A solid economy and growing population bode well for future growth

As one of the world’s most affluent societies, Kuwait is home to a growing and diversifying retail sector. With strong economic fundamentals and a steady increase in consumer purchasing power, retail in Kuwait is on a sure foundation.

Sector Statistics

In 2012, the most recent year for which figures are available, GDP per capita in Kuwait at current prices was estimated at KD13,413 ($47,161), compared to KD12,203 ($42,906) in 2011, according to provisional figures from the Central Statistical Bureau (CSB). Government aid to Kuwaiti families, which helps underpin purchasing power, rose from KD138.9m ($488.7m) to KD161.1m ($566.4m) between 2011 and 2012, according to the CSB. In terms of prices, Kuwait’s consumer price index, a measure of inflation, rose some 3.2% in the same period, according to CSB figures.

Food accounted for the largest proportion of the increase in the index, with food price inflation standing at 4.8%, followed distantly by household goods and services at 3.2% and housing at 2.3%. The cost of beverages and tobacco registered a slight decline over the same period of 6.6%.

A 2012 report from investment bank Alpen Capital put the value of the retail sector in Kuwait at around $4.8bn in 2011, equivalent to 3% of GDP and representing an annual growth rate of 8.8%. Although the report did not disaggregate numbers for Kuwait individually, collectively it projected the GCC retail market to grow at a compound annual growth rate of 7.7% between 2011 and 2016 and to reach a total value of $270.3bn by the end of that period.

Demographic Trends

Kuwait displays a much more diverse demographic profile than many other emerging markets, and this is key to understanding its retail base. First, the population continues to grow. Between 2010 and 2013, Kuwait’s population was estimated to have expanded from 3.58m to 3.97m, an increase of roughly 10.8%, according to the Public Authority for Civil Information. The Kuwait Financial Centre (Markaz) projected the country’s population to reach 5.2m by 2050. This is due to both continued immigration as the Kuwaiti economy grows and a high birth rate. World Bank indicators showed that Kuwaiti women gave birth to an average of 2.7 children in 2012 and some 21% of the population was under the age of 15. This is giving rise to a large population of young, affluent consumers who have grown up experiencing shopping as a popular leisure activity.

Diversity

However, Kuwaitis only account for a little over 1.24m out of a total population of 3.97m. The remainder of the populace is made up of foreign workers, who can be broadly divided into three main groups. The first of these consists of expatriates from Western countries, who often fill technical and managerial positions, and therefore tend to be paid fairly generous salaries. The second group consists of workers from Asia, of which the bulk hail from the Indian subcontinent, along with significant populations from countries in South-east Asia, such as Thailand or the Philippines. This second group is often employed as labourers or factory hands, but also occupy clerical or managerial jobs.

Expatriates from other Arab countries tend to fall somewhere in the middle of these two groups, both in terms of occupation and salary range. In 2012 Kuwaitis accounted for a majority of public sector employees at some 240,170 out of 331,333 workers, or roughly 72% of the total, according to CSB. In Kuwait, as in many other countries in the GCC, workers in the public sector generally receive higher salaries than those in the private sector.

As a result, Kuwait is home to both a big, high-end consumer segment, geared towards Kuwaitis and higher-paid expatriates, as well as a large mid-market, catering to less-well-paid workers and younger Kuwaitis who have not yet entered the labour market, and therefore they do not benefit from the same sorts of disposable incomes as their parents. While the budget segment of the market does exist, it tends to be of less importance in Kuwait than in some other markets with a larger domestic demographic at this level. This is largely because many foreign labourers have come to Kuwait with a specific focus on saving in order to be able to remit as much of their wages home as possible, therefore restricting personal purchases to a minimum.

In other Gulf countries with similarly diverse demographics, the market tends to be fairly segmented in terms of taste and income, with outlets catering to traditional Arab and Indian tastes in terms of clothing and so forth. In Kuwait, however, tastes in fashion are for the most part European, although traditional goods can be found in local markets ( CASH IS KING: In general, cash continues to dominate as a payment method, although the Kuwaiti banking industry is relatively well developed, and most consumers have bank accounts and at least a debit card. Broadly, larger retail outlets, especially franchises and international chains, are more likely to accept credit and debit cards, while smaller retailers are more likely to be cash-only establishments.

According to ARA Research & Consultancy, household consumer loans constituted just 2.5% of banks’ capital portfolios in 2011, although 2012 saw a 12.4% increase in the volume of retail loans. However, figures from the Central Bank of Kuwait showed that in the 12 months leading up to April 2013, loans to individuals expanded by 13.3% to reach their highest level since November 2008. In April 2013, the government agreed to buy $2.5bn in private banks’ debts in a move expected to benefit 47,000 people. The purchase did not constitute a debt waiver, but rather rescheduled the payments over a 15-year period, with the government bearing the interest.

Franchising

Kuwait’s strong links with Western countries, especially the US and the UK, have meant increased exposure to international brands. Foreign entrants are required by law to form a partnership or joint venture with a Kuwaiti firm as a guarantor in order to enter the market, and as such franchising is big business, with the larger franchises and retail groups occupying roughly four-fifths of the country’s retail gross leasable area (GLA). Of these, some of the biggest players are Al Ghunaim Trading Company, Alghanim Industries, Alshaya Group and Morad Yousuf Behbehani Group.

Al Ghunaim Trading Company is a privately held Kuwaiti retail and franchising group, with food brands such as Chili’s, Carino’s Italian Grill, and The Coffee Bean & Tea Leaf. Alghanim Industries focuses on electronics, automotives and several other sectors, owning electronics retailer Xcite and acting as the agent for US automotive giant General Motors. Alshaya is a privately held Kuwaiti company with over 70 brands in its portfolio, comprising a number of fashion and food and beverage names, including retail brands such as Debenhams and Harvey Nichols, and food and beverage outlets such as Starbucks. The Morad Yousuf Behbehani Group has interests in automotives and luxury fashion, including brands such as Calvin Klein, Dunhill, Volkswagen and Porsche. Other significant players in the sector include Habchi & Chalhoub (Louis Vuitton, Christian Dior, Fendi), Azadea Group (Zara, Mango), Al Homaizi Group (IKEA), Al Tayer Group (Prada), Majid Al Futtaim Group (Carrefour), Al Ostoura International, Al Yasra Fashion, and Apparel General Trading Company.

In recent years, some of these groups have started to look abroad for new markets. For instance, in January 2014 Alshaya Group announced that it was to open outlets for 50 brands at the $1.6bn Doha Festival City shopping mall in Qatar, with a combined GLA of 25,000 sq metres. In 2012 the group acquired the UK arm of Canadian lingerie retailer La Senza.

Overall, Western foreign brands tend to dominate the retail sector in Kuwait, but some Asian brands are to be found as well. Domestic brands also exist. Americana, which operates Western franchises including KFC and Pizza Hut, produces a range of its own products for the regional market including brands such as Americana Meat and Farm Frites.

Traditional Retail

Although traditional souqs continue to survive and thrive in Kuwait, these days they compete by offering specialised goods, often traditional wares that are unavailable in Western-style retail outlets, such as fabrics, spices and perfume. Souqs also offer opportunities for small independent retailers that rely on low overheads and fairly high footfall, providing specialised goods and services, such as key cutting, ironmongery or tailoring. Moreover, the souq has heritage appeal, and for Kuwaitis a visit to a local market is not just a shopping trip but a chance to reconnect with tradition.

Malls

Malls, on the other hand, are not just shopping outlets, but serious social centres in their own right. The summer climate in Kuwait can see temperatures rise in excess of 40°C, and shopping has developed into something of a major leisure activity for both sexes. This means that malls, which offer a wide variety of fashion, electrical, and food and beverage outlets in a large air-conditioned space conducive to walking, have long been popular destinations in their own right for many Kuwaiti residents. Furthermore, with 98.3% of the population living in urban areas, and more than 75% of this located in Kuwait City, a single mall has the potential to attract a larger percentage of the total population.

Among the biggest malls are The Avenues, 360 Mall, Marina Mall and Al Hamra Tower. The Avenues, which opened in 2009, is the largest mall in Kuwait, with total GLA of 270,000 sq metres. Phase III of the development, which is owned by the Mabanee Company, covers 95,000 sq metres and opened in 2012. The Avenues is home to over 650 shops, 150 food and beverage outlets, an 11-screen multiplex, a hypermarket and parking for 10,000 vehicles. The mall is laid out in a series of themed areas, including Grand Avenue (modelled on a Parisian boulevard), SoKu (short for South of Kuwait, based on New York’s Soho district) and a section modelled on a traditional Kuwaiti souq. In February 2013 Mabanee received permission to proceed with phase IV of the project, which will bring the total area to around 320,000 sq metres. In 2013 the company reported net profits of KD47.9m ($168.4) on revenue of KD79.4m ($279.1m), compared to KD33.3m ($117.08m) in net profits on revenue of KD52.5m ($184.5m) in the previous year.

Also opened in 2009, 360 Mall is owned by the Tamdeen Real Estate Company. It is circular in form and offers 82,000 sq metres of shopping space spread over seven distinct zones. The facility is home to over 150 fashion, leisure and dining outlets, as well as a number of entertainment complexes, such as a 20-lane bowling alley, 15-screen cinema ( including an IMAX theatre), a 5000-sq-metre family centre and 1500-sq-metre teenage entertainment centre. In 2013 Tamdeen reported net profits of KD4.42m ($15.5m), a 9% increase from KD4.06 ($14.2m), though operational income decreased by 7.9% from KD9.4m ($33.05m) in 2012 to KD8.6m ($30.2m).

Marina Mall opened in 2002, and forms part of a mixed-use waterfront development by Kuwait’s United Real Estate Company. The mall features 150 shops spread out over 36,000 sq metres of GLA, along with a yacht club and a five-star hotel. Al Hamra Luxury Centre forms part of the Al Hamra Tower, an office complex in downtown Kuwait City, and houses a number of prestigious brands. Its 24,000 sq metres of GLA also include a cinema and health club.

Rents for retail space have been rising in Kuwait, according to a 2013 report from Markaz. Shopping space was due to grow from just over 400,000 sq metres in 2010 to more than 650,000 sq metres in 2014, with mall area per person was set to expand from 0.12 sq metres per head to 0.16 sq metres per head over the same period, still the lowest such ratio in the Gulf. Rents were forecast to rise at an average rate of 3-4% a year over the 2013-14 period, due to continuing short supply overall.

Food

One area where Kuwait has ample room for expansion is in food retailing, hypermarkets and supermarkets in particular. The Alpen report identifies hypermarkets as one segment that is under-served in Kuwait compared to other GCC markets, and notes that sales from private labels accounted for 10% of the total in 2012, up from 3% three years before. Hypermarkets are popular in Kuwait for the same reasons that they have become popular in many other countries: they offer the convenience of having many different types of goods under one roof at competitive prices.

Hypermarkets

The main hypermarket brands in Kuwait are both French in origin, and include Carrefour Group, which operates a hypermarket in The Avenues in partnership with Majid Al Futtaim, and Geant, which is part of the Casino Group and has seven outlets in the country that it runs in partnership with Retail Arabia. In addition to the anchor hypermarket at 360 Mall, Geant also operates six smaller stores under the Geant Easy name brand. The UAE’s Lulu Hypermarkets is also active in the country, having a total of four stores, with the most recently opened branch billed as the largest hypermarket in Kuwait. Locally owned The Sultan Centre is the most popular domestic brand.

The growth of these hypermarket brands is increasing competition for the Kuwaiti Union for Cooperative Societies, which currently claims to account for around 70% of the retail trade in the country. Coops in Kuwait tend to compete on relative convenience as well as pricing, since their stores tend to be smaller and geared towards servicing the residents in a particular locality. Some 25% of a cooperative society’s profits are spent on charitable and social services within its catchment area, increasing their appeal to local shoppers.

Fashion

A wide range of fashion brands can be found in Kuwait, spanning the luxury, mid-market and value segments. At the top end, high-fashion brands such as Prada, Burberry and Louis Vuitton all maintain boutiques in Kuwait, while the luxury English department store Harvey Nichols opened a branch in The Avenues in November 2012. However, this end of the market is perhaps smaller than it might be since many Kuwaitis prefer to make high-end purchases when they travel abroad.

This is partly because there is greater cachet in buying something overseas, particularly in London or New York, but also because many items tend to be slightly cheaper elsewhere. In the middle segment, there is a plethora of brands, including H&M, Zara, Bebe, Vans and the UK’s Topshop. UK food and fashion chain Marks & Spencer opened a new 6689-sq-metre store in February 2014 – the group’s largest outside the UK and Ireland.

Jewellery

Given the high disposable incomes available in Kuwait, it should not be surprising that the country hosts a well-developed jewellery industry. Furthermore, with the second-highest level of female workforce participation in the GCC region, according to estimates from the International Labour Organisation, many women have the income to make their own purchases. The sector has a range of players including family-run shops, domestic companies and major international brands.

Notable family-run businesses include Al Fares Jewellery and Ali Al Arbash & Sons Jewellery, both of which can trace their origins back more than 80 years to the pearl trade that used to be a mainstay of the economy prior to the discovery of oil. Kuwaiti jewellery firms, such as Kallista Holdings and Octium, have also found success both at home and abroad. Founded in 1981, Kallista first opened three locations in Morocco, and has since established shops in Kuwait City and Geneva, with additional boutiques expected in both Paris and London. For its part, Octium launched in 2009 and has stores in both Kuwait City and New York, with its products also offered through two additional locations in the US and Harvey Nichols - Kuwait.

According to Osama Al Saleh, general manager of Kallista Holdings, “Brand loyalty is very important in Kuwait. Once a customer trusts a company, they will continue going back for the rest of their lives, and they will also encourage their families to go to this brand.”

Restaurants

Food and beverage outlets are also a lucrative and growing segment. Eating out is both affordable and a major leisure pursuit for much of the population. Kuwait has one of the highest ratios of restaurants per person in the world – roughly one restaurant per 230 people. Many restaurants are chains or franchises, and major players include Alshaya, Alghanim and Americana. Fast-food chains, often but not exclusively American, have a big presence in Kuwait. In April 2014, Canadian crepe chain Crepe Delicious launched its first restaurant in the country, with at least seven more locations planned as part of the company’s first expansion into the Middle East. There are also a number of mid-range chains aimed at a more family-oriented clientele, such as TGI Fridays, as well as a fine dining scene.

Automobiles

As in many other countries, automobiles are a big-ticket item with a great deal of prestige attached. In Kuwait, high disposable incomes and cheap petrol have combined to create a culture that places great importance on driving. Although mid-range brands such as Toyota are dominant, the luxury car segment is a prominent segment as well.

Recent market growth has been driven primarily by Toyota and Hyundai, both of which saw sales increase by 5% throughout 2013, particularly in the mid-market range. In terms of volumes, total vehicles sold increased by a 16.8% compound annual growth rate (CAGR) between 2009 and 2013 to reach 153,000 new cars sold in 2013, with the total value reaching $3.5bn in the same year, marking a CAGR of %20.7 over the five-year period. Performance is expected to decelerate somewhat over the next five years with an anticipated CAGR of 6.7% from 2014-18, driving the market to a value of $4.9bn by the end of 2018. Despite the deceleration, industry players expect sales to remain steady as long as the government continues to provide employees with generous salaries and bonuses.

Electronics

Electronics is another area that is witnessing high demand. Mobile broadband coverage is widely available and in 2013, some 15.9% of the population was subscribed to the most advanced internet offering, 4G LTE (see ICT chapter). This placed the country sixth worldwide in terms of 4G LTE penetration. Kuwaiti youth tend to attach significant importance to having the latest mobile handset or tablet, and sales of electronic goods have been growing rapidly. Indeed, the World Economic Forum ranked Kuwait 38th out of 148 countries in terms of individual usage, the third-highest ranking in the Middle East. Home electrical sales are sent to expand as the population increases. The main electronic outlets in Kuwait are Xcite, and hypermarkets such as Carrefour and Geant.

Online Shopping

Kuwaiti retailers are seeing a gradual shift toward online shopping, although uptake remains focused on the younger end of the market. In part, this is a generational matter, as older people tend to prefer face-to-face service, while the younger generation is most familiar with technology and more likely to value the convenience it offers. In the travel market, there has been a shift to greater use of online booking at the expense of traditional travel agents, while for high-fashion items it has become more common to take part in online auctions. Given that ordering many items online from retailers abroad can prove cheaper than buying them in Kuwaiti shops, even with shipping costs, this trend looks likely to increase in future, boosting competition and putting downward price pressure on traditional retailers.

Outlook

The Kuwaiti retail scene is likely to witness greater competition as GLA expands and new players enter the market. Competition looks set to be particularly marked in the food retail segment, as new supermarkets proliferate. For fashion, jewellery and electronics, the mid-market segment is set to continue experiencing solid growth. All told, strong projected economic growth means that the overall value of the sector should continue to increase.