Economy, Domestic Economy

US Missing Out on Opportunities for Retailers in Iran

US Missing Out on Opportunities for Retailers in IranUS Missing Out on Opportunities for Retailers in Iran

Last month, history was made as the West lifted resource and financial sanctions imposed on Iran. The effect of that, in terms of commerce, was immediately evident, as Iranian President Hassan Rouhani and several Iranian businesspeople took a tour of Rome and Paris, inking deals along the way worth billions.

With all this new industry, what’s the outlook for US retail? The new deal has cleared the way for billions of dollars in new trade, but US retailers won’t be privy to the new openness any time soon, wrote the Retail Dive–a Washington-based provider of news and analysis on the retail industry.

 Pent-Up Demand

Even after a decade of sanctions, Iran’s economy is the second largest in the Middle East-North Africa region, according to Kantar Retail’s insights.

Its population of 80 million includes a large number of retail’s dream market: the young, urban and well educated. Nearly three-quarters (73%) of the population are urban and more than 60% are younger than 30, according to Kantar.

As in India, younger middle-class Iranians are a mobile-first generation, having skipped the e-commerce phase that occurred in the UK, the US and elsewhere, where people have been used to shopping on desktops and laptops rather than phones, says Henry Burrows, who runs Blueprint Risk Advisory, a UK risk-assessment consultancy for companies, including retailers, specializing in Southeast Asia.

“They have access to Facebook and Twitter, so you have that demand for some of the higher-end products.”

 Opportunities for Foreign Retail

Fast-food companies may be the first to try to establish themselves in Iran. But, says Burrows, they and other retailers will run up against local competition with similar branding that have strong government support.

“The way the retail market tends to work once retail regulations have been changed, or in this case sanctions lifted, fast-food and low-end retailers tend to go first,” Burrows said.

“These companies have a structure that makes it relatively easy to move in, although I would say that the bureaucracy in Iran could make it troubling for big American retailers.”

The consultant believes that with a strong middle class emerging in Iran, consumer goods companies and retailers will likely more easily and quickly find favor, compared to luxury brands, which will likely be looking at their longer-term prospects there.

Several US retailers have taken notice of those attractive demographics and such cultural appeal. Even before sanctions were lifted, Apple, for example, reportedly began exploring selling its products in Iran through franchises, an approach it used in India (until rules there were changed to allow foreign retailers to sell goods not majority-sourced there), and elsewhere.

A few European retailers, including Spanish apparel retailer Mango, Italian apparel retailer Benetton and luxury women’s apparel retailer Escada, have managed to find a backdoor way to establish stores in Iran already.

Other foreign labels, especially luxury goods like Burberry, Louis Vuitton, and Dolce & Gabbana, can also be found for sale in the country in black and grey markets, and many Iranians travel and buy prized brands abroad.

Plus, huge modern shopping malls are proliferating and increasingly favored by younger shoppers over the more traditional markets.

But establishing a foreign retail business in Iran has many known barriers, as well as many uncertainties.

 Remaining Obstacles

While European retailers will likely see the gates open to investments, including establishing stores, in Iran, American companies still face legal barriers that Congress has so far refused to dismantle.

So, it will likely be European and Asian companies, including retailers, that benefit the most.

“Actually American companies are the largest loser of the nuclear deal,” Harvard University Middle East professor Majid Rafizadeh told Marketplace.

Yet “if American companies, like Microsoft or Apple, were allowed to operate in Iran, they would have really better edge over European companies.”

There are a few changes; Americans can now legally import and buy Iranian carpets, caviar and pistachios, for example. But, while the likes of Apple and McDonalds are exploring ways to capitalize on Iranians’ already existing fandom, complying with the new rules, which for Americans are a lot like the old rule s, will be difficult, experts say.

“The primary embargo the US has on Iran that prohibits virtually all trade between US companies and Iran is still in place,” John Hughes, senior director at the Albright Stonebridge Group and a former State Department official who worked on sanctions, told CNN. “It was never on the table for the deal.”