Why Kazakhstan Is a Target for Luxury Retailers

 

 

 

 

In case you missed it, one of the ‘stan’s is on its way to being a major destination for Central Asia’s newly rich. Oil-rich Kazakhstan is polishing its main commercial center of Almaty and gilding it with glittering new shopping centers — and not a moment too soon. DeBeers Jewellery wasted little time in setting up shop and on July 2^nd opened a luxurious new store.

 

Why here?

 

Well maybe because of all the Central Asia economies, Kazakhstan isn’t doing too shabby — corruption and bureaucracy notwithstanding. Prime Minister Karim Massimov is a rock star now that his country’s economy is pushing towards a “sustainable level.” Inflation finished in 2010 at 7.8%, and 2011 is looking even better. Kazakhstan, for the record, is in the top ten of the largest countries in the world.

 

In 2011 the average salary per month in Kazakhstan accounted for roughly 84 thousand tenge (Kazakh currency) and increased by 12.5 percent compared with the same period last year.

 

Which is why many believe Kazakhstan could just be a viable investment with its low level of debt, access to it’s own national oil fund, and ability to essentially recapitalize its own banks. Sounds like a flush economy to me – or almost. Keep in mind China was a long-term investment when foreign retailers set up shop there in the early 1990’s.

 

An interior view of the DeBeers boutique in Almaty, Kazakhstan, which opened on July 2, 2011.

But many were stunned when it was DeBeers — not Louis Vuitton or even Chanel — who opened a store here.

 

It’s not all that surprising, though, when you consider that DeBeers’ CEO is none other than François Delage, the man who in 1992, as President of Louis Vuitton Asia Pacific, was prescient enough to open the first LV store in China. Other than Armani, nobody else had yet dared to enter the China market.

 

“Our opening in Almaty demonstrates the growing demand for De Beers Diamond Jewelry globally, beyond traditional markets,” said Delage, in a prepared statement. That might be pushing it a bit but Delage is no idiot: in order to groom this future customer and build on aspirational desires, one must provide the desire itself. Why wait for Zales to ruin the moment?

 

 

Meanwhile Saks Fifth Avenue is scheduled to open a 91,000 square foot store in August of 2012, which they boast will be 3-floors of über-luxe, not unlike what might be found in the U.S. — but with the local customer in mind.

 

“We are so excited to bring our first store to this part of the world and believe that Almaty, Kazakhstan, with its rapidly expanding affluent population, will be a great fit for Saks Fifth Avenue,” Says Stephen I. Sadove, Chairman and Chief Executive Officer of Saks Incorporated, in an interview with the Wall Street Journal.

 

Saks has been down the expansion road before, often in fits and starts but more recently figured out that licensing is probably the better way to go, at least in the beginning.  Other than its store in Mexico City, stores in Dubai and Riyadh, Saudi Arabia have been slow to register a profit. A store planned for China was eventually dropped.

 

My guess is the store in Kazakhstan will be their new model for international expansion, one which will integrate a strategic alignment of brand with local custom, without dilution of the overall brand’s key message of luxury leadership and customer service.

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