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Regional instability slowing retail sector in Lebanon

Global Arab Network - - Jihad Taki

Friday, 02 September 2011 09:54

Regional_instability_slowing_retail_sector_in_Lebanon

Global Arab Network - Lebanon’s retail sector could be in for a lean second half of the year, with home-grown political uncertainty, regional instability and a slowing economy all contributing to a less-than-buoyant market atmosphere, Global Arab Network reports according to Oxford Business Group.

The prolonged political stalemate over forming a new government, combined with uncertainty over its policy programme and future stability, sapped consumer confidence and saw a scaling back of retail sales in the first half of the year, reversing a trend of solid increases in turnover since 2007.

Along with many other sectors, Lebanon’s retailers have benefitted from the economy’s strong performance over the past few years, with average growth of around 8%, meaning consumers were willing to spend and take out loans to fund longer-term purchases.

With analysts and overseas agencies, including the IMF, forecasting a dip in GDP growth for this year – expansion is expected to be in a range from 1.2% to 2.7 – this tightening of the economy could well see consumers rein in spending, at least for non-essential items. While the food and beverages segment may not be affected, it is possible electronics, white goods, automotive and higher-end clothing sales could be among those to feel the chill of the cooling economy.

Another factor impacting the retail sector is the downturn in the tourism industry, with overseas arrivals down 20% in the first half of 2011, according to data released in late July.

A study issued on July 20 by Bank Audi said that Lebanon has not been able to capitalise on recent regional turmoil as it had done in previous similar situations when both investors and tourists perceived it to be a safe haven during crises.

“[Lebanon] did not actually capture any of the regional tourists that avoided Egypt and Tunisia, for example, bearing in mind that the spending of tourists constitutes a significant portion of financial inflows into Lebanon,” Bank Audi said.

This decline, if maintained through the rest of the year, will more than cancel out the 17% increase in tourism numbers posted last year, and also cut deeply into retail spending, especially in areas close to holiday resorts and major attractions.

This uncertainty has dented consumer confidence, with Lebanese survey respondents the most pessimistic in the region when asked whether their nation’s economy will be better in a year’s time. According to the survey, conducted by the the employment site Bayt.com and researchers YouGovSiraj, 32% of Lebanese respondents said they felt the situation would worsen over the next 12 months. On the employment front, 18% said the availability of jobs will improve, while 31% thought it will become worse. The survey, released in April, also said there was a slight fall in the propensity of Lebanese to spend.

There are some signs, though, that there still remains in some parts a degree of quiet confidence in the retail sector. According to another report issued in early July by Bank Audi, while there has been a slowing in demand in the property market as a whole, with sales falling 17% year-on-year, the outlook is more positive for the retail segment. The retail landscape has been witnessing relatively steady demand across prime locations driven by resilient consumption patterns, maintaining occupancy rates at stable and relatively high levels, the report said.

Also remaining at relatively high levels are retail rents, with Beirut having some of the most expensive shop floor space in the region. Property consultants Cushman & Wakefield ranked the Lebanese capital as being the 30th-most expensive city worldwide, the most expensive among 12 cities in the Middle East and Africa region, and the most expensive among 10 Arab cities covered in a survey issued late last year. Though this may ease as further retail space comes on-line, reductions in the pipeline of new shopping developments do suggest that rents will remain well above regional averages for some time to come.

Though Lebanon’s retail sector may face a muted second half, confidence and sales could quickly rebound if the government is able to maintain political stability and if regional and global economies do not suffer more setbacks. Lebanon remains a popular regional shopping destination, and should tourism numbers and consumer confidence resume an upward trajectory, the retail sector will be well placed to benefit. (OBG)

Global Arab Network

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