BMI View: Kuwait's economy witnessed a slowdown with the damage to the world oil industry in the last year, however prospects for the retail sector remain strong. Despite being a relatively small country, both population and area wise, there are high numbers of affluent households and individuals, driving growth in the retail sector. The high levels of urbanisation and preference for modern retail formats and luxurious brands means Kuwait represent great opportunities to retailers who can build up strong brand loyalty and take advantage of the wealthy population.
The growth in Kuwaiti economy will not be as strong as it has been in the last five years, due to the downturn in the oil industry due to falling prices of oil, while Kuwait is highly dependent on the oil industry for its income and exports. As a result the growth in the economy will average less than 3% y-o-y during our forecast period. However this will not have a huge negative effect on the retail sector, as to make up for the lost revenue in the oil industry there is more emphasis on private domestic consumption as a larger driver of the economy that previously.
Despite the relatively negative outlook of the economy as a whole for the near future, the overall health of the Kuwaiti economy is strong and its per capita income is one of the highest in the world, reflecting a high level of disposable income and household spending. Total household spending is expected to reach USD34bn in 2019 from USD28bn in 2015, while also representing a greater percentage of GDP as household spending grows faster than GDP. The key characteristic for retailers is the large amount of households in the highest income bracket of USD50,000+ as they represent those who have the most disposable income and most partial to spending on aspirational, non-essential goods. Most of the spending will go on food and drink, however its relative importance is expected to shrink slightly in favour of personal, insurance and other spending as well as spending on clothes and footwear.
The retail formats in Kuwait are increasingly modern, with the decline in the traditional mom-and-pop stores. This is a result of the extremely high levels of urbanisation, which total more than 98% of the population, as well as the preferences of Kuwaiti shoppers. The mall complex format is extremely popular in Kuwait due to the comfort and convenience they provide, as well as the range of services and entertainment proving extremely preferential for the modern urbanised Kuwaiti who enjoys international luxurious brands. The newest mall was completed in 2014, the Gate Mall, takes up to six floors and has space for 275 stores but is still the second largest mall behind, The Avenues, in Kuwait. Other modern formats also prosper, despite government restrictions, such as the MGR and department store formats, that cater to the affluent population.
Despite Kuwait's small population and the less than strong overall economic growth figures, there are still numerous opportunities for retailers looking to enter the Kuwaiti market and take advantage of the high income levels which are typical of the Gulf States. Opportunities particularly exist in the fashion sector, as the modern Kuwaitis (particularly the younger generation) look to keep up with the latest international trends. E-commerce is also set to boom as Kuwait has a high internet penetration and mobile phone usage compared to other countries in the region, presenting significant opportunities as it is a relatively unsaturated and new format for most Kuwaitis.
Key BMI Forecasts
We expect total household spending to be USD28bn in 2015, and reach USD34bn by 2019.
Household numbers will reach 564,961 in 2015, up 3.8% from the year before, and we expect growth to average 3.3% throughout our forecast period to 2019.
Net income per household is forecast to rise from USD31,568 to USD32,592 between 2015 and 2019.
The amount of households in the high income bracket (USD50,000+) will rise from 89,000 to 105,000 during our forecast period.