Cosmetics Retailer Awaits Improvement of Financial Conditions

French cosmetics retailer Sephora will postpone the opening of several retail outlets in Iran to end-2017 from 2016 as initially planned because the right financial and political conditions are not yet in place, sources said on Monday.

“Nothing will happen until the second half of 2017 at the earliest because conditions are not yet in place for things to happen,” one of the sources close to the matter told Reuters.

Sephora, part of luxury industry leader LVMH with around 2,000 outlets worldwide, is keen to build its presence in Iran where there is huge demand for cosmetics, especially makeup.

The French company is planning to become one of the first major European cosmetics retailers to directly invest in Iran, as it emerges from years of economic sanctions.

Annual sales of beauty products in Iran reached more than €3.5 billion ($3.86 billion) in 2014, according to market research company Euromonitor.

And the beauty and personal care market is expected to nearly treble in the next five years to more than €10 billion, Euromonitor forecasts.

Anonymous sources had told Reuters in November last year that Sephora intends to open up to seven boutiques in Iran and that “talks are already quite advanced with their distributors”.

However, LVMH and Sephora declined to comment.

The Joint Comprehensive Plan of Action signed in Vienna in July 2015 between Iran and six world powers is to end years of economic sanctions on Iran in 2016 in exchange for curbs on its nuclear program.

While western beauty products have long been sold in Iran, the nuclear deal is expected to bring an economic boom to the country that has been suffering from years of underinvestment.

Several managers from LVMH made trips to Iran in September and October 2015. The French trade group Comite Colbert, which represents 80 luxury brands, also said last year that it was planning to organize a trip in spring.

Iran, once dominated by bazaars and tiny shops, has seen an explosion in shopping malls in recent years.

Many luxury brands such as jewelers Cartier, part of Richemont and Bulgari are sold in Iran through multi-brand shops.

Iran, whose economy is largely dependent on oil and gas revenues, has more than 3 million high-net-worth individuals who are major and regular buyers of luxury goods, analysts estimate.

But several luxury groups, including Chanel, Gucci owner Kering and LVMH’s Dior and Louis Vuitton, said they were adopting a “wait-and-see” attitude for now until the evolution of Iran’s international relations became clearer.

“We have to see how things evolve from a political standpoint and see if there is a suitable retail infrastructure,” Dior Chief Executive Sidney Toledano said. “This is not short term, but things can evolve quite quickly.”