Iran Unbound: Retail and Consumer Goods Opportunities

23 Sept 2016 Iran Unbound: Retail and Consumer Goods Opportunities Iran is the second-most-populous country in the Middle East, trailing only Egypt. With a population of almost 80 million that includes a large percentage of young people who are interested in imported goods, the country shows great buying potential following the removal of major international sanctions in January 2016. Iran is slowly being reintegrated into the global trade and financial system following the lifting of sanctions. Along with better access to the credit markets, a substantial amount of frozen assets has also been released to the Iranian government, providing it with the necessary capital to fund major overseas procurements to meet domestic needs and modernise many sectors. While industries such as energy and transport are the ones most likely to directly benefit from an increase in public spending, a spillover from public to private spending is also expected, creating business opportunities in Iran’s retail market in the post-sanctions era. A Promising Market for Consumer Goods During the sanctions period, the Iranian government focused on nurturing its domestic industries as major international companies and retail brands left the country. However, while domestic brands still dominate the sales of most consumer goods, especially those targeting the low-to-mid segments, these products often fall short of meeting the quality and standards of international brands, which appeal more to the middle-class and affluent Iranian consumers. With the lifting of major sanctions, Iran’s retail landscape is expected to undergo rapid changes to meet the increasing pent-up demand for authentic, high-quality imported goods, including electronics, telecom products and parts, watches and clocks, jewellery, clothing and other consumer products. Some of these have mostly found their way into the country through middlemen and informal channels, but more overseas companies will now be able to deal directly with their counterparts in Iran. By 2020, it is estimated that Iran’s total retail market will reach about US$167 billion, from US$95 billion in 2015[1]. The country’s huge business potential has already drawn interest from some well-known consumer- goods companies looking to explore the market, including Italian designer brand Roberto Cavalli, French cosmetics retailer Sephora and German engineering and electronics giant Siemens. Apart from catering to the needs of high-end consumers, Iran’s middle class is equally thirsty for foreign-branded consumer goods. In this regard, Hong Kong companies with a competitive edge in product design and low production costs should find many business opportunities in the 1 Iran Unbound: Retail and Consumer Goods Opportunities country’s medium-segment market. A wide range of imported toys available at a modern shopping outlet in Mashhad. The top Iranian consumer expenditure categories in 2015, as estimated by Euromonitor International, were housing (30% of the total), food and non-alcoholic beverages (24%), health goods and medical services (9%), transport (9%), clothing and footwear (6%), household goods and services (5%) and communications (5%). Non-grocery consumer goods, clothing, electronics and cosmetics are likely to receive a more immediate boost, particularly those of the many popular European brands that already have a presence in Iran. These brands, many of which may have entered into agency agreements with Iranian companies for local distribution, will face fewer hurdles than their United States counterparts in strengthening their business ties, as American companies are still barred from direct trading with Iran due to US primary sanctions. 2 Iran Unbound: Retail and Consumer Goods Opportunities Direct Sourcing Opportunity Despites decades-long sanctions on Iran imposed by the West, the United Arab Emirates has maintained strong trading ties with the country in light of the geographical proximity between them and the huge demand of Iranians, many of whom aspire to lifestyles supplemented by products of imported brands. When sanctions were in force, Iranian importers primarily sourced their goods from Dubai, concomitantly helping to build a significant Iranian trade community in the UAE, which is reported to support thousands of Iran-originated companies. According to industrial sources, consumer goods such as branded clothing, handbags and electronic items were shipped first across the Persian Gulf from Dubai’s free trade zones (FTZs), such as the Jebel Ali Port, to Iranian free zones along the southern coastline, including Kish Island and Qeshm Island, which were then distributed to Iran’s boutiques across the country. Nevertheless, it remains unclear about the extent to which these goods underwent proper customs and import-duty processing upon importation into the Iranian mainland. While it is anticipated that Dubai’s middleman role will remain for some time, many Iranian importers are now able to contemplate direct sourcing from overseas manufacturers other than those in Dubai. It should be noted, however, that many goods sourced or re-exported from Dubai originate from China. Owing to the difficulty and cost of travelling far from Iran – and the presence of a versatile and business-savvy Iranian trade community in Dubai, which offers credit and other tailor-made/customised services for buyers – the majority of Iran-based trading houses and importers will not travel to countries such as China, the world’s factory for most fast-moving consumer goods (FMCGs). In a recent fact-finding trip to Iran, HKTDC Research found that Iranian importers are looking for a greater variety of goods to service market needs, and are increasingly interested in sourcing directly from China and Southeast Asian countries, where prices are lower. They have expressed a keen interest in sourcing stylish and competitively priced high-quality products from Hong Kong. To facilitate business-matching opportunities, the HKTDC has already appointed agents in Tehran and Mashhad to help Iranian companies interested in attending Hong Kong’s trade fairs, such as the Food Expo, the Watch & Clock Fair and the International Jewellery Show. 3 Iran Unbound: Retail and Consumer Goods Opportunities Young Iranians’ Demand for Fashion Items Iran’s pent-up demand for imported goods, especially among young Iranians, has created a strong foundation to support rapid growth in the retail market. The country has a favourable demographic structure with 60% of its population aged below 30 and born after the 1979 Iranian revolution. Even before the lifting of sanctions, this new generation of Iranians had been positively embracing Western cultures such as social media and donning branded apparel and accessories from overseas countries. DVDs of many Western movies have been on sale in local stores, although audio-visual products as such are not copyrighted. HKTDC Research was told by locals that even if shopkeepers or manufacturers had wanted to observe the intellectual-property requirements, they would not have had the proper channels to do so. On the other hand, many Iranians have little trouble travelling overseas, including long-haul visits to European Union countries. Besides, many wealthy Iranians travelling short-haul like to spend their shopping holidays in Dubai or Istanbul, where they can be exposed to the latest fashion trends. Nowadays, international fashion brands such as Zara and Nike, as well as luxury brands like Gucci, can be found in Iran’s larger cities, such as Tehran, Mashhad, Isfahan and Shiraz. While many of these stores are run through agency arrangements, where one city Luxury watches and jewellery for sale in Tehran. can have multiple agencies, others simply cash- and-carry goods from abroad and sell a mix of brands. In Iran, Islamic dress codes are observed all over the country, particularly those applying to women, who are required to cover their hair, neck, arms and legs in public. Iranian women cover their hair with scarves, usually a hijab; many wear knee-length overcoats known as a manteau, with trousers worn underneath. Today, many Iranian women have found ways to manoeuvre the dress-code rules and take great care of their appearance. In Tehran, it is common to see fashionable young Iranians with trendy and colourful outfits under their manteaux and wearing loosely draped headscarves. A Spanish fashion brand in a modern shopping mall A Turkish fashion brand in a modern shopping mall in 4 Iran Unbound: Retail and Consumer Goods Opportunities in Mashhad. Isfahan. As for the cosmetics sector, the market in Iran is reported to be the second-largest in the Middle East, after Saudi Arabia, grossing about US$3.5 billion in 2014. As Iran opens up to the world, awareness of beauty and personal-care products among young Iranians is expected to grow, with such products becoming more available. Cheap and low-quality products from China and Turkey currently dominate the Iranian cosmetics market. Western brands, although offering better quality, are much more expensive and so less affordable by the average Iranian consumer. The huge price gap between low-quality and premium-branded items offers opportunities for Hong Kong companies to introduce affordable and quality cosmetics brands and products into the country. When exporting cosmetics products to Iran, Hong Kong companies should select suitable items that Many Iranian women dress in modern, less match with their Iranian customers’ style and traditional, outfits. skin types. Facial makeup products, such as those with sun protection or anti-aging formulae, are popular in the country, while lips and nail products are also in demand, particularly among the younger generation. Hong Kong’s Telecom Exports to Iran Show Strong Growth In the first half of 2016, Hong Kong’s exports to Iran increased by 14.4% to US$71 million. Although the absolute trade value was small compared to Hong Kong’s exports to the UAE, which amounted to US$3.5 billion in the same period, it should be noted that Hong Kong’s trade with Iran had not been fully reflected by bilateral trade figures.

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