At Milan Fashion Week in February, the talk among western luxury brands was of the slowdown of sales in China as the country that has proved so lucrative for so many years shows signs of cooling. But another market attracted more than its share of attention: Iran. As a deal to bring the country’s nuclear programme into line edges closer, many sense that international trade sanctions dating back to 1979 could at last be lifted. Plenty of western brands are ready to exploit this potential development, looking for ways to enter the market early. And in Iran itself, developers and investors are seizing the opportunity and throwing money into the one asset that looks certain to bring in hefty returns: shopping malls.
Tucked away in the tree-lined streets of Tehran’s Fereshteh neighbourhood – the trendy stomping ground of the city’s well-heeled set – is Sam Center, a luxury shopping complex that opened three years ago. The mall is evidence that years of trade sanctions have done little to dampen Iran’s appetite for luxury goods. Catering to the city’s elite, it is home to an array of stores carrying the labels (though not the legal consent) of recognisable western brands including Tag Heuer, Montblanc, Cartier and Ermenegildo Zegna. While the merchandise being sold is genuine, the stores themselves have no affiliation to the brands they claim to represent. The sleekness of the surroundings is matched only by the customers who shop here: young, immaculately dressed and touting designer gear with an insouciance that only native Tehranis seem able to pull off. Image conscious and au courant, they are no different from twenty-somethings the world over – except that they are the first generation to have lived their entire lives in revolutionary Iran, where Islamic decree mandates that women wear headscarves and men not wear shorts.
Despite this there is pressure to live up to certain standards of beauty. “Looking good has social currency, not to mention that it gives you Instagrammability,” says 26-year-old Tara Sadegh while shopping with friends in Tajrish, a busy shopping district in the north of the city. Wearing brightly coloured shawls, the girls stop to pose for a group photo.
While global sanctions have stymied national economic growth, “sanctions don’t impact the rich: they still buy”, says a salesperson in the Montblanc store in Modern Elahieh, a mid-sized mall in Fereshteh. “They are price insensitive.”
Driving around the sprawling city you can’t shake the feeling that shopping malls are springing up on every corner. Upwards of 60 malls are currently under construction in Tehran alone; an astounding figure by any measure and even more so given the economic sanctions that have dealt the economy such a blow.
And while Sam Center is the mall of choice for the city’s upper crust, it is not the only retail centre selling western brands. Across Tehran, similar shopping malls are popping up, many of which have anglicised names such as Palladium in the north and Mega Mall on the city’s western fringes. With their pleasant cafés and international food courts, these malls are a world away from the bustle of the traditional bazaars where most people still do their shopping.
Ali Borhani, the founder of Incubeemea, a Dubai-based advisory firm specialising in frontier and emerging markets, says that construction is one of the most lucrative long-term investments in the country at the moment. “Real estate has always been considered a safe haven for the investment class,” he says.
Moreover, while the physical infrastructure is in place, market demand is vastly underserved. This is borne out by a study from Iran’s Islamic Azad University, which concluded that only 3 per cent of the country’s retail sector is “organised”: in other words, not anchored to the traditional bazaar system or run by independents. There is clearly room for multinational companies to gain a foothold in the market, especially given that a boom in mall construction is paving the way for more retail space.
This new appetite for modern malls is never more apparent than during the month of March, when Iranian consumer spending reaches its peak owing to the festivities surrounding the two-week celebrations of Persian New Year, Nowruz. The holiday falls on the first day of spring and ushers in the year’s highest retail traffic. One of the most important traditions of Nowruz is the purchase of a new outfit to be worn on the first day of the year, symbolising a fresh start.
The surge in shopping malls helps ensure that Tehran’s fashion cognoscenti have a wider catalogue of luxury goods to choose from for their Nowruz outfits but some still grumble about the lack of selection. “The biggest problem is finding exactly what I want,” says university student Azadeh Hashemi. “Everything you buy in Iran is at least two seasons behind. If I am going to spend $1,000 on a handbag I want it to be the latest edition.”
The problem with sourcing merchandise is the time lag, which has a negative impact on all retail businesses in the country. Imported goods are often held at customs for many months. Convoluted supply chains – merchandise is rerouted from Europe or the US through a third country to circumvent sanctions (see panel) – also exacerbate the problem. Such slow delivery rates hurt business. That said, the sector is still robust. “Considering the circumstances, the Iranian retail sector has continued to be incredibly resilient,” says economist Mitra Ahmadinejad.
Since sanctions have prevented most western companies from having an official presence in Iran, these outposts often elicit a bemused reaction from outsiders because while the merchandise being sold is genuine, the store itself is an imitation. The owners of these shops essentially serve as resellers, acquiring the merchandise abroad and obtaining additional material such as posters and shopping bags through intermediaries often based in Lebanon or the uae. “Making these clothes available for our customers doesn’t come without a cost though,” says the manager of a Zara outpost. In fact, prices can be double or triple what a customer would pay for the same item abroad.
Ahead of Nowruz, the nuclear negotiations between the P5+1 (the UK, US, Russia, China, France and Germany) and Iran loom. Many Iranians express their optimism that an agreement will eventually be reached, helping to lift the country out of its economic straits. And with the possibility of a deal in the offing, foreign business delegations are already touching down in Tehran to take measure of the bounty that is potentially up for grabs.
“Nobody wants to let this golden opportunity pass,” says an Iranian business consultant who helps multinationals navigate the somewhat opaque system. It is his job to set up exploratory meetings between Iranian and US counterparts in a bid to give them a competitive edge when the tide does eventually turn. “To be competitive you have to think ahead,” he says. If multinational companies wait for the ink to dry on the nuclear deal it will be too late, particularly for luxury brands that will inevitability face tough competition for availability of quality retail space in exclusive neighbourhoods.
As Iranians do their last-minute holiday shopping and the nuclear talks hang in the balance, western players are quietly taking measure of the Iranian retail market and laying the groundwork for a future in the country. If a surge in mall construction and an influx of foreign business in the capital are evidence of aperture, they want to be ready for the opportunities that an open Iran can offer.