributing to the cannibalization of brands. 

“It is difficult for international brands to understand that Lebanese retailers are, contrary to ones operating in other countries, limited by geographical constraints, due to the country’s small size,” says Sehnaoui. “As an example, a brand which is carried by a store in Verdun, ideally should not be carried by a competitor in Ashrafieh, because both areas are so close in distance.”

Another problem faced by retailers lies in the fact that most mono-brand stores opening in Lebanon are operated through franchise contracts, imposing strict requirements pertaining to size, location, number of boutiques, decoration, budget and other targets.

“The promotional strategy imposed by the franchisor is sometimes not suitable to the particularities of the local market,” says Nehme.

Too much of a good thing?

“There is a general feeling in the retail business that some investors are opening stores randomly,” notes Izzat Traboulsi. “However, due to the country’s size and unstable environment, a multi-store approach for luxury brands, one that requires very high turnover that can only be generated by increasing tourist clientele, is still not sustainable. Such an approach will ultimately lead to market saturation in Lebanon.”

Traboulsi underscored that luxury brands require volume in order to survive, implying a heavy reliance on tourism: a sector directly linked to political stability.

Mrad shares his concern, warning, “Luxury brands stores require a constant infusion of new blood and are not profitable if they solely rely on the local population.”

However, this has not stopped retailers from expanding, with giant fashion groups such as Chalhoub and Boutique One opening stores in Beirut, while home-grown talent such as Elie Saab opening in fashion capitals like Paris and London.

“Our international expansion and the establishment of stores in major cities around the world has helped greatly in increasing the awareness of the Elie Saab brand,” says the Saab group’s Managing Director Cavalcanti, “And with it, certainly the appreciation for Lebanon’s luxury culture.”