Polish retail pioneer's new venture struggles to escape past

By bne IntelliNews November 28, 2014

Jan Cienski in Warsaw -

 

Getting ahead in business can be helped by who you know, but the wrong kinds of friendships can also quickly drag you down – as Mariusz Switalski, founder of Poland's Czerwona Torebka chain of shopping markets and one of Poland's retail pioneers, is finding out.

Shares in his Czerwona Torebka discount retail chain have plunged this week on the Warsaw Stock Exchange, falling by more than 40% over the last five trading sessions (they recovered slightly on Friday, rising 4.4% during the day to PLN3.10).

The speculation in the market is that investors became spooked after two former bodyguards at one of Switalski's earlier retail ventures, Elektromis, were arrested in conjunction with the 1992 disappearance and presumed murder of investigative journalist Jaroslaw Zietara. Prosecutors have also arrested Aleksander Gawronik, a former senator and oft-arrested businessman, in the case and charged him with incitement to murder. Gawronik and the two bodyguards all deny the accusations.

One of Switalski's lawyers told the Gazeta Wyborcza newspaper that Switalski could not be held responsible for the behaviour of the two men – identified by Polish authorities as Miroslaw R and Dariusz L – as Elektromis had thousands of workers. However, both men are reportedly close confidants of Switalski.

The arrests seem to have confirmed investor gloom about the prospects of Czerwona Torebka (which means “red bag”). The shares are down 70% so far this year, spurred by dire third quarter numbers. The company reported a loss of PLN94m  (€22.5m) compared to a loss of PLN27m for the same period a year earlier. One of the reasons for the worse numbers was the acquisition of an online retailer Merlin, as well as a small chain of discount shops.

“The scale and dynamics of our activity require large scale investments,” Roland Czechanowski, the company's financial director, said when the results were released.

But analysts worry that Czerwona Torebka is having difficulties in today's tough retail environment. It has 25 discount mini-malls scattered around the country, but many of them are not fully leased and there are questions as to whether the format can work.

That marks a change for Switalski, who until now has been one of Poland's most successful retail barons. Brought up in an orphanage, with time in prison for breaking and entering in the late 1970s, Switalski started trading in the late 1980s, when Poland's wild capitalism boomed. He quickly turned Elektromis into one of Poland's fastest growing companies, selling everything from computers to alcohol.

The company's management ended up in the dock in 1995, accused of tax fraud and other crimes. However Switalski dodged a bullet as he was only officially an advisor to the board and was not charged.

He then converted Elektromis into Eurocash, Poland's leading chain of wholesalers. He sold that to Portugal's Jeronimo Martins in 1995 and then also sold the Portuguese his next creation, discount retailer Biedronka, which has since grown to become Poland's largest retail chain. He then built up the Zabka chain of convenience shops, sold in 2007 to Penta, the Czech and Slovak investment fund.

He is now worth about PLN850m, according to the Polish edition of Forbes. Switalski has since been building Czerwona Torebka, which launched on the WSE in 2012 at PLN7  a share – more than double their current value.

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