By Elizabeth Broomhall
Kuwait’s retail sector is booming, and retailers are cashing in. Arabian Business takes a closer look
Dusty, dry and bereft of a flourishing tourism industry, Kuwait is a far cry from your typical shopping hub. Over-shadowed by neighbouring Dubai, whose reputation in the Middle East retail market has soared along with its portfolio of iconic malls, the small Gulf state has attracted limited attention from holiday-makers and kept a fairly low profile among international shoppers.
But when New York businesswoman and fashion model Ivanka Trump announced plans to debut her latest jewellery line in the country last December, it came as no surprise to the region’s retail experts. They say that in spite of its harsh weather conditions, strict Muslim laws and lack of tourism, the cash-rich oil exporter remains a key player in the region’s retail boom, attracting the interest of international brands and high-flying business people the world over.
Most analysts put the country’s growth in this sector down to the high disposable income per capita among its population, not to mention a favourable long term economic outlook. According to estimates by the International Monetary Fund (IMF), the country is one of the richest in the world, with a 2011 GDP per capita of over $40,700.
“Economically, Kuwait remains in a strong position because of its growing oil and gas sector, as well as strong government spending,” argues a recent report from the Business Monitor International forecasting firm. “Kuwaiti consumers are sophisticated and have high levels of disposable income. They are keen to shop in large shopping centres that provide them with a range of high-quality, international brands.”
Boosting the retail market further, the report says, is a growth in urbanisation, busy lifestyles and working women. Whilst almost 99 percent of the population is expected to be classified as urban by 2015, surging disposable incomes among families mean that ‘premiumisation’ is becoming a potential avenue of growth.
Added to this is a rise in the number foreign workers crossing the border from Iraq, also said to be helping increase retailers’ profits. In the next three years, the consultancy expects the value of the retail segment to rise by 43.1 percent, from KWD2.27bn ($8.45bn) in 2011 to KWD3.25bn ($12.09bn).
Retailers say they are also noticing the effects, and many are eyeing expansion opportunities. One example is British brand Marks & Spencer (M&S), which says it could double its stores in the near future if business continues to do well.
“Kuwait was incredibly strong for us last year,” says Bruce Bowman, head of Gulf operations for M&S. “At the moment it is a two-store market for us, but it could comfortably be four, there’s no doubt about that. The market is far more stable [than some countries] in terms of the traffic that it’s attracted because it’s not dependent on tourism, but on an extremely strong domestic market. “I would say the spend is very comparable to that in the UAE, but the frequency of visits to stores is marginally higher than Dubai, largely because there are fewer leisure options.”
When it comes to fashion, Bowman says Kuwait is at the forefront of the market, setting a real example to its Gulf neighbours. He adds that, unlike other countries, the growth in fashion in Kuwait is not driven by the large expatriate population, but also by the locals.
“The key difference between Kuwait and other countries, and what makes it really unique in the GCC, is that Kuwaiti women don’t generally wear abayas, so there is a much more open attitude towards fashion. Whilst there’s a particular taste among Gulf women, Kuwaiti women can be very edgy in terms of the clothing they wear, but are still able to maintain the degree of modesty that they need to.”
Indeed, a report by AT Kearney in June last year ranked Kuwait third in its 2011 Retail Apparel Index, and said the capital, Kuwait City, was well on track to become “a fashion hub” in the region. Real estate consultant CBRE came to a similar conclusion in one of its recent reports, saying that Kuwait attracted more new retailers than any other country in the world except India and Turkey in 2010, and that Kuwait City was among the top five Middle Eastern cities dominating the mid-range fashion sector.
However, this is not to say the market in Kuwait is free of challenges. BMI remarks how the country’s high oil revenues and hefty consumer purchasing power were unable to protect it from the global financial crisis, which hit the country’s GDP growth hard as it fell into negative territory amid years of strong growth.
This, combined with high inflation during 2008 and 2009, had an extremely negative impact on consumer confidence and spending, particularly among expats.
“Kuwait was hit just like the rest of the market after the downturn,” says Stuart Gissing, a retail analyst for consultancy Colliers. “Though retail is fairly resilient within the GCC, it is only specific categories within the sector that have managed to flourish throughout the more difficult times, such as more value products. The luxury market is of course still holding its own in Kuwait, but people want more for their money now.”
Importantly, retailers are not the only ones suffering. Malls, which were originally designed to accommodate the pre-recession market, are also bearing the brunt of the change, with the gap between the country’s primary and secondary shopping centres becoming ever more apparent.
Gissing says that many of the malls are now considering renovation in a bid to boost their offerings. “Where malls are looking to come back into the arena, they are looking at their positioning statement and considering partial redesigns, so that these match the market they are trying to get into. When these malls were originally designed the market was a very different place.”
He adds that going forward, Kuwaiti malls are likely have bigger food and beverage areas, not to mention an increase in the number of affordable stores. “The Kuwaiti market is very strong on food and beverage, so that’s pretty much where they’re going. Family entertainment has been pretty strong all the way through in Kuwait, but this is also related to F&B, which increases the dwell time in malls.”
In the meantime, retailers are struggling to secure retail space, with Marks and Spencer citing this as their biggest challenge currently.
“To secure real estate in Kuwait is as much of a challenge as it is in Abu Dhabi,” says Bowman. “There is a lot of prime real estate for retail which is about to come online, but in that interim period it’s tough. The Avenues is obviously a successful mall, along with the Marina Mall, but beyond that it is fairly limited.”
He adds that even if the location of the mall is good, those retailers operating close by may render the location inappropriate for a brand. “There are a few malls coming but they haven’t been smart enough to get the big players. It might be the space that you want and the right location, but if the neighbours aren’t there it becomes more of a challenge.”
Gissing points out that some malls are not trying to boost their offerings, which is further widening the gap between primary and secondary locations and pushing up rents in the best areas. For retailers looking to enter the market, as well as those hoping to expand, this could intensify the difficulties of acquiring good real estate.
Another problem in Kuwait is not as widespread across the retail market, but is certainly a serious issue for those it affects, namely, the censorship of Western material which is seen to be ‘provocative’. The rules, which apply to bookshops, record stores, film outlets and even clothing stores, have indeed had such a drag on the profits of some retailers that they are now threatening company operations. Already this year, Dubai-based record distributor Music Master and international music retailer Virgin Megastore have pulled out of the country.
“It’s a strict set of rules, they don’t allow anything provocative,” says Saeed El Ajou, managing director of Music Master, which distributes records from major labels such as Universal, Sony and EMI. “A huge amount of things are banned. If you look at the most successful artists such as Lady Gaga, Beyonce, Rihanna, the majority of the time they are dressed in very little, and there are always innuendos in their lyrics.
“But they are the best-selling artists, these are the ones which make the headlines, and that is what people want to buy. If I can’t have my bread and butter sold in Kuwait then I just can’t justify having a full-scale office there. It’s a shame because Kuwaiti consumers are quite forward-thinking people, but they can’t have access to these products.”
Virgin Megastore declined to comment on its own departure, except to say it planned to focus on other markets and was sad to be leaving the country. Fortunately, for stores such as M&S, Bowman says the issue is not a major problem, given the limited impact on sales.
“There are certain sensitivities regarding images that perhaps we would use in stores, but we’re aware of it and we understand it. We like to be on the side of caution. There are certain guidelines we just know we have to work towards.”
Whether censorship will have a long lasting impact on Kuwait’s retail sector is unknown, but certainly economists believe the market could face other difficulties related to its economy. Analysts say the biggest risks will be linked to employment levels and government spending, both of which could threaten consumer purchasing power if they happen to drop in the future. However, whilst investment and growth prospects are good, experts believe most retailers are in a strong position.
According to BMI, retail sub-sectors due to show particularly strong growth in the coming three years are consumer electronics, vehicles, food, and over-the-counter pharmaceutical products, driven by the country’s youthful population demographic, high per-capita income and buoyant real estate sector.
In addition, competition between hypermarkets is also expected to heat up, whilst the fashion market will continue to soar as a slew of big players descend on the market. It all adds up to a bonanza for local shoppers, who are witnessing a retail boom in the unlikeliest of areas.