Lebanon’s current economic boom can be misleading for luxury brands in all sectors

Following our recent luxury market report on Lebanon, the first such report, we have identified several important issues which any luxury brand, irrespective of the sector, should take into consideration when expanding into Lebanon.

Nowadays, fashion retail is the most developed luxury sector in Lebanon, with almost all major international luxury brands having a monobrand presence in the capital of Beirut. Since 2008, the year of recovery from the 2006 war with Israel, Lebanon’s luxury market has been developing at a straggering rate, with stores opening almost on a weekly basis. Most openings have also been facilitated by the excellent locations both in the Downtown area as well as the Corniche (Rodeo Drive Luxury). Both areas are not only impecable in design and architecture, most suitable for any top luxury brand but they are also safe and clean. A strategic plan has been successfully put in place by the municipality allowing only luxury and premium brands to open in these areas. The mass market brands such as Massimo Dutti or Mango are sensibly located within the Beirut Souks, a mini mall within the Downtown area, but with no direct windows or visibility from the walking areas of The Downtown. The upcoming Louis Vuitton store is situated in a beautiful corner building with the Downtown area, which already houses the monobrands of Burberry, Dior, Dolce Gabbana, Fendi, Roberto Cavalli, Tod’s, Gianfranco Ferre etc.

The more recently developed Rodeo Drive Luxury area on the famous Corniche is also the perfect type of retail for luxury brands. Rodeo Drive Luxury includes monobrands of Paul Smith, Valentino, Brioni, Francesco Smalto and Tom Ford (opening late 2010).

The second very important motivation of feasibility for major luxury brands in Lebanon is the lifestyle and culture of its inhabitans, Lebanese being considered by many as one of the most refined people in the world. During our frequent visits to Beirut in the past four years, we have been amazed how people are minding their own lifestyle even during or after a bombing strike. Even the very wealthy Lebanese were among the last to leave Beirut during the 2006 bombing in the war with Israel. Most of them fled to neighbouring Syria, where they would continue their routine shopping in similar retail, which, are also owned by a Lebanese company. Lebanese men and women dress up for every occasion. One could not help but notice the impecable attires of businessmen or the lavish and sometimes extravagant evening gowns worn almost daily by the beautiful Lebanese ladies. And the social scene has a 24 hour schedule, Lebanese placing maximum importance on any event, which could be a birthday party, wedding, concert or simply having dinner with friends.

While this may sound like a dream destination of any top international luxury brand, there are two major issues to take into consideration for luxury brands already operating or planning to expand in Lebanon. First and most important is the fact that the entire luxury fashion and accessories market is dominated by two local retailers, Aishti and Luxury Clothing Company SAL which already creates a high risk exposure, similar to the experiences of other emerging countries such as Russia and Ukraine where the luxury markets have been dominated by one or two large groups. While the groups themselves can only thrive on such booming economic conditions, they themselves do not realize that the more successfull the market, the more likelihood for them to be ousted by luxury brands which will later prefer to invest and operate in their own stores. This has already happened with Mercury Group in Russia, which more than 5 years ago used to hold a monopoly position. Much like Aishti and Luxury Clothing Company, Mercury also invested in real estate, becoming not only a major lessor of retail but also a developer. Even this venture can be short lived especially considering that, once a brand decides to terminate the franchise agreement, is very unlikely to wish to lease a space from its former partner.

The second major issue to be considered when expanding in Lebanon is the very high risk level of the country both politically and economically. Since the very harsh war of 2006 which destroyed much of the South of Lebanon and damaged Beirut airport and bridges, there has been very little progress in the historical conflict with Israel. Paradoxically, if nowadays Beirut is a favourite destination of many wealthy Arab countries, the day a conflict starts, all these ”friend” nations fail to offer real support to Lebanon. This happed even during the latest war of 2006, when, with the exception of Syria, all other Arab countries refrained from having a firm stance on the international stage, despite their wealth and therefore power.

The best such example is Saudi Arabia, and the Prince Al Waleed Bil Talal, a member of the Saudi Royal family and with deep family roots in Lebanon. During the war times, he preferred to freeze all his investments in Lebanon (including Four Seasons Hotel), rather than push for a strong support on a political level. That is why, it is not surprising to see the Prince Al Waleed return to Beirut, less than four years after the latest war with Israel, to open the luxury hotel which he holds an important stake. To better understand his policies which are purely driven by financial reasons, he preferred to rush the opening of the Four Seasons Hotel (February 2010) despite the fact the hotel is far from the minimal international standard of the chain. In order to maximize profit and take advantage of the booming tourism season, Mr Al Waleed’s hotel group, Kingdom Hotels pushed for an early opening, which otherwise could not have been disputed, to say the least, by the Four Seasons company which manages the hotel, due to the fact that he also owns a stake in the Canadian luxury hotel chain.

Other such ”rushed” openings in Beirut are: Kempinski and Hilton, each with management agreements at newly built properties in the Corniche area, facing the Mediterranean sea.

Oliver Petcu