DUBAI, United Arab Emirates — Smugglers ply their trade here by night. Throngs of them huddle under the cover of darkness in dhow boats moored along Dubai Creek. Haggling in hushed voices, they speak in code but use an ancient blend of Arabic and Persian that betrays the destination of their contraband. Once they slip past the Emirati border patrol, an underground economy awaits them over the horizon where black market traders bid for their wares from cities across Iran.
Few scenes illustrate Iran’s pent-up demand for Western goods better than this. The mountains of branded toothpaste, t-shirts, computers and handbags crossing the Persian Gulf from Dubai are a regular occurrence and an open secret in this region. Decades have passed since the US first imposed sanctions on Iran, prompting the UN and the EU to later join the economic blockade. Since most Western companies were prevented or discouraged from doing business in this market of 80 million people, sanctions inadvertently made smuggling a way of life for an entire generation.
After a long and sometimes hostile period of isolation, contemporary Iran is an unknown quantity for most multinational firms. Details may be sketchy about this ‘final frontier’ market but one thing business leaders are sure of is Iran’s potential. With the right set of political and economic reforms, some believe it could be a gold mine for consumer brands from the West. Those from the fashion industry are no less enthusiastic than others — but neither are they any less guarded.
Tantalisingly out of reach
“Most of us have been dealing with old-money Iranians in Paris, London and Los Angeles for ages, but I’m not talking about the diaspora or the exiles,” said the marketing director of one European luxury brand, who spoke on the condition of anonymity. “I’m talking about the glamorous new generation of wealthy Iran-based Iranians — you know, the ones who pop over to Dubai and Istanbul and spend a fortune at our stores over there. Everybody’s noticed.”
Two years ago, US President Obama began making overtures to end the stalemate over Iran’s nuclear programme, a move which could eventually see sanctions lifted. Now that Iran and the West seem much closer to a breakthrough than ever before, global firms are pondering how to eventually access the market.
According to a report by Frontier Strategy Group, which advises firms on Iran’s gradual opening up to the global economy, the road ahead is still fraught with obstacles. International brands should manage expectations until early next year when there will be more clarity from the International Atomic Energy Agency on Iran’s adherence to a deal and the ensuing geopolitical domino-effect.
For those who already see Iran as a promising fashion market, such clarity can’t come soon enough. The fashion and luxury sectors will be impacted more favourably than other industries since many popular brands are European-owned companies. As such, they will not face the kinds of secondary barriers American brands can expect, even after sanctions are relieved.
“It’s a tease because we can’t access Iranian customers back home in Tehran yet and we know it’ll be open season once sanctions are totally lifted, but we can’t really prepare for it now either,” the luxury brand director continued.
Over the years, Iran’s elite has grown rich off oil exports to countries not bound by the sanctions, like China. At the same time, its urban middle classes are young, educated and increasingly hungry for Western fashion brands despite continued political and ideological tensions with the West.
“Some of our merchandise to the region gets diverted to Iran’s black market and sold on to third-party boutiques in all those new shopping malls they’re building, but we just can’t intervene. It’s nerve-racking because the business environment over there is still, well, how do I put it diplomatically — a nightmare for outsiders.”
Such feelings are not uncommon among executives in Europe’s fashion capitals. Nevertheless, a few intrepid fashion brands from the continent like Escada, Benetton and Mango have managed to penetrate Iran’s legal, operational and bureaucratic barriers to market.
Having found a way to legally manoeuvre their profits through the sanctions that ring-fence Iran’s banking sector and cause its currency, the rial, to be so volatile, they are the exception to the rule. Iran scores so poorly on the World Bank’s ease of doing business ranking (130 out of 189 countries) that it is little wonder most brands continue to wait for more tangible signs before seeking out joint-ventures in Iran. A mere thaw in relations is not enough.
“It will take time and things are still very uncertain. First of all, the sanctions can only be lifted after a deal and only after that can we can see who has the bigger appetite for risk,” says Araz Fazaeli, a young Iranian entrepreneur based in Paris, who launched his eponymous fashion brand on the back of a successful style blog called The Tehran Times.
A parallel universe
But while the industry waits, a surreal and baffling parallel universe has begun to envelop Iran’s new retail infrastructure. Stores feigning to be all sorts of fast fashion brands — some more convincing than others — can be found in Iran’s malls, even though most are not operating in the country.
“It would be smart for international brands like Zara and H&M to come in [as soon as possible] not just because of this, but because their prices serve the Iranian majority and are culturally less challenging,” Fazaeli suggests.
There are also reports that giant billboards advertising luxury brands like Louis Vuitton can be found on the streets of Iran’s larger cities. Whether the billboards are counterfeit or copies smuggled in from nearby markets in a bid to drive traffic to smuggled merchandise is unclear. When contacted about the matter, a spokesperson for Louis Vuitton’s parent company confirmed that “LVMH brands are not present in Iran and the group is not concerned by the subject.”
“The grey market has served Iran for a long time through Turkey, usually via Tabriz, and China too of course. Some goods are fake but some are genuine end-of-stock merchandise. Shops carrying Louis Vuitton [procure the billboards] somehow and put the name of their shop next to it, but you never really know what you’re getting,” Fazaeli explains.
“At the end of the day, people buy what matches their budget, so real and fake both sell. Young Iranians don’t just want the [Western] fashion dream; they want to actually live it. That means wearing the labels, one way or another.”
While much of the fashion that is ferried over from Dubai to Iranian transit islands like Kish and Qeshm are counterfeit, some legitimate items get through the UAE thanks to ‘re-exportation’ status. According to insider sources, cargo carriers from free trade zones in Dubai like the Jebel Ali Port regularly ship merchandise to Iranian free trade zones on the other side of the Gulf, like the one in Bandar Abbas.
By re-exporting goods in this way, genuine items from international fashion brands circumvent international sanctions by getting ‘whitewashed’ of their final destination. It is a loophole that also allows traders to dodge taxes and find a route to enthusiastic Iranian consumers without the permission, knowledge or control of the international brands.
There are several forces at work feeding demand for international labels inside Iran. Most fit into the broader picture of a society that has become noticeably more permissive than it was just a decade ago.
Given the country’s isolation, reliable statistics are hard to obtain, but it is estimated that over 70 percent of Iranians are now city dwellers, 60 percent under the age of forty and around one in four have a smartphone. Using proxies to access illicit pages on Instagram — where some have set up micro-boutiques selling designer labels purchased overseas — Iran’s youth are connected to global style movements and celebrity culture. Serving the more affluent among them, Persian-language satellite TV channels like Farsi1 are beamed in from abroad past the censors.
“People smuggle in the latest issues of Vogue and GQ too,” says Fazaeli, referring to the tight restrictions placed on the media, especially those with imagery deemed subversive or too revealing.
A recent report for the free speech project Global Voices Advocacy discovered that Iranian censors had blocked fashion media including the Vogue website and Instagram accounts from brands like Burberry and Gucci. For those that weren’t blocked, like Chanel, the report revealed that “intelligent filtering” had been used to weed out undesirable images from the feed — although, inexplicably, some of the steamiest accounts like Calvin Klein’s occasionally evaded the censors altogether.
“We used to take photos ourselves when we started [The Tehran Times style blog], but as you know, this can get risky with the Iranian government. So, at the moment, the majority of the photos are taken by our followers. We get around it by giving them directions on a certain theme or a hashtag on Instagram,” Fazaeli explains. Since the 2009 street protest movement, the Iranian regime has shutdown Facebook and Twitter on many occasions and censors messaging services like Viber.
Policing fashion on the street is more straightforward. Although the ‘Basij’ can and do harass women who don’t cover up with sufficiently modest dress, Iran’s morality police are no longer the same terrifying force they once were. Many liberal young women in the country’s cities have been bending the rules of the dress code for years.
With a more moderate President Hassan Rouhani now in power, it is more common to see colourfully coordinated outfits mixing trendy separates under a manteau and loosely draped headscarves than it is to see crowds of identikit women covered in the black chador. In wealthy districts, women with platinum-dyed or fire-engine red hair are a familiar sight, some of whom resemble of the surgically enhanced 'Rich Kids of Tehran' youth made famous last year by the Instagram account of the same name.
“Tehran has fashionable people and different style neighbourhoods like anywhere else in the world. The luxury market is around Elahieh and the independent shops are around the Jordan district. In Enghelab, you’ve got the artists hanging out and there’s a parking lot on Jomhoori Street where people shop for cool vintage stuff," says Fazaeli.
Such developments have had a positive effect on the local Iranian fashion industry, helping it to rise out of obscurity. Recently, more fashion industry figures have begun to move out of the shadows since reports surfaced of a religious edict issued by Iran’s supreme leader, Ayatollah Ali Khamenei, which declares that fashion and modelling were not forbidden by Islam.
According to sources familiar with the matter, private invitation-only fashion events must adhere to modesty guidelines, but their interpretation appears to be somewhat fluid. Men, however, are still not allowed to attend most women’s fashion shows.
Blazing a trail to Tehran
According to Fazaeli, “Iran doesn’t have proper fashion schools and we’re still too young to have any real power brokers, but Mzone Tehran Showroom and Tehran Fashion Week are leading the way. Langardi by Kathy Fassihi, who studied at Parsons, was the first Iranian brand to start a professional ready-to-wear production. Soon after that, creative young talents like Shiva & Shirin Vaqar, Salar Bill and Foje hit the market,” he says.
All over the country, traditional Persian-era bazaars are now facing competition from new Western-style shopping malls like the Sam Centre, Golestan and Palladium. Some market experts claim that the investment behind this retail revolution can be traced to a new business elite made up of the commanders of Iran’s Revolutionary Guards. Their ascent under the previous president has seen the omnipotence of the religious clerics slightly wane.
Looking longingly from across the border, the region’s major fashion retailers are feeling duly encouraged. Marwan Shehadeh, group director for corporate development at Al-Futtaim Group, recently characterised Iran as a potential “game changer” for his business. The Dubai-based conglomerate operates stores for retailers like Marks & Spencer in eight countries across the Middle East and is reportedly keen on expanding the firm’s portfolio to Iran.
But for a few intrepid fashion retailers, Iran is already on its way to becoming a growth market. Through a partnership with Iranian franchise partner Lilian Mode, British department store Debenhams has been in Iran since 2009. Its fifth store there will open in the city of Isfahan, with existing branches in metropoles like Tehran, Shiraz and Mashhad. A spokeswoman for Debenhams described their Iranian customers as “extremely receptive.”
Despite the many hardships caused by sanctions over the years, Iran is still the second largest economy in the MENA (Middle East and North Africa) region and the second most populous country. The fact that it has vast quantities of oil and natural gas means that the economy could flourish if sanctions are lifted. Indeed, a partial and temporary easing of oil export sanctions already caused Iran’s economy to rebound and grow 3 percent last year.
Some analysts have concerns over the nation’s purchasing power, citing the millions of poor Iranians who live below or near the breadline. Yet the International Monetary Fund estimates that Iran's per capita GDP is around $16,500, which means that Iranian consumers on average have more to spend than Brazilians or Indians.
Meanwhile, those at the top of the income ladder are growing fast. According to the consultancy New World Wealth, Iran ranked second in the Middle East in terms of the growth of high-net-worth-individuals (those with net assets over US$ 1 million). Only Qatar grew faster. Between 2000 and 2014, the number of Iranian millionaires increased 194 percent to 32,100 — which is nearly as many as there are now in Kuwait.
If these numbers represent what Iran’s economy can achieve despite years of sanctions and isolation, some say: Imagine what it could do if sanctions are lifted. With the Middle East such a tinderbox, any number of geopolitical flames could end up scorching the deal with Iran and derailing plans for doing business with the country. But many fashion leaders now seem sufficiently persuaded of Iran’s potential to make tentative preparations.
Besides, it is not all about cautious optimism, hints Fazaeli. “One thing you have to remember, the more closed the society is, the more you should expect the unexpected.”