One look at the “Rich Kids of Tehran” Instagram account and it’s hard to fathom this is the same country that has been isolated from global markets for more than 30 years. Far from the perceived image of a conservative Islamic state, the snapshots give outsiders a peek into the lives of Tehran’s growing elite class — Millennials frolicking in pools, wearing the latest designer clothing, partying and driving fancy cars.
For a segment of Iranians, this is the life they know. Three decades of sanctions didn’t quell the country’s hunger for luxury and international goods.
“Consumers are tech-savvy, lead a modern lifestyle and are well-traveled,” said Parham Gohari, partner at Frontier Partners, a Dubai-based advisory firm working with clients entering Iran. “They buy international brands abroad, especially in the UAE and Turkey, so there is strong brand knowledge and affinity. And it’s not just the elite.”
Retailers are poised to harness the possibilities. By the time sanctions were lifted last January, Sephora had leaked plans it would be entering the market with seven stores. European high-street brands like Mango, Promod, Zara and Massimo Dutti have already been operating in the market.
The numbers point to a potential bonanza. With an estimated population of 80 million — half of whom are under age 25 — Iran has the second-largest economy in the Middle East after Saudi Arabia. According to the World Bank, the country is expected to outperform the rest of the Middle East and North Africa region in gross domestic product growth over the next few years, reaching a rate of 6 percent in 2018. Coupled with the fact it has a large, educated middle class, the market is ripe for entry.
“The retail community has been very inquisitive about Iran for a long time in anticipation of the changes,” said retail consultant Andrea Abrams of Abrams Global. “There is great desire to see more access to that customer which can translate into a huge new potential market for the retail industry. Who will do it first? It’s a question of economics, finding the right partner and logistics. It will take a few pioneers to make big investments and people will follow.”
One of the biggest challenges is the lack of retail infrastructure.
“There is a shortage of quality real estate and limited infrastructure until these projects come online,” said Gohari.
That will change soon, though. Gohari estimates there are more than 400 malls under development in Iran, with 70 in Tehran alone. “There is a megaboom in mall development across the country. This represents a significant shift from traditional high-street retail channels and a huge push into modern retailing,” he added.
One of the biggest projects is the $22 billion Iran Mall. Situated between the two urban centers of Tehran and Karaj, it is expected to serve a population of more than 16 million when it opens in 2018. Modeled after the Dubai Mall, the Iran Mall will exceed 18 million square feet of built-up space, making it the largest project in the Middle East. The development is meant to be a mini city, with a huge hypermarket, a 200,000-square-foot exhibition space, a lake equipped for light and music shows as well as an ice skating rink. Retailers like Carrefour and Ikea are said to be coming into the project.
This will not be the first megamall in Iran. Isfahan City Center is a popular destination located in Isfahan, a five-hour drive from Tehran. At just over 5 million square feet, it’s the second-largest shopping mall in the Middle East, after the 12 million-square-foot Dubai Mall. The sprawling complex has more than 750 stores, a hypermarket, five-star hotel and an entertainment center with seven cinema screens and a fair complex.
North Tehran has also seen a plethora of smaller malls under construction. These include Sam Center, Palladium and Kourosh Mall. But Gohari said there has not been a cohesive brand placement strategy for these developments.
The strategy is somewhat different for high-end labels. As more luxury brands enter the market, they are not going into malls, which mostly cater to the country’s huge middle class. In February, Roberto Cavalli became a pioneer among luxury brands to enter Iran, opening a 3,780-square-foot, two-level boutique in Tehran’s upmarket Zafaraniyeh neighborhood. The store was decorated in typical Cavalli style with lavish, light-reflecting quartzite floors mixed with crystal dust and dark brown pony-hair carpets. Located at 1 Alef North Street, the store could be a harbinger of more luxury retailers coming to the area.
According to Renato Semerari, ceo of Roberto Cavalli Group, “We believe Iran, the region’s second nation in terms of GDP, with its 80 million consumers, is destined to become a very interesting market for luxury products and we are happy to have been among the first brands in the sector to open a store in Teheran. We started the first contacts with the local partner with which we opened the store two years ago, but after the end of the embargo, we accelerated the process. We had faith in the country and its growth prospects.
Since February, after the inauguration of the boutique, we’ve been registering strong traffic in the store and for the time being the performance in terms of sales is above our expectations. I must say, then, that these first months have been a really positive surprise. If women’s wear is performing in line with our expectations, the success of the men’s collections and the home collection is beyond our best forecasts.
I must say the men’s segment is the real surprise: we did not expect such an enthusiastic reaction to the men’s clothing and shoes. We believe Iran represents a big market and this is one reason that prompted us to be one of the first brands to be directly present with its own store to make sure Cavalli had a competitive advantage in the country.”
Mehdi Firouzan, one franchiser who brought Cavalli to Iran, told Italian press he hoped to turn the area into the “Via Montenapoleone” of Tehran, referring to Milan’s luxury street. They might be well on their way. A Versace boutique opened in the same area in April, around the time when Italian Prime Minister Matteo Renzi made a two-day visit to the country with a delegation of business leaders to increase trade between Italy and Iran. An agreement between the national textiles and fashion association Sistema Moda Italia, which represents Italy’s $59 billion apparel sector, and its Iranian counterpart, the Tehran Garment Union, will make it easier for Italian companies to obtain the licenses required to operate in Iran.
Not all brands are rushing in. European companies have fewer restrictions on their entry, but American firms are cautiously eyeing the market as it is unknown what type of trade will be legal. Gohari said the bottom line, for now, is that “primary sanctions are still in effect for U.S. citizens, American companies and any individual or entity in the U.S.”
He also warned that doing business in Iran is not easy. High tax structures mean finances are not transparent. “After 30 years of sanctions, there is a culture of secrecy in Iran,” said Gohari. “Companies have different sets of financial books and it’s often hard to understand who owners of entities really are.”