Economy, Domestic Economy

Selling Luxury in Iran

Selling Luxury in IranSelling Luxury in Iran

Bypassed for decades by the luxury industry, Iran and its explosive market growth potential have recaptured the attention of global luxury heavyweights in the last 12 months.

After more than 30 years of isolation and austerity, the country reentered the global economy when economic sanctions were lifted in January, something Morgan Stanley described as the biggest thing for the global economy since the fall of the Berlin Wall, read an article published in The New York Times on Tuesday.

Now, with an educated, surging middle-income population of almost 80 million—many of whom possess a budding appetite for high-end consumer goods and mobile phones—western brands are sizing up the opportunities and risks of setting up shop in Iran.

“Iran as a prospect had interested us for some time, but once the sanctions went, we accelerated the process of setting up our boutique inside its borders,” said Renato Semerari, chief executive of Roberto Cavalli, the first sizable luxury brand to enter the market with the opening in February of its two-story boutique in Tehran’s upmarket neighborhood of Zafaraniyeh.

The popularity of the label’s glitzy, colorful aesthetic in the Middle East, he added, especially with wealthy Iranians already shopping regularly in nearby Istanbul and Dubai, underscored the importance of capitalizing promptly on demand.

A 90-percent stake in Roberto Cavalli was bought last April by the Italian private equity outfit Clessidra for an estimated $430 million, giving the brand a considerable injection of capital.

“We knew we had to move fast to grab a leadership position in the minds of fledgling Iranian luxury consumers,” Semerari said, “not just because it is the second richest country in the region after Saudi Arabia, but also because there are so many rivals coming in fast behind us.”

Branded cosmetics, with their accessible price points, are often perceived as gateway products to luxury spending. So news that Sephora, the LVMH-owned cosmetics chain, was widely expected to open seven stores later this year hardly raised eyebrows.

Yet expansion into Iran is not without its challenges. The country’s lack of infrastructure, from trained staff to a shortage of quality real estate, remains the biggest obstacle.

Claudia D’Arpizio, a senior partner at Bain based in Milan, said the country was more suited to some labels than others.

“I think we will see some more midsized Italian players go in next, especially men’s wear groups like Zegna or Brioni, as well as watch and jewelry brands, as a taste for the latter tends to develop very rapidly in emerging markets,” she said.

When the banking sanctions over Iran’s nuclear program were in place, investment coming and going from the country was essentially blocked, making it very difficult for foreign companies to get their profits out. But local third-party businesses always have imported goods into Iran through non-official channels, selling them at sky-high markups either in independent boutiques or in private sales behind closed doors.

Now entrepreneurs both at home and abroad are racing to fill the vacuum.

Milad Monshipour and Hooman Damirchi are Iranian entrepreneurs who have spent much of their professional lives working overseas before returning home to look at consumer-focused opportunities. Their luxury e-commerce site, which they expect to become Iran’s version of Net-a-Porter, is expected to begin business soon.

“When we conducted market research among Iranian luxury goods consumers, we found that over 60% of our respondents said accessing the clothing and shoes they wanted continued to be very difficult due to supply limitations,” said Monshipour, a former consultant at the Boston Consulting Group with an MBA from HEC Paris. “They know what they want; they just struggle to get it.

Almost all Iranians have debit cards and online players like Digikala (an Amazon-style consumer goods website) and e-Sam (an Iranian equivalent of eBay) have made millions of Iranians comfortable with shopping online.

So Damirchi is as bullish as his partner about their short-term, online-focused venture, as well as the longer-term growth potential of large western brands to establish bricks-and-mortar presences.

“This is a country where for thousands of years a sizable portion of the population has had a culture around and deep appreciation of design, art and fine things,” he said.

Caption: Western brands are sizing up the opportunities and risks of setting up shop in Iran.