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Tuesday, January 07, 2014

DIVIDED MARKETS: Lebanon's personal care market

Soap, Perfumery and Cosmetics magazine
www.cosmeticsbusiness.com


Lebanon’s C&T sector is struggling as civil war decimates Syria’s personal care market, as Paul Cochrane reports

Lebanon’s personal care product market, estimated by local industry executives to be worth between US$80m and $100m a year, has been struggling over the past two years due to an economic downturn, political instability and a drop in tourists. The war in neighbouring Syria has had a clear impact, while the conflict has resulted in Syria’s personal care market grinding to a halt, with the exception of essentials such as shampoo.

Joanne Chehab, General Manager of Lebanese cosmetics firm Ch. Sarraf & Co., part of the Malia Group, which has its own line of cosmetics, Cosmaline, and distributes for Shiseido and Wella, told SPC: “The fact that the situation is unstable in Lebanon and elsewhere in the region creates pressure on retailers.” 

Manufacturers and traders are suffering “not just because the domestic market is suffering, but also because they export to Syria, Iraq and Egypt [all of which are suffering from a level of instability at present], so they’ve been hit locally and internationally”. Following strong economic growth from 2008 to 2010, Lebanon’s economy started to slow down in 2011, the same year the conflict in Syria started. Barclays forecasts economic growth at just 1.2% this year. 

“In general, the market is not okay. On the retail scene there has been a drop in footfall and there is a lack of tourism, now at the lowest rates ever,” said Chehab. Last year, Gulf countries banned citizens from visiting Lebanon due to the instability. Some 1.3 million tourists visited the Mediterranean country in 2012, down 37% on 2010. In a good year, tourism accounts for around 10% of Lebanon’s GDP, according to Bank Byblos figures. 

While European tourists, at around 25% of total visitors, were good buyers of perfumes and cosmetics due to prices being lower than at home, the loss of Gulf tourists – at around 45% of visitors – has been particularly felt given Gulf Arabs’ high purchasing power. 

“People from the Gulf do spend much more. When we monitor our database and see the drop, we really see that,” said Chehab. “Usually the basket of a Lebanese is lower than a foreigner – the Kuwaiti lady buys five of each, while the Lebanese buys one of this, one of that.” 

Ola Zaatari, Operations Manager for Cosmetics & Fragrances (C&F), part of Fawaz Holding, which has six retail stores in Lebanon, said the situation in Syria had affected consumer sentiment in Lebanon.

However, the influx of Syrians into the country – the government estimates over one million – had bolstered sales, although this did not compensate for the loss of Gulf tourists. 

“We have witnessed a lot of Syrians becoming customers and they’re divided into two segments: those with high purchasing power and those that go for mass affordable products. Those with high purchasing power have made a difference in turnover, going for a lot of high end, big value products,” said Zaatari. 

However, the overall downbeat mood in the market is having an effect on corporate strategy. “We don’t see a solution to the situation in Lebanon, so it creates additional pressure and questions, such as do we invest in new facilities or launch a new brand? I’d say no. I’d say it’s time to consolidate what you have,” said Chehab. 

Companies also complain of the difficulty in retaining good staff, as they are attracted by the higher salaries in the more stable Gulf region. “The situation really affects the mood of people, even the sales people, and us, how motivated we are to spend on marketing. Even suppliers are cutting down on budgets for promotions in stores. Sales and the whole retail activity is affected by instability and reflected directly on activity in stores,” said Zaatari. 

Nevertheless, the Lebanese penchant for being well groomed has ensured that the market is not stagnating. “We consider the beauty business to be not as luxurious as people might think. It is a necessity in Lebanon. Consumer behaviour is towards beauty at all levels – lipstick, nails, hair styling, hair care, slimming and clinics. Many people save to have Botox and fillers, as well as surgery, such as breast implants,” said Fadi Sawaya, CEO of Beirut based Sawaya Group, which distributes for brands such as Orly, Gelish, Nouveau Contour, Provoke Cosmetics and Dermatude throughout the Middle East.

“Purchasing power is decreasing as inflation is growing faster than income adjustments [at 6.5% according to the IMF], but despite this beauty is still a necessity. We also haven’t identified a shift from higher to lower brands – this is typically Lebanese. In fact, we have had growth of 5% every year for the past four years.”

The situation in Syria is unsurprisingly far graver than in Lebanon. “Now no-one is buying as the situation is bad; Syria is no longer a market,” added Sawaya. Syria had opened up to foreign imports in 2006, and was a burgeoning market, but over the past two and a half years, sales have slowed to a halt.

“We had to downsize our operations in Syria. Many of our employees left the country and we did not replace them as operating is very difficult,” said Chehab. “Our sales team is essentially there just to get dues from the market. We are trying to operate with best selling items and have shrunk our portfolio to essential items: people have to shower, so shampoos and shower gels, but not make-up. The devaluation of the Syrian pound [from SYP47 to $1 before the conflict to SYP300 today] has put a lot of pressure on cost as well as buying in dollars and euros, so I was fixing the rate on a daily basis.”

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