Western Balkans citizens legally resident in EU equal to 14% of region’s population
International Ice Hockey Federation (IIHF) has stripped Belarus of the right to hold the World Championship this year
Alexei Navalny arrested on arrival as he returns home
LONG READ: The oligarch problem
Russia's biggest demonstrations since 2011 in protest of Navalny jailing
Opposition activist Navalny's call for mass protests a success as thousands take to the streets across Russia
Russia's National Welfare Fund accounts for almost 12% of GDP
Police arresting activists ahead of Saturday’s demonstration in support of Navalny
Western Balkans and Ukraine urged to scrutinise coal subsidies
Oligarchs trying to derail Ukraine’s privatisation programme, warns the head of Ukraine’s State Property Fund
Private finance mobilised by development banks up 9% to $175bn in 2019
VISEGRAD BLOG: Central Europe's populists need a new strategy for Biden
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Czech MPs pass protectionist food law in violation of EU rules
M&A in Central and Eastern Europe fell 16% in value in 2020, says CMS report
Hungarian vehicle makers hit by supply chain shortage
COVID-19 and Trump’s indifference helped human rights abusers in 2020
OUTLOOK 2021 Poland
OUTLOOK 2021 Slovakia
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
FDI inflows to CEE down 58% in 1H20 but rebound expected
Albania needs reforms for e-commerce to thrive, says World Bank
BALKAN BLOG: US approach to switch from quick-fix dealmaking to experience and cooperation
Corona-induced slump in global clothing sector dragged down Albania’s 2020 exports
Bosnia's exports in 2020 amounted to BAM10.5bn, trade deficit to BAM6.3bn
Retailers and restaurant owners threaten protests in Bulgaria if reopening is delayed
Bulgaria's Biodit first company to IPO on new BEAM market
Bulgaria’s government considers gradual easing of COVID-related restrictions
Spring lockdown caused spike in online transactions in Croatia
ING: Growth in the Balkans: from zero to hero again?
Labour demand down 28% y/y in Croatia in 2020
EBRD investments reach record €11bn in pandemic-struck 2020
OUTLOOK 2021 Moldova
Storming parliaments: New Europe's greatest hits
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Montenegrins say state administration is most corrupt institution
North Macedonia plans to cut personal income tax in IT sector to zero in 2023
Romania government to pursue “ambitious” timetable for justice reforms
OUTLOOK 2021 Romania
OUTLOOK 2021 Slovenia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
Slovenia’s government to release funds to news agency STA after EU pressure
UK Moneyhub picks Slovenia for post-Brexit European base
D’S Damat franchise deals ‘show Turkey’s hard-pressed mall operators becoming their own tenants’
Turkey’s benchmark rate held as concerns over faltering recovery come to fore
Turkish lira breaches HSBC’s stop-loss, Turkey ETF signalling outflows
CAUCASUS BLOG : What can Biden offer the Caucasus and Stans, all but forgotten about by Trump?
Armenia ‘to extend life of its 1970s Metsamor nuclear power plant after 2026’
OUTLOOK 2021 Armenia
COMMENT: Record high debt levels will slow post-coronavirus recovery, threaten some countries' financial stability, says IIF
OUTLOOK 2021 Georgia
Iran’s Khamenei menaces private citizen Trump with image of aircraft shadowing blond golfer
Iran’s technology minister indicted for failing to properly implement internet censorship
No US move to rejoin Iran nuclear deal imminent, say Biden national security nominees
TEHRAN BLOG: Will Biden bet on a quick return to the Iran nuclear deal?
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
Mongolia's PM quits amid protests over treatment of mother with coronavirus and newborn baby
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
OUTLOOK 2021 Tajikistan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
Download the pdf version
More...
The lockdowns introduced to slow the spread of the coronavirus (COVID-19) pandemic have resulted in tens of millions of people being confined to their homes across most of Europe, only being allowed out to buy essentials, visit their doctors and — in some countries but not others — take exercise. These restrictions and the closure of non-essential stories to enforce social distancing are already having a devastating impact on parts of the retail industry.
However, unlike tourism, which has been universally hammered by the crisis, the picture for retail is a more complex one. The official figures for March are not out yet, but reports from several countries in the region indicate a sharp hike in shopping for groceries and hygiene products as people frantically stockpile for fear of shortages, while vendors of clothes and other non-essentials warn they may not survive the crisis.
The end of consumption-fuelled growth
The Central Europe region is expected to be especially badly affected by a collapse in retail, after relying on consumption-powered growth that — until recently — had proved remarkably resilient.
Economies in Central Europe were increasingly shifting away from the export-oriented growth model based on relatively low cost manufacturing to supply Western Europe. As labour markets tightened in the region, wages rose steadily, and this in turn fuelled consumer spending on everything from fashion to real estate. This meant that until shortly before the current crisis, consumption was growing strongly in the region, providing a new source of growth that allowed it to decouple from the growing slowdown in eurozone economies such as Germany.
The exposure of economies to the retail sector varies widely across the Central and Eastern Europe and Eurasia region. New research from the European Bank for Reconstruction and Development (EBRD) shows that states in Central and Southeast Europe are less resilient to a slowdown in the retail sector than their peers further east.
In Lithuania and Poland, resistance to retail sector shocks is rated as low by EBRD economists, while there is only moderate resilience in a range of countries in the region: Bosnia & Herzegovina, Bulgaria, Croatia, Estonia, Latvia, Russia, Serbia and Slovenia.
For the most part, the less developed economies in the region, together with the hydrocarbon and mineral-rich economies of Central Asia and the South Caucasus, are much less exposed to retail sector shocks, and their resilience is rated as high.
Across the wider region, the importance of retail as a share of the economy is highest in Lithuania at 31%, followed by Montenegro (30%), Poland (26%) and Latvia (25%).
When it comes to domestic shocks to the economy — specifically those related to the lockdowns aimed at preventing spread of the coronavirus — the EBRD writes that "demand-side economic effects are likely to be larger in countries where retail services account for a greater share of GDP, as in Lithuania, Poland, Cyprus, Montenegro and Turkey. Effects are also likely to be larger where temporary restrictions on work result in significant income losses: for instance in Central Asia, the Caucasus and the southern and eastern Mediterranean.”
A shopping frenzy
Initially, the spread of the pandemic across the CEE and Eurasia regions was accompanied not by a slump in retail sales but by a shopping frenzy as people frantically stockpiled food, cleaning products and other essentials.
A report from ING said that in Hungary this panic buying started as early as February; ING analysts attributed to the double-digit increase in retail turnover in February — a 17-year record — to stockpiling. “Although the number of Covid-19 cases began to increase significantly in March, the news in February was more than enough to fuel panic buying among consumers,” they wrote April 3. In addition to food, the February numbers show consumers buying computers and other electrical items as they prepared to work at home, as well as medicines and cleaning products.
“We see the temporary surge in retail sales continuing in March as the hoarding persisted amid an increase in the number of Covid-19 cases. The growth of retail turnover could be even higher than in February, after which we expect a sharp drop in sales numbers in the second quarter. We therefore continue to expect that the first quarter will bring relatively strong economic activity but see a downturn in the second quarter, with a V-shaped rebound,” the ING report said.
In Croatia, the first country in the region to confirm a coronavirus case, people spent HRK300mn (€40mn) more than usual on items such as food, drinks and personal hygiene products between February 24 (when the first case was reported) and March 15, according to data from GfK quoted by state news agency Hina. Specifically, Croatians stocked up on salt, frozen ready-to-eat meals, tinned meat and fish, wine and spirits, flour and yeast, toilet paper and soap.
Serbia saw purchases of food, drink, personal care and household cleaning items rise by a more modest but still substantial RSD2bn (€17mn) during the same period, daily Danas reported also quoting GfK data.
Food retailers are also thriving in Romania, where supermarket chain Profi is pursuing a rapid expansion plan, and Turkey, where retailer Migros has already added 2,200 people to its workforce to meet extra online business and bricks and mortar store demand largely prompted by the coronavirus outbreak, and intends to take on another 1,000.
However, as people fill up their storage spaces and start to feel they have food to see them through, this stockpiling effect is expected to diminish.
Russian retail collapses
Russia is something of a special case, as Russians have to contend with not only the growing coronavirus epidemic in their country and a strict lockdown in Moscow, but also the collapse of oil prices (by contrast, most Central European countries are net oil importers).
Previously, 2020 had got off to a good start in Russia, even as malls lost out to online retail. However, the Watcom shopping index, which measures foot traffic in Moscow’s largest malls in real time, collapsed at the start of April, falling by 70.9% year on year in a week after Moscow mayor Sergey Sobyanin put the Russian capital on strict lockdown.
The problems started on March 6, when Russia withdrew from the OPEC+ oil production cut deal that sent the price of oil crashing, dragging the value of the ruble down with it from RUB62 to the dollar in February to a low of RUB80 in the last few weeks. But things changed dramatically on March 30 when Sobyanin put the entire capital on a stringent lockdown, banning residents from leaving their apartments for any reason except for going to work, shopping at a local store or visiting a doctor.
As reported by bne IntelliNews, in the face of a crisis Russian consumers typically cut back on spending and begin to save, depressing retail turnover. The pandemic is anticipated to hurt Russian retail sales badly this year, and many retail outlets, aside from those classed as essential, have simply closed down for the duration of the lockdown.
Online only a partial panacea
Retailers that can are moving more of their business online. To date, fewer residents of the Central and Southeast European EU members engage in online shopping, even in tech-savvy countries like Estonia, though countries from the region have seen strong increases in the share of online shoppers over the last give years, Eurostat data shows.
Among those that have sought to shift online are pan-Baltic food retailer Rimi, which said last month it plans to bring forward the opening of its Estonian online store.
In the Czech Republic, which has seen the Central Europe region’s worst outbreak of the virus with 4,472 people infected as of April 5, the amounts being spent online in March were reportedly approaching the spend during Black Friday. In addition to buying food, Czechs were preparing for a potentially protracted period of lockdown by ordering sports equipment, bread machines and sewing machines. But almost no one wanted to buy clothes or shoes.
Fashion, home decor and DIY retailers in Romania are also encouraging their customers to buy online. However, the non-food retailers that do not have online outlets are likely to see a sharp plunge in sales, as bne IntelliNews’ correspondent in Bucharest reports.
In some West European countries such as the UK even some fashion retailers have seen robust sales, as locked-down citizens seek to alleviate their boredom by buying things. But shopping as a hobby is less common in Central and Eastern Europe where incomes are lower, and if the crisis deepens with no end in sight, people’s worries about their economic situation will grow and deter unnecessary spending.
One of the retailers that has already acknowledged being badly hit by the crisis is Polish fashion retailer LPP, which has emerged as a locally grown rival to international fast fashion groups H&M and Inditex. LPP is among the retailers that set up a lobby group to defend the industry as non-essential shops were ordered to close by the government. The group has warned that many retailers may not survive a prolonged lockdown.
“This is not even a crisis, it is difficult to name it. It is unlike anything that has happened before… This is a war and we want to survive. I do not care what the financial results will be,” Marek Piechocki, LPP’s CEO, told daily Rzeczpospolita.
In Turkey, department stores Boyner and YKM, jeans maker Mavi and Yargici, Vakko, Ipekyol, Beymen, Mudo, LC Waikiki, GAP, Marks & Spencer and Kigili closed their doors in March. LC Waikiki and Mavi Jeans have since followed up by announcing suspensions of their online sales.
But one online retailer has come up with an innovative response to keep its sales going during the crisis. Czech e-shop Zoot has taken online delivery service to another level by delivering clothing — including the loungewear that is most in demand at the moment — to its customers by courier and waiting while they try them on. The e-retailer hopes to use its Zoot Taxi service to buck the general trend of a sharp fall in purchases of clothing and accessories.
Lockdowns extended
The extent of the damage to retail sectors will clearly depend on how long the lockdowns continue, and this is still an open question.
In Bulgaria, for example, where the number of new infections has tapered off recently, the government has extended the state of emergency until mid-May. Slovenia’s government plans to extend the country’s lockdown for “two to four more weeks”, a government spokesperson said on April 4. The government in Hungary has not put a time limit on the emergency measures that allow the government to rule by decree.
While there are signs that the number of new infections is peaking or has already peaked in some countries, there is little expectation of an imminent lifting of restrictions, as there are fears this could immediately lead to a fresh wave of infections. For retailers, the uncertainty continues.
Register here to continue reading this article and 5 more for free or purchase 12 months full website access including the bne Magazine for just $250/year.
Register to read the bne monthly magazine for free:
Already registered
Password could contain only a-z0-9\+*?[^]$(){}=!<>|:-_ characters and have 8-20 symbols length.
Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.
Forgotten password?
Email field can't be empty.
No user with this email address.
Access recovery request has expired, or you are using the wrong recovery token. Please, try again.
Access recover request has expired. Please, try again.
To continue viewing our content you need to complete the registration process.
Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.
If you have any questions please contact us at sales@intellinews.com
Sorry, but you have used all your free articles fro this month for bne IntelliNews. Subscribe to continue reading for only $119 per year.
Your subscription includes:
For the meantime we are also offering a free subscription to bne's digital weekly newspaper to subscribers to the online package.
Click here for more subscription options, including to the print version of our flagship monthly magazine:
More subscription options
Take a trial to our premium daily news service aimed at professional investors that covers the 30 countries of emerging Europe:
Get IntelliNews PRO
For any other enquiries about our products or corporate discounts please contact us at sales@intellinews.com
If you no longer wish to receive our emails, unsubscribe here.
Magazine annual electronic subscription
Magazine annual print subscription
Website & Archive annual subscription
Combined package: web access & magazine print annual subscription