Kuwait’s retailers face uncertain times

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Long established as a destination for major brands, Kuwait has witnessed steady retail expansion in recent years, but falling oil prices and forecasts of a budget deficit risk clouding the outlook for 2015.

In January, Alpen Capital said that retail sales in Kuwait were expected to increase at a compound annual growth rate of 6.7% between 2013 and 2018, in line with the average growth for GCC countries. According to the investment bank, the size of wholesale and retail trade in Kuwait was $5.8bn in 2013, which is dwarfed by figures from retail hubs such as Dubai with sales growth in the UAE estimated at 7.6% y-o-y to $52.1bn in 2013.

The latest MasterCard consumer confidence index, published in November, showed that sentiment had eased slightly in Kuwait, but remained strong, with the country scoring 92.6 out of 100, outperforming the Middle East region that recorded an aggregate score of 78.5. Previously, Kuwait notched up the strongest performance in the Middle East, Asia/Pacific and Africa with a score of 96.8.

According to the index –carried out between the months of July and August – scores declined year-on-year across the key index indicators, including employment (down from 98.1 to 97.6), economy (97.5 to 96.3), stock market (95.1 to 83.9) and quality of life (96.7 to 87.6).

Retail shows resilience

Kuwait enjoys one of the highest standards of living in the world, making it a prime destination for retailers. Its 3.8m population supports a number of luxury and high-street brand names, and the emirate’s increased urbanisation is driving growth within organised retail.

According to A.T. Kearney, the country ranked eighth on its 2014 Global Retail Index, edging up from ninth position a year earlier and placing it second amongst GCC markets. Kuwait scored well in terms of market attractiveness and low country risk, but the survey also indicated that the market was fairly saturated.

Years of consistent and solid performances in Kuwait’s retail sector have helped to drive up the number of outlets and brands opening their doors. The state’s largest shopping mall, The Avenues, has grown to accommodate 800 retail units, with the luxury wing, Prestige, completing phase three of its expansion in 2013 while the Gate Mall opened for business in 2014.

The number of high-end international brands operating in Kuwait has risen steadily in tandem with the emergence of new shopping facilities in recent years.  Activity is also evident across the mid-range segment. Marks & Spencer’s long term franchise partner Al-Futtaim opened a new 72,000 sq ft outlet in March 2014 making it the largest international store in the M&S portfolio. The Landmark Group, meanwhile, inaugurated two new retail outlets, Iconic and New Look, in January at the $142m Al Salam Mall development.

Oil takes its toll

While the retail expansion spells good news for Kuwait, falling oil prices as well as domestic issues such as a predicted budget deficit are expected to weigh on growth and confidence in 2015.

Oil continues to account for 94% of Kuwait’s export revenues, according to the US Energy Information Administration. Meanwhile, the Ministry of Finance has projected a $24bn deficit in its new fiscal year budget, despite a significant cut in spending. Revenues in the 2015-16 fiscal year are forecast to reach $41.1bn, marking a 43.6% decline on previous estimates, while spending is now projected at $65.1bn, down 17.8%.

In order to reduce the strain on its coffers, Kuwait slashed its subsidies on diesel, kerosene and aviation fuel from January 1. It is considering a phase-out of subsidies on petrol and other utilities but no concrete steps have been taken in that direction yet.

The reduction in subsidies has also led to production costs soaring among businesses, triggering a wave of price hikes, according to local media.

However, analysts suggest that Kuwait’s economic resilience and track record, which includes 15 consecutive years of budget surpluses, should support efforts to address any shortfall in oil revenues.

Despite any short-term factors, the retail sector is expected to remain robust in the long-term due to the steady rise in household income: “We see long-term potential in the Kuwaiti consumer market, particularly for non-essential items and aspirational purchasing by younger consumers whose incomes are rising,” according to a Business Monitor International report published in January.

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