QUALITY AWAITS

Lebanon 2013 | TOURISM & RETAIL | FOCUS: RETAIL

Consumer spending is down but stable in spite of economic slowdown, while the luxury market is beginning to miss the presence of Gulf tourists.

A decline in purchasing power and consumer confidence, coupled with the disappearance of Gulf tourists from the Lebanese high street, has dealt a blow to the retail sector. The presence of over 750,000 Syrian refugees has had a limited impact as buyers adopt more cautious purchasing habits.

Retail sales value dropped 12.3% in 2012, due partly to the Syrian crisis and partly to political deadlock on the home front. Sales fell again in 1Q2013 year on year, down this time by 14% according to the Beirut Traders Association-Fransabank Retail Index. This is a reflection of a consumer price index (CPI) a whole 11% higher in 1Q2013 compared to 1Q2012. Despite these concerns, retailers continued to pour into Lebanon, with the Beirut City Centre shopping mall, which opened in early 2013, home to 32 brands making a debut in the country. Known as a luxury shopping destination for Gulf tourists, it is no surprise that travel bans to Lebanon implemented by countries such as the UAE have hurt. A Bank Audi report suggests a 19% decrease in luxury imports, while the same report indicates a 1% increase in mass consumption imports over 1H2013 due to the presence of over 750,000 Syrian refugees. The grocery segment remains more dynamic, while the mass grocery trade—now representing 30% of total grocery sales—continues its slow encroachment on small retail.

CLOTHES, BOOKS, & ELECTRONICS

It wasn't Lebanon's year. As if domestic political infighting was not enough, an ongoing conflict in neighboring Syria put the brakes on retail growth in 2012 and continued to affect retailers into 2013. Consumer sentiment is certainly dampened, exacerbated by a sharp drop in GCC tourists. Sales in footwear dropped 42% and clothing declined 35%. The sales of alcoholic drinks also fell 8.5%, suggesting that household belt tightening could also be keeping palates dry as well as wallets closed. Even the Christmas period couldn't stop the tide going out, with overall toy sales for the year dropping 52%, home accessories dropping 58%, and cell phones, electronics and appliances, and furniture dropping 15%, 7.5%, and 4.5%, respectively, according to The Daily Star. The sale of books also fell 25% while, rather depressingly considering the recent ban on smoking in public places, tobacco was one of the only commodities to display a growth in sales, up 5%. In 1Q2013, retail sales fell 14.4%, according to the Beirut Traders Association. Households continue to avoid purchasing too many durable goods and basic commodities, while the sale of pharmaceuticals, clothing, construction materials, and food and beverages also declined. Retail petroleum sales, which had previously avoided a decline, also dropped by 3.5% in 1Q2013.

THE LUXURY SEGMENT

Luxury imports fell 19% in 2012, mainly due to a drop in tourist numbers. It was the result of a disappointing year for high-end retailers, which have come somewhat to rely on customers from the Gulf. “It's a tough market because we are seeing fewer tourists," underlined Tony Salamé, CEO of Aïshti, a chain of high-end stores that boasts over 200 luxury brands from around the world. “Business is suffering, but sales depend on the day, week, and even month of the year—our success can vary greatly," he continued. To add to the woe, Chairman and CEO of ABC Group Robert Fadel believes that the drop in Gulf tourists wasn't the only reason for empty cash registers. “We had negative growth over 2013, and this is in the context of increasing costs; the cost of labor, real estate, energy—all these costs are going up and revenues are going down," he stated, adding that, “This is also in the context of increased competition and the opening of new shopping centers, and therefore, the combination of inflating costs, more competition, and a reduction in revenues is a difficult situation that we have never seen before." He too alludes to the negative effect of travel warnings and lower consumer confidence, but also the impact of increasing competition among suppliers.

Luxury car sales now also represent just 2% of the market, despite growth of 4.33% overall in new car sales over the first eight months of 2013 compared to the same period in the previous year. This can be explained by people opting to buy cheaper, more fuel-efficient models. A total of 91% of the 24,008 new automobiles sold until August 2013 were priced between $10,000 and $12,000, a trend which is unlikely to shift gear anytime soon.

GROCERIES

Lebanon's grocery market is dominated by small retailers, which represent 70% of total grocery sales. The mass grocery retail market, according to a Business Monitor International report, will be worth $2.7 billion at end-2013, up 5.4% on 2012. The same report suggests that per-capita spending on grocery retail products will hit $615.1 by end-2013, up 4.6% on 2012. This is underlined by the continued expansion of mass retailers, which are slowly encroaching on the small retail market. There were 169 supermarkets and six hypermarkets in Lebanon at end-2012, with supermarket sales accounting for 88.1% of all mass grocery sector sales. Growth is in line with CAGR expectations, which anticipate an average mass grocery retail market growth of 8.7% until 2017, while per-capita spending is expected to grow at a rate of 7.7% and reach $851 by the same year. Figures remain relatively unaffected by the large numbers of Syrian refugees in the country, as their purchasing power will be devoted to more immediate needs.