Why are foreign brands like KFC, the Four Seasons, and Cinnabon still trying to make a buck in Syria?
BEIRUT – When it opened its doors in December 2005, the towering Four Seasons Hotel complex instantly became the most recognizable landmark in Damascus, the centerpiece of President Bashar al-Assad's program for a new Syria. "It is to be a calling card, announcing to the world that Syria is open for business, for tourism and for people with lots of money looking for someplace to spend it," the New York Times described it then. It's almost hard to remember now -- one year into an uprising that has killed at least 9,000 people and sent another 40,000 fleeing to neighboring countries -- that just a few years ago many in the international community saw Syria as a country on the mend, a formerly repressive regime that had decided to liberalize. As the country began a slow opening to global markets, dozens of foreign chains set up shop in Syria. Costa Coffee opened up in Damascus Boulevard, the outdoor mall adjacent to the Four Seasons, and launched seven other locations throughout the country. From fried chicken to French cuffs, other brands followed -- KFC in 2006, Mango in 2006, and Zara in 2011 -- all trying to capitalize on Syria's established middle class.
Now, as then, the Four Seasons embodies the state of Assad's nation, but not quite in the way he'd planned. At the beginning of the month, the Rotana Cafe, a hookah and latté joint owned by Saudi Prince al-Waleed bin Talal, closed its doors until further notice, citing poor business and security concerns. Costa Coffee remains open, but of the eight cafes it once had country-wide, the one in Damascus Boulevard is the only one left standing, said a spokesman for the company. Still, the manager of Damascus Boulevard, Mohamed al-Awa, said in a phone interview that business is "normal" and everything in Damascus is "good."
But from the looks of it, nothing is normal in Syria these days. While the spiraling violence has largely left Damascus untouched, except for scattered bomb attacks and occasional fighting throughout the city, the country's economy is in shambles, with a tightening noose of sanctions and closed borders putting the brakes on international trade. While foreign hotels, food, and clothing in Syria are not the target of sanctions, they are finding it increasingly difficult to do business in a country so isolated from the rest of the world.
The hotel itself is a ghost town. "Let's put it this way, the Four Seasons was very excited about the mission of Kofi Annan -- not because they were hopeful he'd come away with a solution to the crisis, but because they were finally getting some business. And they knew he'd be back," said one prominent businessman, who asked not to be named for fear of reprisal. The hotel's Damascus-based spokeswoman disputed the characterization, saying they were still making summer plans and hosting visiting delegations, journalists, conferences, board meetings, and weddings, but admitted that business is "as you would assume" and occupancy is "lower than it should be."
Amid an uprising and government crackdown, central Damascus has largely been able to exist in a bubble of privilege. But after a year of crisis, it too is finally feeling the pinch. Last year was unsurprisingly a bad one for business in Syria, with the International Monetary Fund predicting a 2 percent contraction, but the past two months have been the worst by far since the start of the revolution.
With insurance rates soaring, logistics risky, and the plummeting Syrian pound making import purchases increasingly expensive, the cost of doing business in Syria has skyrocketed. As business owners raise prices to compensate, middle-class customers with shrinking purchasing power are increasingly staying away, even from previously insulated retail spots like the Cham City Center, a mall that brought in foreign brands like Cinnabon and United Colors of Benetton when it opened in 2007. "It was very puzzling to me, but until the last week of December, Cham City Center mall was packed whenever I went, even during the middle of the week," said one foreign banker based in Damascus until last month, when his bank closed up its Syria office.
The strain has not gone without notice in the Assad regime's propaganda department, which has tried to convince consumers they can do just fine without the rest of the world. All over downtown Damascus, added the banker, billboards are preaching self-sustainability as part of a governmental public awareness campaign to put a euphemistic spin on things: "Let us wear what we weave," the billboards tell Damascenes. "Let us drink what we squeeze." "Let us eat what we grow."
Today, the regime seems to have gone back in time: One of the first steps of liberalization in 2005 was the lifting an import ban on garments, ushering in the country's first retail stores in downtown Damascus and the swanky satellite suburb of Yaafour. Real estate developers, mostly joint ventures between Syrian and Gulf businessmen, brought in sparkling glass malls -- the Town Center in 2004, Cham City Center and Damascus Boulevard in 2007, and Damasquino in 2008 -- filled with foreign retailers ... and the occasional knock-off foreign retailers. (In response to a question about the GAP store in the Town Center mall, a GAP spokeswoman said "Any Gap-branded products sold in Syria are unauthorized counterfeit or grey market goods, distributed through illegal channels.") And just last March, days into the start of the uprising, Spanish clothing retailer Zara splurged on a flashy new three-story showroom in the middle of downtown Damascus -- its first foray into Syria.
That optimism is a far cry from the mood today. Car dealerships still display shiny new Toyotas and Volkswagens, but the cars are now collecting dust on the lots, says Jihad Yazigi, the Damascus-based editor of economic monitor The Syria Report. "Countless shops are closing every day in Damascus and other cities because people have simply decided to put their money into savings," says Yazigi. "I can't see how they can last much longer. Closures are accelerating and traders are just clearing out their stocks now."
The United Colors of Benetton, the Italian clothing retailer known for their controversial ad campaigns including one featuring feuding world leaders kissing, had been planning to open 25 new stores in the coming five years, in addition to the 12 already up and running in Damascus and four other Syrian cities. Until last year, when they started importing goods from Italy, they were one of the few foreign brands to have worked around the previous Syrian government ban on garment imports by having products manufactured inside the country, creating a distinctly Syrian aesthetic (heavy on the studs and sparkles). But business has gone south. One member of the Syria-based management team, who asked not to be identified, said they closed the Homs store in January and knocked down expectations from the 25 new stores to just two or three new locations in calmer cities like Tartous and Aleppo. They also raised prices by 50 percent to adjust for the 60 percent increase in the cost of the dollar.
It may be a necessity doing business in this climate, but it's not bringing in shoppers. "With prices of basic necessities like food and drink so expensive, who is going to spend their money on clothes? I don't know why we're bothering. I'm working here, and even I wouldn't buy any of it," one Damascus resident told me, recounting a conversation he had with a clothes salesperson recently.
Food appears to be doing slightly better than fashion, though it's still under strain. A local Cinnabon employee said business was slow during the week, but enough on the weekends to keep the store afloat. Although "the situation is very bad, thank God we survived" so far, said the employee, who asked for anonymity. One resident of Damascus said he spotted only one other family in the food court that hosts Cinnabon when he went with his girlfriend in mid-March. Meanwhile, Costa has been putting into storage the equipment and furniture for its seven shuttered shops, hoping for a brighter day, according to a franchise manager. He added that KFC, which the franchise runs as well, closed two locations in Aleppo and two in Damascus, after members of its management staff came under a hail of bullets while driving on the country's main north-south highway past Homs last April. Employees from both brands have been re-assigned to office work or to one of the safer KFCs in Damascus. One KFC remains in Aleppo, since, unlike Costa's coffee, chicken can be sourced locally, thus avoiding the now-treacherous highway route.
All Syrian businesses are being forced to scrimp, save, or close up shop, not just those with foreign goods. Though the government has not provided any economic indicators for months, some estimate that after years of 5 percent yearly growth, gross domestic product may have shrunk by up to 15 percent over the past year -- a downturn that affects all types of businesses, most severely, of course, in restive areas like Homs. The closure that probably had the biggest impact on the population was the recent announcement by major foreign airliners like Air France that they were stopping flights to Syria, a move that has increased the sense of isolation, says Yazigi of The Syria Report. And with the 12-hour power cuts and fuel shortages now common in Damascus, even for the well-off, the idea of hopping a flight to Paris seems like a world away.
Despite it all, the Syrian government, true to its message of self-reliance, is trying to forge its own way ahead. In a decree enacted on February 12, the government raised customs tariffs by 40 to 80 percent on consumer goods, finally reversing its decade-long policy of trade liberalization in a bid to bolster local industry. On March 19, the Ministry of Tourism selected a local company, Elissar Investments, for the development of a 4-star hotel in central Damascus, one of the only real estate projects to have been signed in the last year. Accor Hotels, a French hospitality group, said publicly in January that it still planned to open three hotels with Syrian partners by 2015, including Cham Holding, which is under sanctions from both the United States and the European Union for its connections to top regime officials. However, a spokesperson from the company's headquarters in France said that now those projects were on hold, too.
"The Syrian companies are staying open," says the Benetton manager, "They have to have hope, you know. But a lot of the foreign companies are leaving. It depends how much they can hold the losses."
Amid all the economic gloom and doom, there may be at least one growth industry. A traveler who visited Damascus in mid-March said she saw a number of new bars opening in the old city, particularly around the Christian quarter that once served as the heart of Damascus tourism and nightlife. "Some said it was because people were still spending on drink," she recounted. "Others said it was because security officials had become lax about enforcing liquor licenses, so it seemed like an easy thing to do."
"I know one guy who wasn't getting any customers in his old city hotel, so he converted a corner into a little bar to try to make ends meet," she said. And business has picked up. Not that the swamp water-colored, state-owned Syrian brew is helping any. But behind the bar, there's American whiskey and Lebanese wine and beer. At least something is still being imported.
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