Iran: The World's Next Luxury Hotspot? Not Without Luxury-Level Woes

The citizens of the Islamic Republic are no different than their Western counterparts in their taste for brand name luxury goods. As the second largest economy in the Middle East – following only behind Saudi Arabia – Iran and its “explosive market growth potential,” as the New York Times put it last year, has “recaptured the attention of global luxury heavyweights."

Following the January 2016 lifting of oil and financial sanctions by the United Nations and with it, the release of roughly $100 billion of its assets after international inspectors concluded that the country had followed through on promises to dismantle large sections of its nuclear program, has put a new light on Iran, as the potential home of one of the next emerging luxury markets. 

The nuclear sanctions – which had been in place since 2006, while other sanctions stretch back decades – prompted Iran to ban the import of foreign-made luxury goods with the hope of saving billions of dollars in hard currency, the Associated Press reported in 2012. But early last year, Iran re-entered the global economy after what the BBC called “more than 30 years of isolation and austerity.”

“The country has a large young generation, which is avid for luxury goods and wants to distance itself from the austerity of the ruling regime,” according to Luxury Society, and this has seen a small number of brands, including Versace and Roberto Cavalli, expanding their brick-and-mortar networks to including outposts in Tehran.

With “an educated, surging middle-income population of almost 80 million,” and a GDP of more than $400 billion, it should come as little surprise that a number of brands are reportedly interested in returning to Iran or increasing their physical and digital presences there.

It is not, however, without what will be a significant hurdle for nearly any brand that aims to enter into or expand in the region (and thus far, it has been few; most have focused their energies on Saudi Arabia, Bahrain, Oman, Kuwait, and Qatar). Over the past decade, while Iran has been cut off from the global economy, thanks to such sanctions, grey market goods and a significant market for counterfeit goods have flourished.

As NPR noted last year, Tehran is home to luxury malls featuring major Western brands. The problem: While no shortage of these designer products are said to be authentic, they “have actually been brought in by third-party importers via Turkey and the Gulf States,” making them grey market goods. Also known as parallel imports, grey market goods are typically defined as genuine branded goods obtained from one market (i.e., a country or economic area) that are subsequently imported into another market and sold there without the consent of the trademark holder.

For instance, as the BBC stated, “fashion brands, like Burberry, currently have no control over this so-called ‘grey market’ of [goods bearing] their brand names in Iran.”

In addition to the grey market, of course, is the influx of counterfeit goods, often high quality ones, according to a WSJ report early this year, which have served as
“the only option under [Iran’s] sanctions regime.”

And despite the increasing availability of authentic goods in Tehran, consumers have been slow to adapt. As Farshid Jamali, the Iranian businessman, who partnered with Cavalli and Versace in their ventures in Tehran, told the WSJ, “many wealthy Iranians are not well informed about the change in the retail landscape and still assume luxury goods in local boutiques are convincing fake versions of the Western brands they profess to be.”

“Iranian consumers have grown used to a market littered with fake goods, and in some cases, prefer them to the real thing because of their affordability and availability,” the WSJ further noted, thereby making it difficult for legitimate luxury brands to thrive, at least for now.

Yet, if Reuters’ logic is to be followed, an even bigger risk than fighting against the norm of counterfeit goods, is for luxury brands to “not be [present in the Iranian market] at all.” Iran could, after all, eventually account for up to 3 percent of global luxury demand, according to market consultancy Exane BNP Paribas. 

Luxury Society echoed this notion, stating: "Iran is quickly developing into one of the fastest-emerging luxury travel destinations in the world and – combined with the rising rate of disposable income of its population and positive political developments in the pipeline – it could become the next lucrative hotspot."