Gulf Consumers Tighten Belts as War in Iran Impacts Regional Retail
The war in Iran has severely impacted consumer confidence and driven up import costs across Persian Gulf nations, forcing major retailers to report falling profits and layoffs while budget brands experience a surge in demand.
Consumers across Persian Gulf nations are tightening their belts due to the war in Iran, which has eroded consumer confidence and driven up import costs, placing severe pressure on major regional retailers already grappling with falling tourist numbers and reduced spending.
Lulu Retail, one of the region’s largest supermarket operators, reported earlier this month that low consumer sentiment hurt non-food sales, leading to a 28% drop in profits for the first nine months of the year. Similarly, Majid Al Futtaim, the company holding the Carrefour franchise in the region, stated that revenues in the first half of the year fell 6% compared to the previous year, reflecting more challenging conditions for consumers, particularly in the Emirates. Sufyan Akhtar, vice president at investment advisory firm Alpen Capital, noted that ongoing geopolitical uncertainty is likely to make consumers more cautious about spending, especially on non-essential items.
The conflict, which erupted following a joint strike by the United States and Israel against Iran, has become a significant burden on the tourism sector. Revenues at Dubai duty-free shops dropped by 25.3% in the first seven months of the year amid a sharp decline in passenger numbers, according to Alpen data. Over the past two decades, Gulf states have invested heavily in developing non-oil sectors such as tourism and retail to reduce their reliance on a single revenue source. However, prolonged sluggishness in consumer spending could pose an obstacle to this economic model, as the war has also disrupted aviation and trade.
Impact on Employment and Supply Chains
This slowdown may force businesses to cut costs by laying off employees, freezing hiring, and halting expansion plans, thereby eroding the foundational pillars of the economy. Majid Al Futtaim, famous for building the Mall of the Emirates featuring an indoor ski slope, laid off hundreds of employees this year, according to sources familiar with the matter. They noted that another retail group, Jashanmal, also cut its workforce. Sellers in Dubai's high-end shopping centers reported a noticeable decline in wealthy clients entering luxury boutiques. Both Majid Al Futtaim and Jashanmal declined to comment.
Due to the Gulf nations' heavy reliance on food imports, the partial closure of the Strait of Hormuz forced companies to choose more expensive alternatives, such as land or air transport, further driving up logistics costs. Akhtar explained that any upward push in shipping and logistics expenses translates into higher retail prices, squeezing purchasing power and potentially weighing down demand.
Opportunities for Discount Brands
Industry executives and analysts point out that the local consumer base in Saudi Arabia and the UAE has helped cushion some of the economic blow from the war. At the same time, they warn that inflation driven by high shipping costs is dampening consumer sentiment as the war enters its ninth month.
Yet, for some players, the conflict has created opportunities. Union Coop in Dubai, the largest consumer cooperative in the Emirates targeting price-conscious shoppers, reported a rise in net profit for the first nine months of the year compared to the same period last year. Likewise, Americana Restaurants, the regional operator of fast-food brands like Pizza Hut, saw its profit surge by 60% after completing an expansion program across the region. A company executive noted that consumers are eating more at budget-friendly chains like KFC and Hardee's.
Debashish Mukherjee, head of consumer and retail at the local branch of Kearney, estimates that shoppers shifting toward cheaper brands could have a lasting impact on the industry. He stated that the situation exposes the population to a wider range of pricing options, ensuring that people across all income levels can live comfortably.
