LEADERS

The Promise of Iran

by

Serge Maillard

|

This is the featured image caption
Credit: This is the featured image credit
With a population of 80 million and a GDP of more than 400 billion dollars, as sanctions are gradually lifted an economic giant is joining the international market. What are…

Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.

PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.

In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”

The Fondation Cartier pour l’Art Contemparain building in Paris

With a population of 80 million and a GDP of more than 400 billion dollars, as sanctions are gradually lifted an economic giant is joining the international market. What are the opportunities and stumbling blocks for luxury brands? Europa Star’s Serge Maillard analyzes the situation from the perspective of luxury watch brands.

As the dependence of the watchmaking industry on Chinese demand makes itself cruelly felt, the need to diversify their markets is today becoming more urgent than ever for the watchmaker brands. At the same time, a potential giant – certainly a far cry from the demographic monster that China represents, but just as avid for horological products – is awakening: Iran, with its 78 million inhabitants who are seeing the economic sanctions gradually being lifted further to the nuclear agreement with the world powers, which came into effect last January. This could be a breath of fresh air for watchmakers in a Middle East which has also been hit by lower receipts as result of falling oil prices – prompting Saudi Arabia to launch a massive sovereign wealth fund in order to diversify its investments.

Rare are the luxury brands with their own boutiques in Iran. Despite this, Bulgari is intending to open shortly in Tehran, the country’s capital, which, according to CEO Jean-Christophe Babin, “represents the next big market in the Middle East.” In 2015, Montblanc’s CEO, Jérôme Lambert, announced that the brand was also seeking partners in Iran. The entry level brands, too, welcome the country’s economic opening: “Iran offers great opportunities,” underlined Adrian Bosshard, CEO of Certina, at the last Baselworld. The same sentiment is echoed at Longines.

RichKidsOfTehran on Instagram

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. Contrary to the clichés, sports cars and luxury watches can be seen on Tehran’s streets. It’s worth remembering that the first Tehran Fashion Week took place in 2015. And according to the International Monetary Fund, its GDP per inhabitant is higher than in China, India or Brazil, at 16,500 dollars.

A REPEAT OF CHINA – OR INDIA?

But we’ve seen it all before: demographic giants like India and Brazil did not live up to the horological hype, and have remained economic dwarfs for the industry where the domestic market is concerned. The fault lies with the very heavy taxation on imports of luxury products – 46 percent in the former and 80 percent in the latter country. So what about Iran? Official taxation is not in the same class (though admittedly subject to various supplementary, local “facilities”), raising hopes of greater potential on the domestic market. The problem here lies with international cash transfers: many banks are still reluctant to accept transactions to or from Iran for fear of exposing themselves and risking their reputation with the United States. Washington has inflicted particularly punishing fines on European banks trading with Iran – as BNP Paribas will confirm, having had to pay a hefty nine billion dollars in 2014 after being accused of violating the embargo on Tehran.

“Officially, it’s an open market with reasonable customs duties and VAT,” confirms Maurice Altermatt, head of the Swiss horology federation (FH). “So on paper, everything is possible. The main problem resides in the long, complicated financial transactions. The Iranian banking system is still subject to US sanctions.” Consequently, transactions still have to be made very largely through intermediary countries, such as Turkey or the United Arab Emirates But one obstacle has already been overcome: Swiss Export Risk Insurance (SERV) is again allowed to cover short, medium and longterm financing operations to Iran.

ROOM FOR NEW PLAYERS

Unlike the American luxury multinationals, the Swiss brands have always been present and appreciated in Iran, even after the Islamic Revolution and the imposition of economic sanctions, although the market is still tiny, as René Weber of the Vontobel bank underscores: “There’s huge potential out there, since Swiss watchmakers exported only 11 million francs’ worth of goods to Iran in 2015! And that hasn’t really varied in the past few years.” The three-day visit by the Swiss Economic Affairs Minister to Iran in early 2016 with a business delegation (including Vacheron Constantin) sent out a clear signal to the watchmakers: it’s time to strengthen trade links with Iran! “What surprised me most during that visit was the quality of the boutiques there,” says Maurice Altermatt. “They distribute some fifty Swiss brands in all price ranges. They are often family businesses going back two or three generations. And so the distributors are also retailers, because they own stores.” One of the distribution giants is Tehran Watch, which also runs the Omega boutique in the capital.

Although Iranians have got into the habit of buying their luxury watches abroad, especially in Dubai and Europe, a local customer base is growing up and boutiques are brimming: “The task now is to build a sound network, develop an after-sales service. A number of brands are interested in returning to Iran or increasing their presence there. But there may be more problems to solve in Asia before thinking about opening up new markets. Things are lagging behind there, even if the luxury watch boutiques are every bit as worthy as their European counterparts.” Because the number of importers remains small: “There’s still room for new quality players if the watch market in Iran is really going to develop.”

BANKS ERR ON THE SIDE OF CAUTION

When interviewed in 2015 by Swissinfo, Sharif Nezam-Mafi, the president of the Iran-Switzerland Chamber of Commerce, described Iran as “ready to join the international community,” while issuing a warning of the “incredible level” of corruption and nepotism, not to mention the all-pervading bureaucracy. Moreover, huge inequalities are found in the country, with a small proportion of ultra-rich and a middle class which is struggling to develop, undermined by the decline in oil revenues. “Rome wasn’t built in a day: the economy, which is over-dependent on oil, needs to diversify. The growth of the watch market will also depend on the geopolitical context, depending on whether or not the nuclear agreement is respected.” Early adopters on the Iranian market, like Frédérique Constant’s Peter Stas, prove satisfied with their bold move, however. “We introduced the brand for the first time in Iran in 2009. At that time the market was not as open as today, which made it a real challenge to turn this adventure into a success. With a strong local partner (see comments by Massoud Zomorrodian, a local distributor who represents the brand) and significant marketing investments, we have been able to establish Frédérique Constant as a first choice of luxury in Iran.

Three years ago, the Iranian market began to open up further and operations related to shipment, payments and travel across the country became easier than in the past. These changes make Iran one of our largest markets in the Middle East region and we still expect significant growth for the coming years. Last year we have introduced our sport classic brand Alpina, which has the potential of being as successful there as Frédérique Constant.”

Contacted while on a business trip to Iran, Alain Spinedi, CEO of Louis Erard – a brand present since 2009 in the country – is equally confident as to the potential of this market, which he says is “already in our top ten and is going to be one of our priorities given the great possibilities for expanding our mid-price range, between 600 and 3,000 francs.” But he does concede that “at the economic level, it’s happening more slowly than announced in the press, and until a sound banking system is established, things won’t happen any faster.”

Elie Bernheim, CEO of Raymond Weil, agrees: “The economy will not open up without the banks. Currency transfers are always a hindrance to development. We have to be patient and team up with extremely reliable partners.” Even so, the brand states that it has a very sound basis in Iran and is very optimistic: “Our situation in the country is excellent and despite the embargo and economic sanctions, we’ve gained market share these last three years. 2016 promises to be just as good, with outstanding sales last April, the best in about ten years! In the long-term, Iran should position itself as the Middle East market leader and one of our most important customers overall.”

THE PARADOX OF ECONOMIC OPENING

Its longstanding presence on the Iranian market is an advantage for the Geneva based company: “Iranian customers are connoisseurs. They need recognition and quite naturally they go for the well-known brands. We have a long history in this geographical region, our offering is especially well adapted to their tastes and we even produce a few timepieces specifically for that market.”

Manuel Emch, CEO of RJ – Romain Jerome, visited Iran in 2015, a market where his brand has had a presence since 2014. “We’re just starting, but the country has enormous potential. Although it operated as a closed circuit for a very long time, it has a well-educated population who want to catch up. I like to venture into these kinds of rather surprising markets, which are less conventional for the watchmaking industry. But getting into the Iranian market is still quite a complicated affair. We started by contacting the State Secretariat for Economic Affairs, which told us there was no problem for Swiss businesses. But we soon realised that although the business was there, there was a problem at the receipts end. On paper there’s no problem, but no Swiss bank will do the transactions, they’re scared to death of the United States. So we went through Middle Eastern banks.” So, between the agreement and the reality the situation is somewhat schizophrenic.

Moreover, since everybody is anticipating the market to open up, Iranian customers are expecting taxation to fall and the offer to rise. So they’re waiting. The result is a paradoxical situation: in actual fact, RJ-Romain Jerome has seen its sales fall with the opening of the market! “We watchmakers have been spoiled by seeing markets open up and experiencing strong growth immediately. We have to be patient.”

Isfahan City Centre Main Atrium

For Manuel Emch, there is still a deep divide in the country between the towns and rural areas: “You see lots of outwards signs of wealth and luxury brands in Tehran, as evidenced by those Instagram accounts that show the kind of life led by the pampered youth in the capital. Geographically, the city is even structured so that the richest strata of the population live higher up.” But the more classic models remain the most popular, such as Moon Invader: “Every now and again, we see an interest in our less conventional models, but skulls are definitely not the easiest models to import into Iran, given the censorship. But a customer base with more sophisticated tastes is going to emerge, because the elite has the same dreams as the youth of New York.” In the historical city of Isfahan, one of the largest shopping centres in the Middle East was inaugurated in 2015 – a hugely symbolic event.

This article was originally featured in Europa Star. Minor edits have been made for clarity.

Serge Maillard
Serge Maillard

Publisher, Europa Star

Serge is the publisher of Europa Star, a leading independent watch magazine that celebrates 90 years of coverage of the industry. Aimed at both professionals and collectors all around the world and in five languages, it provides unique point of views and exclusive analysis of the evolution of the watch industry.

LEADERS

The Promise of Iran

by

Serge Maillard

|

This is the featured image caption
Credit : This is the featured image credit
With a population of 80 million and a GDP of more than 400 billion dollars, as sanctions are gradually lifted an economic giant is joining the international market. What are…

Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.

PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.

In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”

The Fondation Cartier pour l’Art Contemparain building in Paris

With a population of 80 million and a GDP of more than 400 billion dollars, as sanctions are gradually lifted an economic giant is joining the international market. What are the opportunities and stumbling blocks for luxury brands? Europa Star’s Serge Maillard analyzes the situation from the perspective of luxury watch brands.

As the dependence of the watchmaking industry on Chinese demand makes itself cruelly felt, the need to diversify their markets is today becoming more urgent than ever for the watchmaker brands. At the same time, a potential giant – certainly a far cry from the demographic monster that China represents, but just as avid for horological products – is awakening: Iran, with its 78 million inhabitants who are seeing the economic sanctions gradually being lifted further to the nuclear agreement with the world powers, which came into effect last January. This could be a breath of fresh air for watchmakers in a Middle East which has also been hit by lower receipts as result of falling oil prices – prompting Saudi Arabia to launch a massive sovereign wealth fund in order to diversify its investments.

Rare are the luxury brands with their own boutiques in Iran. Despite this, Bulgari is intending to open shortly in Tehran, the country’s capital, which, according to CEO Jean-Christophe Babin, “represents the next big market in the Middle East.” In 2015, Montblanc’s CEO, Jérôme Lambert, announced that the brand was also seeking partners in Iran. The entry level brands, too, welcome the country’s economic opening: “Iran offers great opportunities,” underlined Adrian Bosshard, CEO of Certina, at the last Baselworld. The same sentiment is echoed at Longines.

RichKidsOfTehran on Instagram

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. Contrary to the clichés, sports cars and luxury watches can be seen on Tehran’s streets. It’s worth remembering that the first Tehran Fashion Week took place in 2015. And according to the International Monetary Fund, its GDP per inhabitant is higher than in China, India or Brazil, at 16,500 dollars.

A REPEAT OF CHINA – OR INDIA?

But we’ve seen it all before: demographic giants like India and Brazil did not live up to the horological hype, and have remained economic dwarfs for the industry where the domestic market is concerned. The fault lies with the very heavy taxation on imports of luxury products – 46 percent in the former and 80 percent in the latter country. So what about Iran? Official taxation is not in the same class (though admittedly subject to various supplementary, local “facilities”), raising hopes of greater potential on the domestic market. The problem here lies with international cash transfers: many banks are still reluctant to accept transactions to or from Iran for fear of exposing themselves and risking their reputation with the United States. Washington has inflicted particularly punishing fines on European banks trading with Iran – as BNP Paribas will confirm, having had to pay a hefty nine billion dollars in 2014 after being accused of violating the embargo on Tehran.

“Officially, it’s an open market with reasonable customs duties and VAT,” confirms Maurice Altermatt, head of the Swiss horology federation (FH). “So on paper, everything is possible. The main problem resides in the long, complicated financial transactions. The Iranian banking system is still subject to US sanctions.” Consequently, transactions still have to be made very largely through intermediary countries, such as Turkey or the United Arab Emirates But one obstacle has already been overcome: Swiss Export Risk Insurance (SERV) is again allowed to cover short, medium and longterm financing operations to Iran.

ROOM FOR NEW PLAYERS

Unlike the American luxury multinationals, the Swiss brands have always been present and appreciated in Iran, even after the Islamic Revolution and the imposition of economic sanctions, although the market is still tiny, as René Weber of the Vontobel bank underscores: “There’s huge potential out there, since Swiss watchmakers exported only 11 million francs’ worth of goods to Iran in 2015! And that hasn’t really varied in the past few years.” The three-day visit by the Swiss Economic Affairs Minister to Iran in early 2016 with a business delegation (including Vacheron Constantin) sent out a clear signal to the watchmakers: it’s time to strengthen trade links with Iran! “What surprised me most during that visit was the quality of the boutiques there,” says Maurice Altermatt. “They distribute some fifty Swiss brands in all price ranges. They are often family businesses going back two or three generations. And so the distributors are also retailers, because they own stores.” One of the distribution giants is Tehran Watch, which also runs the Omega boutique in the capital.

Although Iranians have got into the habit of buying their luxury watches abroad, especially in Dubai and Europe, a local customer base is growing up and boutiques are brimming: “The task now is to build a sound network, develop an after-sales service. A number of brands are interested in returning to Iran or increasing their presence there. But there may be more problems to solve in Asia before thinking about opening up new markets. Things are lagging behind there, even if the luxury watch boutiques are every bit as worthy as their European counterparts.” Because the number of importers remains small: “There’s still room for new quality players if the watch market in Iran is really going to develop.”

BANKS ERR ON THE SIDE OF CAUTION

When interviewed in 2015 by Swissinfo, Sharif Nezam-Mafi, the president of the Iran-Switzerland Chamber of Commerce, described Iran as “ready to join the international community,” while issuing a warning of the “incredible level” of corruption and nepotism, not to mention the all-pervading bureaucracy. Moreover, huge inequalities are found in the country, with a small proportion of ultra-rich and a middle class which is struggling to develop, undermined by the decline in oil revenues. “Rome wasn’t built in a day: the economy, which is over-dependent on oil, needs to diversify. The growth of the watch market will also depend on the geopolitical context, depending on whether or not the nuclear agreement is respected.” Early adopters on the Iranian market, like Frédérique Constant’s Peter Stas, prove satisfied with their bold move, however. “We introduced the brand for the first time in Iran in 2009. At that time the market was not as open as today, which made it a real challenge to turn this adventure into a success. With a strong local partner (see comments by Massoud Zomorrodian, a local distributor who represents the brand) and significant marketing investments, we have been able to establish Frédérique Constant as a first choice of luxury in Iran.

Three years ago, the Iranian market began to open up further and operations related to shipment, payments and travel across the country became easier than in the past. These changes make Iran one of our largest markets in the Middle East region and we still expect significant growth for the coming years. Last year we have introduced our sport classic brand Alpina, which has the potential of being as successful there as Frédérique Constant.”

Contacted while on a business trip to Iran, Alain Spinedi, CEO of Louis Erard – a brand present since 2009 in the country – is equally confident as to the potential of this market, which he says is “already in our top ten and is going to be one of our priorities given the great possibilities for expanding our mid-price range, between 600 and 3,000 francs.” But he does concede that “at the economic level, it’s happening more slowly than announced in the press, and until a sound banking system is established, things won’t happen any faster.”

Elie Bernheim, CEO of Raymond Weil, agrees: “The economy will not open up without the banks. Currency transfers are always a hindrance to development. We have to be patient and team up with extremely reliable partners.” Even so, the brand states that it has a very sound basis in Iran and is very optimistic: “Our situation in the country is excellent and despite the embargo and economic sanctions, we’ve gained market share these last three years. 2016 promises to be just as good, with outstanding sales last April, the best in about ten years! In the long-term, Iran should position itself as the Middle East market leader and one of our most important customers overall.”

THE PARADOX OF ECONOMIC OPENING

Its longstanding presence on the Iranian market is an advantage for the Geneva based company: “Iranian customers are connoisseurs. They need recognition and quite naturally they go for the well-known brands. We have a long history in this geographical region, our offering is especially well adapted to their tastes and we even produce a few timepieces specifically for that market.”

Manuel Emch, CEO of RJ – Romain Jerome, visited Iran in 2015, a market where his brand has had a presence since 2014. “We’re just starting, but the country has enormous potential. Although it operated as a closed circuit for a very long time, it has a well-educated population who want to catch up. I like to venture into these kinds of rather surprising markets, which are less conventional for the watchmaking industry. But getting into the Iranian market is still quite a complicated affair. We started by contacting the State Secretariat for Economic Affairs, which told us there was no problem for Swiss businesses. But we soon realised that although the business was there, there was a problem at the receipts end. On paper there’s no problem, but no Swiss bank will do the transactions, they’re scared to death of the United States. So we went through Middle Eastern banks.” So, between the agreement and the reality the situation is somewhat schizophrenic.

Moreover, since everybody is anticipating the market to open up, Iranian customers are expecting taxation to fall and the offer to rise. So they’re waiting. The result is a paradoxical situation: in actual fact, RJ-Romain Jerome has seen its sales fall with the opening of the market! “We watchmakers have been spoiled by seeing markets open up and experiencing strong growth immediately. We have to be patient.”

Isfahan City Centre Main Atrium

For Manuel Emch, there is still a deep divide in the country between the towns and rural areas: “You see lots of outwards signs of wealth and luxury brands in Tehran, as evidenced by those Instagram accounts that show the kind of life led by the pampered youth in the capital. Geographically, the city is even structured so that the richest strata of the population live higher up.” But the more classic models remain the most popular, such as Moon Invader: “Every now and again, we see an interest in our less conventional models, but skulls are definitely not the easiest models to import into Iran, given the censorship. But a customer base with more sophisticated tastes is going to emerge, because the elite has the same dreams as the youth of New York.” In the historical city of Isfahan, one of the largest shopping centres in the Middle East was inaugurated in 2015 – a hugely symbolic event.

This article was originally featured in Europa Star. Minor edits have been made for clarity.

Serge Maillard
Serge Maillard

Publisher, Europa Star

Serge is the publisher of Europa Star, a leading independent watch magazine that celebrates 90 years of coverage of the industry. Aimed at both professionals and collectors all around the world and in five languages, it provides unique point of views and exclusive analysis of the evolution of the watch industry.

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