Alghanim Industries Expands Into Unsaturated Household Goods Segment In Kuwait

Fitch Solutions / Consumer & Retail / Kuwait / Fri 19 Aug, 2022

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Key View: The expansion of Alghanim Industries’ furniture and interiors retailer, Safat Home, points towards a level of opportunity in Kuwait’s household goods market. Real gains in income in 2021 and 2022 push home-conscious consumers to update and renew their home furnishings among other household purchases. High per capita income and large expatriate population signal the higher range of price points businesses could utilise in this market.

In May 2022, Alghanim Industries opened their higher-end Safat Home Boutique in the Assima Mall, in Kuwait. The expansion of the brand is part of wider trend within the household goods segment in the Emirate. A growing population, rising incomes and urbanisation lay the grounds for strong medium-term (2022-2026) growth within the household goods markets.

Household goods is forecast to be a significant proportion of consumer spending categories, at 17.1% of total household spending in 2022. Its growth has pushed it above personal, insurance and other spending in 2020, to become the second largest household spending category. The proportion of housing and home spending will continue to gain over other segments over the medium term to reach 17.7% of total household spending in 2026. In nominal terms, this translates to a compound annual growth rate (CAGR) of 5.2% from KWD2.6bn (USD7.7bn) in 2022 to KWD2.9bn (USD8.9bn) in 2026.

Steady Growth Of Household Goods Over Medium Term

Kuwait – Household Goods Spending, KWDbn (2019-2026)

e/f = Fitch Solutions estimate/forecast. Source: Central Statistics Bureau Kuwait, Fitch Solutions

Kuwait Incomes Recovered Post Covid-19 But Will Slow In Real Terms

Since the 23.3% contraction in average household disposable incomes in 2020, disposable incomes have recovered well over the past two years. Over the medium term, we forecast average disposable income per household to grow by at a five-year CAGR of 6.3%, to reach KWD10,300 (USD32,188) in 2026. This is higher than our forecast for average consumer price inflation of 2.2% over our 2022-2026 forecast period. During the lockdowns in 2020 and 2021, consumers accumulated savings, which is now translating to increased spending across many segments in the consumer and retail industry. Having spent much time in private residencies, consumers are focusing on updating their furnishing and other household products. We do note that the differential between nominal disposable incomes and consumer price inflation will narrow over the medium term, indicating that further real growth in disposable income is limited, particularly the at the rates observed in 2021 and 2022.

Income Recovery In 2022 and 2021 Ahead of Inflation Resurgence

Kuwait - Disposable Incomes & Consumer Price Inflation (2017-2026)

e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

As with most GCC countries, Kuwait has one of the highest disposable incomes per capita, making it an ideal market for luxury brands to target. In 2022, disposable income per capita will reach KWD2,100 (USD6,562.50), but on average it is forecasted to grow 7.5% a year over the next five years, to KWD2,300 (USD7,187.50) in 2026. Consequently, the percentage of households in the top income bracket of USD50,000+ is projected to grow, reaching almost 15% by 2026, increasing from 13.0% in 2022. Kuwait’s young, wealthy consumer base is increasingly interested in branded, luxury labels.

Migrant Community In Kuwait Provide Opportunity

Although small in comparison to the United Arab Emirates or Saudi Arabia, Kuwait’s population has grown steadily, at 2.0% y-o-y between 2015 and 2022, to reach an estimated figure of 4.38mn in 2022. Although this will slow somewhat in the medium term, the growth is still positive at 1.0% over this period. The attractiveness of its labour market is a significant factor in its population growth rate, with 70% of its population being comprised of expatriates from countries in the Arab region, South and South-East Asia and Africa, who are predominately employed in the construction sector and service industry. Subsequently, the large expatriate population, representing a large percentage of the low to middle incomes, represent a sizeable segment of the market.

Relatively new entrants to the Kuwait Household goods market, such as IKEA, are serving these demographic groups, targeting price-sensitive consumers. However, the scalability of the growth among the expat group is slightly limited by the strict regulations to purchase property, rather than renting. Previously unable to buy property, expats have been allowed to enter the housing market from 2015 but prerequisites are relatively stringent in that prospective homeowners must have no criminal record, sufficient income, properties are less than 1,000sqm and must be used for private residence only. As a result, most expatriates rent rather than buy property. This does limit the volume and value in which consumers would allocate to household goods to some extent.

Household Goods Spending Fuelled by Technology Demand

Within the household goods sector, the largest proportion will be spent on furniture and furnishings, and AV, cameras and computers, which will amount to a combined KWD1.9bn (USD4.2bn) in 2026. This constitutes 47% of household goods in 2026. AV, camera and computer spending will be among the goods to register the strongest growth rates, averaging 7.1% annually over the medium-term forecast period to 2026. This segment will benefit from the demographic structure of the Kuwaiti population, characterised by a large share of teenagers and young adults. In recent years, brands like LG and Hauwai have opened stores in Kuwait in recognition of the potential in the country, especially as the population becomes increasingly tech-savvy and demand more advanced appliance and electronics. Growth will be almost as high in the toys, sports, gardens and pets’ segment across the same period, albeit from a far smaller base.

Household Goods Segment Spending Breakdown

Kuwait - Household Good Segment Spending, KWDmn (2018-2026)

Source: National sources, Fitch Solutions

Steady growth in this segment, alongside constraints to international companies expanding into Kuwait has meant the market is relatively unsaturated. This presents opportunities for market participants already established in the market or those that are able to undertake the franchising model outlined in Kuwait. We believe that rising consumer price inflation is a key risk to consumer spending over the next couple of years, as it has the potential to erode purchasing power and shift spending away from discretionary spending.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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