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Retail in 2010: Bankruptcies, restructuring and low price hunting
2010 will not bring the return to a growing trend for Romanian trade, as the crisis will deepen and will be acutely felt by the consumers. Big retailers have cut off their optimism and show reserves about a possible growth of the sector next year as well as towards the survival chances of networks with national capital. “The main reason for which we witness the bankruptcy of local networks such as PIC or Spar is not the crisis but the way in which the business was designed and built,” said Adrian Manolache, general secretary of the Association of Big Commercial Networks in Romania (AMRCR), who was invited to the specialized forum organized by Mediafax.
He explained that local networks, relatively new in the Romanian market, brought unconfirmed retail formats and developed by means of credits in locations which did not prove profitable. “When you want to win at any cost the market share, when you borrow high, when you make expensive acquisitions from suppliers and when you cannot promote enough, both in point of personal management and that of professional training of sales managers, then we certainly speak about failure”, Manolache showed.
In his turn, Valentin Mircea, a councilor at the Competition Council, considers that the difficult situation of almost all local networks will tag along an increase of concentration in the retail market through purchase and merger movements. “Less profitable networks will be ready to sell, leading to a market concentration, but not at macro level. New players entering the market through green fields are also possible”, the competition councilor said.
As for big retailers, Manolache said we might see restructurings of new locations in 2010, but not bankruptcies or insolvencies. “it is normal to see acquisitions and mergers but big international networks will not go bankrupt.”
On the other hand, the present economic crisis brought pluses for retail business, retailers consider. Delia Nica, head representative office at Metro Romania says those retailers who become innovators and are close to their clients will survive. “The crisis takes us out of the slow motion recorded in the last 5 years. Until now people was ready for increases, banks used to call us at the end of the year to ask when we intended to change our cars, but now we’ll see who can sell cheap and quality goods, who can reinvent format. Otherwise we would have become bored, moving our offices at home,” the official of the largest retailer in the Romanian market said.
In figures, the crisis was felt especially in the non-food segment, where the drop is a few percentages compared to 2008. “At the end of 2009 we will see that the whole market has contracted, the most obvious contraction being in the non food product segment,” said Alexandru Vlad, the executive manager of the cash & carry network Selgros Romania. The manager added that he did not expect spectacular growths next year and that some retailers were too optimistic for the budgets they design for 2010.
Some retailers’ optimism is based mostly on the answer given by consumers facing the crisis. “We come after nine years of economic growth and people answer with confidence to studies about consumers. Romania was faced by crisis situations between 1990-1992 and 1996-1997, but then consumption was still low,” said Liviu Voinea, executive director of the Group of Applied Economy.
In these conditions, Voinea considers it is difficult to predict how the consumers’ behaviour will change as they are more and more affected by the crisis. According to a study recently made by the market research company Mednet, most Romanians feel the negative effects of the economic crisis, over 70% of them reducing their consumption or buying cheaper products. Women close to retiring age with incomes below 1,500 leifamily are most affected.
The reduction of purchase power also creates an advantage for hard discount stores, which practice the lowest prices. The Selgros executive considers that once hard discounters enter the Romanian market together with dropping prices of real estate, the landscape of local retailers will change totally. “Next year will be the first when hard discounters will have a word to say in Romanian retail”, Alexandru Vlad said.
According to him, discount type shops are the best model for the economic crisis, through the policy of maintaining low prices. Moreover, Manolache thinks online shops whose prices are even lower will have to gain from the present crisis. On the other hand, some small retail businesses will use products from the black market to maintain prices at competitive level.
The modern food retail market is estimated at 10 billion euro, the business of the first three groups – Metro (Metro Cash&Carry, Real Hypermarket) Rewe (Selgros Cash& Carry, Billa, Penny Market) and Carrefour cumulating half of that amount last year.