When Iranians reelected the reformist Hassan Rouhani as their president last month, it was a huge relief for Farshid Jamali, the businessman behind the Iranian outposts of Italian fashion brands Versace and Roberto Cavalli.
The uncertainty that overtook the initial euphoria of Iran’s nuclear deal with the West two years ago has hurt fashion’s ambitions in the Islamic Republic, which had been hailed by business as the biggest market to reemerge onto the world stage since the collapse of the Soviet Union.
“The situation in Iran has not been going well, the economy is not very well, especially because of the elections – for four months before the election people have been thinking about who will be the president,” Jamali told WWD in an interview from the Iranian capital, Tehran. “And before that, of course, there was the U.S. election. If after [Donald] Trump we had also elected a radical.
“Because [Rouhani] is a liberal president we hope that it will go well now,” he added.
The months of political uncertainty over the direction of Iran’s slowly thawing relationship with the West has hit local businessmen hard, Jamali said, and his own luxury fashion ventures have suffered. Both Cavalli and Versace — opened in February and April 2016, respectively — have been underperforming for some time.
“At the beginning we guessed we could sell at least 300,000 euros [worth of goods, or $$336,000 at current exchange] per month for both, but we didn’t reach this amount. I cannot tell exactly how much, but we are only selling about 150,000 to 200,000 euros [$168,000 to $224,000] per month at the moment,” he said.
How much profit are his ventures making? Jamali laughed: “Profit? It’s just a matter of covering costs at the moment.”
He said he has had to persuade the two big brands to cancel some orders.
“Yes, I am disappointed,” he said. “It’s not a problem because of Versace and Cavalli — both of them are very good brands. The problem is the situation in Iran. When you don’t have the feeling you are safe, you don’t have the feeling to go and buy something.”
When nuclear-related sanctions on Iran were removed in January 2016 after a deal strongly championed by former President Obama, the oil- and gas-rich country became the target of pioneering businesses seeking to gain advantage.
With European sales sluggish, China’s boom slowing and other emerging markets suffering political turmoil, Iran became an enticing alternative prospect, with a young, educated population prepared to make trips to places such as Dubai or Istanbul to get their shopping fix. The country of more than 80 million has been identified as having huge potential for the fashion and beauty sector.
Cavalli’s bling and Versace’s revealing sex-kitten look don’t at first glance look like the ideal fit for the conservative streets of the conservative Islamic Republic. But anybody who thinks that the maker of that green Jennifer Lopez plunge front dress has no place in the country has yet to see the “Rich Kids of Tehran” feed on Instagram, whose scantily clad lovelies drape themselves around swimming pools and post from chic parties. There is also the style blog The Tehran Times, where the cool interpretation of the compulsory hijab could, give or take some leggings or a scarf or two, easily inspire the fashion conscious of New York and London. Behind closed doors, at private parties, the hijab can be abandoned altogether.
After Versace and Cavalli opened, representatives of other labels, both luxury and high street, rushed into Tehran to try and find local partners.
Even LVMH Moët Hennessy Louis Vuitton boss Bernard Arnault had begun to talk about Iran, and said the luxury group’s cosmetics retailer Sephora would be opening stores there to tap into the large customer base for make-up and beauty products. Italian businesses were particularly bullish, since they had enjoyed strong trade links before the Islamic Revolution in 1979, and a large delegation accompanied then-Prime Minister Matteo Renzi when he went on a trip to Tehran early last year.
But the effect of political upheaval was soon felt. First, crackdowns on models and bloggers in Iran spooked Western investors. Then impatience began to set in on both sides as the expected Iranian economic renaissance didn’t immediately materialize. International banks remain wary. Sephora has postponed its plans to enter Iran until at least the end of 2017, a source from the company has told Reuters.
The election of Trump, who had vowed to tear up Obama’s nuclear weapons deal, spooked many.
“My friend has a restaurant and his turnover decreased a lot. That happened about five months ago — exactly one month before Trump became president,” Jamali said. “Everyone thought the deal was going to be off.”
Just before the Iranian elections, the Trump administration renewed a waiver of the most punitive sanctions that had been imposed on Iran before the nuclear deal was struck, showing that, for now, the agreement is still on the table. The return to power of the pragmatic Rouhani, who helped seal the accord, means that hope remains that it will eventually work.
But for Jamali, the way to fashion business success will still be difficult, especially since local barriers to Western luxury fashion remain numerous.
One major problem is the proliferation of illegally imported and fake goods, which filled the market during Iran’s lengthy isolation from the outside world.
“For around 40 years, we didn’t have any luxury brands. All the people for buying luxury goods had to go to other countries and in Iran in the shops they sold fake goods or last season’s goods — for this reason people lost their trust in the new shops. We have to explain that we are real and the price is the same as in Italy and the collections are the same as Italy,” Jamali said.
Over the past year, the two labels have signed around 600 CRM customers, and some Iranian celebrities have taken an interest — they turn up at in-store events and the wife of Oscar-winning film director Asghar Farhadi came in looking for a red carpet dress ahead of the awards season (although Jamali said she did not find one this time). But the bulk of Iran’s middle and upper classes still need some persuading.
“It’s very strange. In other countries you can buy Vogue magazine — and when Vogue writes in the magazine something about the brand you believe it because you believe Vogue,” Jamali said. “In Iran we don’t have a fashion magazine so it is very difficult to promote ourselves.”
Advertising is restricted, too, since Iranian billboards can only feature models who are dressed modestly — not a word usually associated with Cavalli or Versace. This means that growing the customer base is done mostly through word of mouth, although, in accordance with guidelines from the two brands, Jamali has had some success with promotional campaigns involving beautiful cards or invitation-only, in-store events with finger food and drink. He plans to hold another one for around 400 to 500 people in June during Eid al-Fitr, the festival that marks the end of the Muslim fasting month of Ramadan.
The other major problem for international brands wanting to open shop in Iran is the lack of suitable retail space. Versace and Cavalli have bagged slots in glamorous historic buildings on Tehran’s upmarket Alef Street, but such opportunities are few and far between. Several U.S.-style malls are being built to supplement the one currently in vogue, Sam Center, but they are still not ready.
This means that Jamali, who was originally planning to expand his empire into other labels, will not be considering further additions for two or three years. He believes that at that time other international labels will be ready to dive in, too.
Iran business analysts have been saying from the start that while the pioneers will make mistakes and encounter many obstacles, they are likely to reap the greatest rewards from Iranian reintegration into world markets by virtue of being first.
Still, Jamali could be forgiven for giving up on his plan to bring luxury goods to Iran — after all, he already has a successful chemicals trading business. But he says he has no regrets.
“If I could go back I would still do this. I think it is a very good business for Iran because we don’t have luxury brands here. Iran is a very big country of 83 million people and there is good potential for buying,” he said. “I don’t think I did wrong. I think the situation has been unfortunate, that’s all.”