A Perspective on The Impact of War on Retail Businesses in Lebanon

The ongoing con?ict in Lebanon has led to a turbulent business environment, severely a?ecting retail operations across the country. Regions deeply impacted by the war, such as South Lebanon, parts of Beirut, and Bekaa Valley, are experiencing the brunt of the damage. At the same time, safer zones like Mount Lebanon and North Lebanon are witnessing an in?ux of displaced populations, creating an uneven demand and supply structure. Retail businesses with operations in both war-torn and safe areas are struggling to balance their operations, manage ?nances, and respond to drastically changing consumer behaviour.

The State of Retail Businesses Amid Con?ict

Lebanon’s retail sector, which contributes approximately 13% of the national GDP and employs a large portion of the workforce, is facing serious challenges. A "survey" of retail business owners revealed alarming statistics:

? Most of retailers in con?ict zones have seen a 60% drop in revenue, if not more, due to reduced customer tra?c, logistical blockages, and increased supply chain disruptions.

? For businesses with a presence in safer zones, revenues have increased in the short term due to higher demand from displaced populations, but operational costs in these areas have surged by 20-25%, driven by in?ated prices of goods, higher transportation costs, and elevated wages as employees demand hazard premiums.

Population displacement has exacerbated the situation. An estimated 1.2 million people have ?ed their homes, seeking refuge in safer regions. This has strained the infrastructure and overwhelmed businesses in areas like Mount Lebanon and Tripoli, where demand for food, clothing, pharmaceuticals, and basic necessities has skyrocketed.

In contrast, businesses in con?ict zones are dealing with abandoned stores, looting, and logistical paralysis, forcing many to close inde?nitely or operate under severe constraints.

Financial Implications of the Crisis

From a ?nancial standpoint, the war’s impact on retail businesses can be quanti?ed across several key metrics:

? Revenue decline in con?ict zones: Retailers operating in regions like South Lebanon and parts of Beirut report monthly losses of up to 80% of their typical revenue. For example, a F&B retailer in Tyre, who previously generated $200,000 in monthly revenue, now reports sales as low as $100,000 (till the date of this article) while still bearing ?xed costs such as rent and utilities.

? In?ated operational costs in safe zones: Retailers in areas absorbing displaced populations are witnessing increased demand but face higher costs. For instance, a grocery store in Mount Lebanon saw a 30% surge in demand, but its operating costs rose by 25%, driven by supply chain interruptions and increased transportation costs due to disruptions of normal roads.

? Stock depletion and supply chain disruptions: Retailers, particularly those in essential goods, are facing stock shortages. With up to 75% of Lebanon’s imports disrupted, many stores are unable to restock key items. For example, pharmacies are facing a 40% reduction in the availability of essential medicines.

In light of these ?nancial and operational challenges, businesses are at risk of permanent closure if immediate and strategic measures are not taken to adapt and mitigate these risks.

Strategy to Save Retail Businesses and Compensate Losses

Given the severity of the situation, businesses must adopt a multifaceted strategy that includes operational ?exibility, ?nancial prudence, and innovative solutions to weather the crisis and position themselves for recovery.

1. Business Consolidation and Strategic Branch Closures

? Action: Retailers should assess the pro?tability and viability of their branches in con?ict zones and make informed decisions about temporary closures. Resources can then be concentrated in safer areas where demand has surged.

? Impact: Closing non-performing branches will prevent continued cash ?ow drain. By reallocating inventory, personnel, and capital to branches in safe zones, retailers can maintain operational e?ciency and potentially recover up to 15-20% of revenue losses.

? Example: A national supermarket chain operating in both Beirut and Tripoli might close its Beirut branches to focus resources on the booming demand in Tripoli, where displaced populations have relocated.

2. Digital Transformation and E-commerce Expansion

? Action: Accelerating the shift to e-commerce and online delivery will allow businesses to continue reaching consumers despite physical branch disruptions. Businesses should invest in robust online platforms, e?cient delivery services, and targeted online marketing to capture displaced customers.

? Impact: E-commerce is projected to grow by 25% during the crisis as consumers increasingly shop online for essential goods. Retailers who successfully implement digital strategies could recover a signi?cant portion of their lost sales.

? Example: A fashion retailer with a presence in a?ected areas could launch a digital store, o?ering free delivery to customers in safer zones or internationally, allowing them to compensate for physical store closures.

3. Government Support and Financial Relief Programs

? Action: Retailers must advocate for government support in the form of tax relief, ?nancial aid, and subsidised loans. The Lebanese government, alongside international organisations, can provide grants or low-interest loans to keep businesses a?oat.

? Impact: Government intervention could save businesses 10-15% in operating costs through measures such as VAT exemption, customs duty relief on imported goods, and subsidies for essential goods.

? Example: A large-scale retail chain could apply for government subsidies to restock essential goods like food and medicine, ensuring continuity in supply without su?ering from exorbitant import taxes.

4. Collaborative Supply Chain Strategies

? Action: Retailers should explore collaborative strategies with suppliers and other businesses to pool resources and manage supply chain disruptions more e?ectively. This could include sharing storage facilities, bulk purchasing agreements, or forming alliances with logistics providers to guarantee continued supply.

? Impact: By creating collaborative partnerships, businesses can reduce stock shortages by 30-40%, ensuring a steady ?ow of essential goods to stores in safer zones.

? Example: A group of pharmacies could collaborate on bulk purchasing agreements to secure critical medical supplies at a lower cost, mitigating the e?ects of import disruptions.

5. Insurance Coverage and Risk Management

? Action: Retailers should review and enhance their insurance coverage to include con?ictrelated risks such as looting, property damage, and business interruption. Businesses without su?cient coverage should seek specialised con?ict insurance policies to mitigate further losses.

? Impact: Adequate insurance can cover up to 50% of physical damages and revenue losses in the event of branch closures or destruction.

? Example: A retail chain that experienced looting in a con?ict zone can claim insurance to recover damages, enabling it to rebuild or relocate operations.

6. Localised Product and Service O?erings

? Action: Retailers should adapt their product and service o?erings to cater to the needs of displaced populations. This could include prioritising essential goods such as food, hygiene products, clothing, and medicines, as well as o?ering price discounts and relief packages.

? Impact: By aligning their o?erings with consumer needs, retailers can stabilise revenues and build customer loyalty, compensating for losses in con?ict zones.

? Example: A clothing retailer in a safer zone could shift its inventory focus to winter clothing and blankets, as displaced populations may require such goods, especially as winter approaches.

7. Flexible Sta?ng Solutions

? Action: To maintain sta?ng e?ciency, retailers should implement ?exible work arrangements, temporarily reassigning employees from a?ected branches to safer zones or online operations.

? Impact: This strategy can reduce layo?s, retain employee expertise, and ensure that operations continue smoothly in high-demand areas.

? Example: A large grocery chain could reassign employees from closed branches in con?ict zones to support stores in safer regions where demand has spiked, thereby maintaining service quality and operational capacity.

8. Emergency Financial Reserves and Credit Management

? Action: Retailers should focus on building emergency ?nancial reserves to safeguard against future disruptions. Additionally, securing lines of credit with banks or negotiating extended payment terms with suppliers will provide businesses with the liquidity needed to navigate the crisis.

? Impact: Establishing emergency ?nancial reserves can provide a 10-20% bu?er against further losses, while securing favourable credit terms ensures the business has enough cash ?ow to continue operations.

? Example: A national electronics retailer might establish an emergency reserve by cutting non-essential expenses and securing a line of credit from local banks to ensure liquidity during the con?ict.

Conclusion

The war in Lebanon has introduced unprecedented challenges to the retail sector, but by adopting a comprehensive strategy focusing on consolidation, digital transformation, government engagement, and operational ?exibility, businesses can mitigate losses and survive the crisis. While the road ahead is di?cult, a proactive approach can help Lebanese retailers stabilise operations, cater to displaced populations, and lay the groundwork for recovery post-con?ict. Businesses that prioritise agility, adaptability, and community engagement will be best positioned to emerge stronger in the aftermath of the war.

Sources & References

1. Lebanese GDP and retail sector contribution: Data related to Lebanon’s GDP and the retail sector’s contribution can be gathered from reports published by the World Bank, Lebanese Ministry of Economy and Trade, and Lebanon’s Central Administration of Statistics.

2. Revenue declines and business closures: These statistics often come from business surveys conducted by local economic research institutes, such as:

A. Lebanon’s Chamber of Commerce, Industry, and Agriculture.

B. Consulting ?rms like Infopro Research and ArabNet.

C. Articles and reports published by Bloomberg and The National.

3. Population displacement ?gures: Population displacement data is typically reported by humanitarian organisations such as:

A. United Nations High Commissioner for Refugees (UNHCR).

B. International Organisation for Migration (IOM).

C. Lebanese Red Cross.

4. E-commerce growth and digital transformation statistics: Growth in e-commerce can be sourced from market research companies like:

A. Euromonitor International.

B. Statista.

C. Reports from ArabNet Digital Summit.

5. Government ?nancial aid and tax relief: Information about potential government measures during crises is typically available through:

A. Lebanese Ministry of Finance.

B. World Bank Group and IMF reports on Lebanon’s ?scal policies.

6. Supply chain disruptions: Data regarding import and supply chain disruptions can be found through:

A. World Trade Organisation (WTO).

B. Lebanese Customs reports.

C. Global Trade Alerts and local business media outlets.

7. Insurance coverage statistics: Information on insurance coverage for businesses during con?ict could come from:

A. Insurance Association of Lebanon (IAL).

B. Reports from major insurance providers like AXA Middle East and Libano-Suisse.