At the crossroads of Western Asia and Europe and less than 5 million inhabitants, Georgia has been one of the most dynamic economies which had emerged from Soviet occupation in 1990. With an expected GDP growth of 7% in 2012, Georgia has been attracting important foreign investments, especially thanks to its strategic geographical position, bordering Russia, Armenia, Azerbaijan and Iran, but also with direct access to the Black Sea. The U.S. and the E.U. have been supporting Georgia’s independence and NATO enjoys strategic alliances with Georgia, inlcuding even the prospect of NATO membership.
Georgia has been making significant reforms, especially in infrastructure (new international airport in Tbilisi and Batumi) and healthcare system, most hospitals being privatized. High level of corruption, bureaucracy, the power mix between politics and the economy mostly held by the President and his close group, poor road infrasture, a 25% unemployment rate and poverty outside the major cities remain the key issues the county has been facing in the past years.
With proximity to such diverse countries, Georgia has a huge potential to develop into a premium destination in the region. So far, this potential has been inconsistently exploited, the country lacking a strategic positioning in this respect. Indeed, the booming casino industry (illegal in neighbouring countries), relatively inexpensive five star hotels and a wealth of entertainment spots, especially for men (strip clubs, night clubs) have been attracting a constantly growing number of foreign visitors, especially from Iran and Azerbaijan. However, without any other luxury lifestyle attractions such as retail or restaurants, such leisure travellers make it to the capital of Tbilisi solely for casino and entertainment trips. Not to mention, Tbilisi’s generous offering of museums and art galleries (most recently renovated or restored) are insufficiently promoted.
The importance of attracting foreign wealthy travellers from neighbouring countries is crucial to the development of Georgia as a premium destination, given that its wealthy locals and the lack of a upper middle class would not sustain a feasible luxury market on its own. According to several studies, mostly by banks and their private banking divisions, as well as CPP’s research, through interviews with several local luxury players, there are less than 1.000 millionaires , with assets of over 10 million. As for the middle class, the aspirational segment, buying power remains limited.
The local authorities have taken some important positive steps too, in respect to Georgia’s positioning as a premium destination. Many former owners have been able to regain ownership of their properties, ceased through Soviet occupation and through various subsidies, two key areas of downtown Tbilisi have been entirely restored, the chic Agmashenebeli Avenue and the Freedom Square (Tavisupleba) both with beautiful classic buildings reflecting on Tbilisi’s past. Unfortunately, most of retail spaces remain empty, while several projects such as hotels have been adabandoned (the project of InterContinental Hotel on Rustaveli Avenue, or other mixed use premium centres such as Rustaveli 7 and the Merani Galleri, with A class offices, retail and residential). According to local sources, most such projects have been started by developers and investors which had not secured necessary funds.
Hospitality, cars, home/interiors and selective retailing of fragrances and beauty products are the most developped luxury sectors, while, at the opposite pole, luxury jewellery, watches and women’s fashion are in their very incipient phases of development. The existing Cartier mono-brand boutique on Rustaveli, will be joined by the mono-brand boutique of Chopard (Freedom Square -Tavisupleba) which is due to open this September. Also in September, the very first luxury watch boutique will open in Tbilisi (Chronograph) – adjacent to Chopard. For most wealthy Georgians decorating their homes is a very important investment – hence the presence of Villeroy Boch (mono-brand store) and several luxury furniture brands such as Minotti, Giorgetti, Poliform represented at a large multi brand called Design Avenue.
Radisson Blu Iveria, opened less than 3 years ago, is the largest five star hotel in Tbilisi, with the largest luxury SPA and a roof top indoor pool, other direct competitors being Marriott and Courtyard by Marriott. A Saudi investor has recently acquired a building close to the Radisson, which will be developed into a 300 room Millennium Hotel, with casino and restaurant. Kempinski and Hilton have also been scouting the five star hospitality market of Tbilisi, which posts a very attractive 70% occupancy and a 150 euro average nightly rate.
The Black Sea side destination of Batumi boasts two large resort hotels, the Radisson Blu and Sheraton, both opened in the past 3 years. A Trump residential tower and a Kempinski Hotel have also been announced for Batumi in the near future. The third Radisson Hotel is currently under construction and will be opened by the end of the year in a wine domain north of the capital of Tbilisi. The three Radisson hotels and the Trump Tower are owned and developed by local Silk Road Group, the largest real estate developer of Georgia, while the GMT Group owns the two Marriott Hotels in Tbilisi, with a third Marriott Executive apartments expected to be opened within the next two years. Unfortunately, much like Tbilisi, Batumi has been marketed mostly as a casino destination, attracting middle class from neighbouring countries, Turkey being one of the leading in terms of number of foreign tourists.
The local luxury car maket presents an odd situation – despite the presence of most luxury brands such as Porsche, BMW, Mercedes Benz, each with sizeable showrooms, sales of new luxury cars remain very limited, being estimated a total of 1.000 new registered luxury cars in 2011. The reason for such a small number is the booming industry of reconditioning second hand cars, which is said to be producing 30% of the country’s GDP. Thanks to a law that exempts imported cars from being registered, a large number of second hand cars are imported from the Middle East and neighbouring countries, then reconditioned to later be exported.
As for the luxury fashion sector, menswear is widely covered, while womens wear and accessories is inexistent (no international luxury women’s brand being present). Menswear brands with mono-brand stores in Tbilisi: Ermenegildo Zegna, Hugo Boss and Paul & Shark; brands represented with corners at Monte Napoleone (a large 500 sqm, Western standard luxury multibrand store on Agmashenebeli), featured brands with generous individual spaces: Brioni, Zilli, Canali, Corneliani, Brunello Cuccinelli and Tod’s. Given the huge rents on Agmashenebeli avenue (up to USD 300 / sqm), the Monte Napoleone store is yet to break even, the company freezing any development plans till after the October elections (there are plans for a second boutique in Batumi).
The only alternative for women in terms of accessories is Furla and the more premium Banana Republic and Massimo Dutti stores at the city’s new mall, the Tbilisi Mall (off centre). The Tbilisi Mall has been developed and operated by Saudi based Al Fawaz Group, which is at the same time developer and retailer. Al Fawaz operates in franchising at Tbilisi Mall all Inditex Group brands (Zara, Massimo Dutti etc), Cortefiel, Marks & Spencer, Gap, Banana Republic, Superdry, Clarks, Top Shop etc. Most of the stores are expected to be opened this summer, while the food court and multiplex cinema will be delayed for the end of the year. Apart from its 12 malls in Saudi Arabia and one in Cairo (Egypt), Al Fawaz Group has similar operations in Azerbaijan and Belarus.
The major challenges which hinder the development of luxury retail in Georgia are the lack of a country positioning (desination) by the authorities, the negative PR campaigns which have been going on about luxry shops selling old stock collections as well as counterfeits (mostly f superior quality imported from neighbouring Armenia) and the online sales. There are several local companies which provide ”handling” or support services for customers wishing to buy online, on the e-stores of the major international luxury brands. Shopping abroad is another important factor, the number one preferred destination being Istanbul, a 90 minute flight, with 4 daily flights. A smaller number of wealthy Georgians prefer Baku, Kiev and Milan.
The most feasible solution as a next step to support the development of luxury retail would be the development of mid size shopping galleries, or mini-malls, ideally centrally located, where multi-brand stores, similar to Monte Napoleon could carry several key international luxury brands. The best known and most desired fashion and accessories brands for Georgians being Dior, Gucci, Vuitton, Fendi, Armani. The potential for mono-brands will largely depend on attracting more wealthy foreign travellers but also creating a luxury lifestyle experience, from hotels, to restaurants, cafe etc. Social life is limited, with few wealthy attending theatre or cultural events, family events such as weddings remaining the few opportunities to show off.
Oliver Petcu in Tbilisi, Georgia
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