Polish pockets squeezed

By bne IntelliNews September 24, 2009

Matthew Day in Warsaw -

It was only a matter of time before the effects of recession made themselves felt in the world of Polish retail. Although Poland is one of the few countries in Europe predicted to see growth this year, Poles have taken to tightening their belts, and this has taken the gloss off the world of Polish shopping.

On September 23, official data showed that Polish retail sales in August fell by 4.2% from the month before, though were 5.2% higher in year-on-year terms. Analysts say consumer demand has been supported by the relatively stable unemployment rate - which stood at 10.8% in August - by seasonal effects over the summer and retailers cutting prices in an effort to stimulate demand. But the situation on the labour market in general is slowly deteriorating. "As the impacts of the crisis accumulate, the deterioration will likely speed up, which should affect consumer demand in the coming months," says Jana Krajcova of Ceska sporitelna.

All this comes as a jolt to the once hectic growth of Polish retail, which perhaps came as the best symbol of Poland's economic transition. A country in which most people over the age of 30 can recall empty shelves and the humiliating annoyance of queuing for basic items of survival such as loo paper went from shoppers' hell to a consumer's paradise. Supermarket chains piled into the Poland and investors poured money into glitzy shopping malls: all eager to profit from Poles blessed with both growing affluence and a propensity to spend.

However, figures from the agency 4P Mix Research show that as many as 20% of consumers have cut spending on clothing, restaurants and services this year, and research by the Polish company PMR predicts the clothing and footwear market to fall by 6% in 2009. To make matters worse, some estimates claim that the market for small electronic goods, such as computers and mobile phones, shrank by 30% in the first half of the year. A look at the latest retail trade figures show that car sales were down by 1.9% on the year, while household appliances contracted by 4.9% on the year.

Sales effect on sales

Michal Wojcik, chairman of the Vistula Group, one of Poland largest clothing retailers, has said that the prolonged summer sale and heavy discounts found in the chain's shops this year could have a significant effect on the company's profit margins. The difficulties in the market have hit some retail chains, especially those that may have over-extended themselves in the good times.

Stefan Marzec, a retail property consultant, says that, "Many took the wrong option and opened too many stores in too many locations, and often they made the stores too big." He adds that this will lead to closures, and those stores that soldier on, will have to "sit back and take stock of what is happening."

Another source of woe has been the strength of the euro against the zloty. At the start of year the Polish currency fell by 25%, so retailers selling in zloty but buying stock and paying rent in euros struggled. "This had a big impact and was a big problem," says Marzec.

All this has had a knock on effect on development. Investors who once saw Polish retail as a pot of gold have now taken to biding their time. A September report by property consultants Cushman and Wakefield found that, "the level of annual retail supply is very likely to fall considerably in 2010", and for the first time since the 1990s a number of retail projects – totalling 250,000 square metres – were put on hold. As a further indication of the strength of the downturn, over 1m sqm of shopping centre space in the pipeline has neither the financing nor the level of pre-leases to secure the financing.

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