Kuwaiti retails market tends towards luxury yet caters to many tastes and budgets

A marked multiplicity of tastes and a strong appetite for luxury products underpin the thriving Kuwaiti retail sector. Given the country’s young and diverse demographic profile and its high level of purchasing power, the market – although relatively small due to the limited size of the population – is expected to continue to attract investment.

By the Numbers

Kuwait counted a population of just over 4m people in 2014, according to figures from the Public Authority for Civil Information (PACI). While the population is relatively small, Kuwait’s GDP per capita was among the highest in the world in 2013, at $45,200, according to indicators from the IMF. This compares to $24,800 in Saudi Arabia, $52,900 in the US and $38,600 in Japan.

Overall, the population is fairly young, with the majority falling under the age of 40 and some 25% younger than 15. Of the total population, Kuwaiti nationals numbered some 1.28m in 2014, or around 31% of the total, according to the latest estimates available from the PACI. Families remain larger than in many affluent countries, with an average of 2.6 children born per woman in 2012, according to figures from the World Bank. The majority of Kuwaitis remain employed in the public sector – some 240,000 in 2012, compared to 62,000 working in the private sector, according to Central Statistical Bureau (CSB) figures – which tends to pay relatively high salaries.

The remainder of the local population consists of expatriate workers and their families, who contribute to the varied nature of the Kuwaiti retail market and can be divided into three main categories. The largest group consists of workers from South and East Asia, who accounted for approximately 59% of the expatriate labour force in 2013, according to the CSB, the majority of whom are employed in construction work or factories, with some also working in clerical or managerial jobs. Expatriates from Europe and North America, meanwhile, tend to take jobs as managers or technicians, enjoying correspondingly high salaries. Workers from Arab countries outside the GCC tend to fall somewhere in the middle of the other two groups in terms of average salaries.

Thus, the Kuwaiti retail market consists of a fairly large luxury segment, mostly catering to Kuwaitis and higher paid expatriates, and a large mid-range segment that caters to the less-well-paid workers. Though a budget segment exists, it remains smaller, relatively speaking, than in many other countries. This is because it caters to expatriate labourers, who tend to restrict their spending in Kuwait to send as much money as possible back home.

Accounting for Tastes

In tandem with this differentiation by income bracket, there is also a broad range of tastes among the Kuwaiti consumer base. Among residents from the Indian subcontinent, tastes naturally tend to align with those that prevail in South Asia, whereas Westerners tend to align with European tastes. Among Kuwaitis, there is generally a preference for European styles.

In 2013, the latest year for which figures are available, CSB estimates put the value of the retail and wholesale trade in Kuwait at KD1.64bn ($5.65bn), compared to KD1.34bn ($4.62bn) in 2010. Retail, wholesale and repair employed 299,000 people in 2013 – roughly 12% of the total workforce.

A January 2015 report from Alpen Capital forecast the retail sector across the GCC to grow at a compound annual growth rate (CAGR) of 7.3% between 2013 and 2018, reaching a total value of $284.5bn, and the Kuwaiti retail market was forecast to grow at a CAGR of 6.7% over the same period. Kuwait’s share of the value of the total GCC retail market was predicted to decline slightly, from 7.9% in 2013 to 7.6% in 2018. The report noted that in 2013, retail and wholesale trade in Kuwait registered growth of 11.9%, following expansion of 3% in 2012.

Resilience

Though the recent drop in oil prices means that the state may undertake some retrenchment in terms of spending in 2015, Kuwaitis still enjoy high disposable incomes. Add to this the fact that shopping is a major leisure activity in its own right in Kuwait, and that malls represent recreation and social spaces in addition to shopping opportunities, and the outlook for retail appears more positive – even in the face of oil and gas price declines.

Consumer confidence and retail growth may be further boosted by the country’s new Consumer Protection Law, which was passed in June 2014. This sets up an independent consumer protection committee, which stipulates for the right to return goods in a saleable condition to the merchant within 14 days, and the right to clear information regarding a product. Prices must be clearly displayed and invoices in Arabic provided with every transaction.

Full House

According to regional investment bank Alpen Capital, the GCC region was home to 5.3m sq metres of modern retail space in 2013, a number which is forecast to rise to 6.3m-7m sq metres by 2018 depending on occupancy rates (assuming rates of 60-100% under different scenarios). Marina Mall, 360 Mall, The Avenues, and Al Hamra Luxury Centre are Kuwait’s main shopping centres, while a further mall, The Gate, opened in 2014.

Marina Mall, which opened in 2002, is owned by United Real Estate Company and anchors a mixeduse waterfront development. It offers 150 stores with a total GLA of 36,000 sq metres, as well as a marina and luxury hotel. 360 Mall, which was launched in 2009 and is owned by Tamdeen Real Estate Company, is a circular building comprising 82,000 sq metres of gross leasable area (GLA) spread over seven different zones, anchored by a Geant hypermarket and a Marks & Spencer department store. It also features a 15-screen cinema and leisure facilities for children and teenagers.

Well Heeled

Also initially opened in 2009, The Avenues, owned by Mabanee Company, has since expanded in phases. As its name suggests, The Avenues is structured as a series of enclosed retail areas, each based around a different theme. Currently, it counts seven such areas, including “The Souk”, which is laid out as a traditional souk; “Grand Avenue”, which is modelled after a European, tree-lined boulevard; and “Prestige”, a concentration of luxury boutiques. In 2013 work commenced on phase four of The Avenues, which is set to bring the total GLA from 270,000 sq metres to 320,000 sq metres by 2016, with investment of around KD100m ($344.5m). This phase will add new zones such as “The Orchid District”, home to hanging gardens and several restaurants, a zone based on the Piazza San Marco in Venice, and additional retail space for 400 new shops. Upon ultimate completion, the mall will have a GLA of 425,000 sq metres, with total investment reaching KD500m ($1.72bn).

The Al Hamra Luxury Centre is one of the more high-end malls in Kuwait and forms part of the Al Hamra Tower office development in the middle of Kuwait City. It offers 24,000 sq metres of GLA, mostly taken up by high-end boutiques, although there is also a cinema and gym. Unlike many malls in Kuwait, Al Hamra is not anchored by a hypermarket.

The Gate, which opened in 2014, has been developed by Al Kuthban Construction Company and comprises 37,000 sq metres of GLA, covering six floors and 275 shops. Investment in the project is estimated at KD12m ($41.34m). Al Salam Mall, which opened in late 2014, has a GLA of 27,000 sq metres and was built at a total cost of $142m.

Happening Hypermarkets

In addition to the mall, the hypermarket is an increasingly popular shopping choice in Kuwait. This is partly attributed to the greater convenience and range that these venues can offer, and also due to the fact that during the heat of the summer months, when temperatures outside can top 50°C, hypermarkets offer a comfortable, air-conditioned shopping experience compared to more traditional outdoor souks. In 2015 Alpen Capital identified the Kuwaiti market as under-served by hypermarkets, with the top five hyper-and supermarket groups in the country accounting for just 10% of the retail trade.

While hypermarkets often serve to anchor a major mall, standalone stores are becoming increasingly common across the country. The main chains in Kuwait are the French firms Carrefour and Geant. These major firms are joined by Lulu (part of EMKE Group, an Emirati firm), and local players the Sultan Group and the Union of Co-operative Societies of Kuwait (see analysis). Given the limited penetration, the segment is forecast to grow at a CAGR of 9.6% per year between 2013 and 2018, according to figures from Alpen Capital, which is at a faster rate than the retail sector as a whole.

Keeping with Tradition

Traditional retailers such as small neighbourhood shops, markets and cooperative societies continue to account for a fairly large proportion of retail trade in Kuwait. This is partly because they are smaller and nearer to home for many people, and are thereby able to compete on the basis of convenience. However, this preference for convenience on the part of the consumer may tempt big retail groups into introducing smaller-format stores, as has occurred in a number of developed markets over the past few years.

The souk retains its place as a big part of Kuwait’s heritage, and maintains strengths in niches that are not served in many modern shopping malls, such as fabrics, perfumes and spices. Souks also provide opportunities to service-oriented businesses that rely on low overheads and high footfall, such as tailors, hairdressers and currency exchange facilities, although vendors of more standard goods such as clothing and toys can also be found.

In the Door

International firms wishing to enter the Kuwaiti market are legally obligated to form a partnership with a local guarantor. As such, franchising is a common method for overseas brands to gain entry to the Kuwaiti market. Among the major franchising companies in Kuwait are: Alshaya Group, a private Kuwaiti company with a portfolio of more than 70 brands, ranging from the Harvey Nichols and Debenhams department stores to Starbucks, H&M, and drugstore group Boots; Morad Yousef Behbehani, which holds a range of high-end franchises such as Dunhill, Cartier, and the Porsche and Volkswagen motor agencies; AlGhunaim, an operator of food and drink chains such as Chillis and the Coffee Bean; and Alghanim Industries, which among other activities holds the General Motors franchise for Kuwait and operates regional electronics retail giant Xcite. Other franchise groups include Habchi and Chalhoub, Azadea Group, Al Homaizi Group, Al Yasra and Al Sayer Group.

Fashion Forward

Kuwait hosts operations for a large number of fashion brands, ranging from haute couture houses to more low-cost companies producing basic casual wear and children’s clothing. According to Kian Saadat, the CEO of Hassan Retail, a local retail group with interests in eyewear, optical labs and jewellery, a slow transition in tastes is taking place – at least in the high end of the market. Whereas previously there was perhaps more cachet attached to buying a label rather than a more tailored, individual piece, now there is a discernible trend towards smaller, more specialised brands offering items that are more distinct and personal.

“The retail market in Kuwait is changing very quickly and rapidly maturing in terms of tastes,” Saadat told OBG. “In five years’ time, we foresee the level of sophistication among certain segments reaching a par with European markets.” At the same time, however, consumers from less sophisticated markets are expected to continue coming to Kuwait to work, adding a further level of differentiation to the local market. In addition, many Kuwaitis continue to prefer to make their major fashion purchases abroad as the range of luxury products available domestically still does not quite compare to that of leading European fashion and retail centres.

Luxury retailers with a presence in Kuwait include Christian Dior, Prada and Fendi, while the mid-market counts brands such as M&S, H&M and Topshop/Topman. Additionally, local brands are slowly developing their presence and growing. One example is Centrepoint, a chain belonging to Bahraini retailer Landmark Group, which brings together a number of subsidiary brands geared towards the budget and middle-income segments.

Shine On

Kuwait is a prime market for jewellers. Indeed, not only are disposable incomes high, but female participation in the workforce is also among the highest in the region – at 44%, according to data from the World Bank. Moreover, there is a long tradition of jewellery work locally, a legacy of the pearling industry that was the mainstay of the Kuwait economy before the coming of the oil era. These factors, added to a young and diverse population, make Kuwait an attractive market for the jewellery segment. The range on offer spans from traditional family businesses that make pieces to order to large international and domestic brands. Some of the largest local players are Kallista Holdings and Octium, both of which trade at home in Kuwait and abroad. Octium, founded in 2009, has stores in New York and Kuwait, while Kallista, founded in 1981, has outlets in Morocco and Geneva, in addition to Kuwait.

Hitting the Road

Luxury car sales have been growing in recent years, as the price point for such vehicles has come down relative to mid-market cars as manufacturers introduce new models, prompting a number of consumers to upgrade vehicles. However, while the luxury segment in Kuwait remains large relative to many other markets, its growth has not been enough to significantly boost overall car sales volumes, which have been largely flat in recent years in the wake of regulation introduced after the 2008 credit crunch to restrict lending.

On the Menu

As eating out is a very popular social activity, and relatively inexpensive, the food and beverage market remains a large business in Kuwait. Indeed, the country was recently ranked as having one of the highest ratios of restaurants per person: one restaurant for roughly every 230 inhabitants. Many of these are franchises, either fast food outlets such as Hardee’s or casual dining chains such as Pizza Hut. Health food restaurants are on the rise, with several new organic, vegan and raw restaurants opening each month and proving very popular. Local boutique coffee shops are also popping up all over, taking away some business from the major coffee houses such as Starbucks and Costa.

Going Online

While cash remains king in Kuwait, there has been an increased uptake of electronic payment methods, such as credit cards. According to figures from Research and Markets, electronic point of sale (POS) transactions grew at a CAGR of 12% over the 2009 to 2013 period, reaching a total value of KD16bn ($55.12bn) in 2013. Of this, debit card transactions accounted for 60% of the sales volume. Kuwait’s banking system is well developed and most Kuwaitis will have a bank account and debit card. However, the advent of contactless payment systems has helped to support uptake in the use of non-cash payment methods, as has greater public confidence in electronic security systems.

However, the main driver behind the rise in electronic payment methods in Kuwait is the rise of e-commerce, which rose in value from KD57.3m ($197.4m) in 2009 to KD221.3m ($762.4m) in 2013, representing a CAGR of 40%. Over the period from 2014 to 2018, electronic transactions are set to grow at a CAGR of 24%, according to Research and Markets. The rise of online retail can be attributed to a number of factors, among them high internet penetration rates, the greater range of products and lower prices that can be found online, and the growing confidence in electronic transactions as they become increasingly common. Especially in the fashion segment, flash sales and offerings from online retailers (often based abroad) are helping bring more range and variety to the market.

Outlook

The Kuwaiti retail market is set to benefit from the country’s favourable demographics and high levels of consumer spending power. Although some retrenchment in government spending may occur if oil prices remain low, disposable incomes are high and will continue to drive the success of the retail sector overall. Already rather segmented in terms of tastes, the market is set to witness even further differentiation as the higher end becomes more luxury-oriented even as consumers at the lower end continue to exhibit more traditional tastes and seek out greater value for money.