Effects of economic downturn visible on clothing and footwear market in CEE

2010-02-03



Despite several years of healthy growth prompted by robust economies, rising purchasing power and the dynamic development of retail chains, the clothing and footwear markets of the five countries comprising the Central and Eastern European region have experienced considerable difficulty over the last year and a half.

How did the economic downturn affect the clothing and footwear market?
According to PMR’s latest report Clothing and footwear retail market in Central Europe 2010, in some markets, for example in the Czech Republic, the first major decline in sales was observed in Q4 2008. In all of the countries featured, the situation deteriorated in 2009, when rising unemployment and fading consumer confidence resulted in a more cautious approach to shopping and, subsequently, a fall in demand. Consumers began to refrain from buying non-essential goods, in particular goods such as new clothes and footwear.
As a result, sales on the clothing and footwear markets in the region began to suffer. We estimate that in 2009, there was a year-on-year decline of 8.6% in the combined sales in the five countries covered by the PMR report (Czech Republic, Hungary, Poland, Romania and Slovakia) to approximately €11.6bn.

Romania worst affected, Czech Republic least
According to our estimates, the most serious decline in sales, that of 30%, was recorded last year in Romania – a result of a severe weakening of consumer demand. The second most dramatic decline (in percentage terms) was observed on the Slovak and Polish clothing and footwear markets – 6%. In Slovakia, the adoption of the euro in January 2009 served to boost sales in neighbouring Hungary and the Czech Republic, where the value of local currencies fell dramatically in 2009. As such, since early 2009 large groups of shoppers from Slovakia have increasingly been visiting the two countries for their clothing and footwear needs. Moreover, the economic crisis in general and competition from Asian producers, have contributed to the decline in the industry’s output. During the course of the year, many textile producers were forced to cut output, or in some cases, even close down.
By way of example, the clothing manufacturer Vanda Tisovec, based in central Slovakia, announced in December 2009 that it will lay off half of its 120 employees. Another clothing producer, Svik, plans to lay off 70 of its employees, according to information from the Office for Labour, Social and Family Affairs in Bardejov.
In turn, the value of the clothing market in the Czech Republic fell by 0.3% in 2009, according to PMR estimates. Despite this decline though, it was the best performance of the Eastern European countries. However, it appears that workforces have born the main brunt of the downturn – the number of people employed by textile and clothing manufacturers in the country fell from around 50,000 at the end of 2008 to 38,000 today, according to ATOK, the Czech association of textile, clothing and leather industry.

Bulk of Polish manufacturers to declare insolvency in 2010?
Despite the fact that Poland was the only country in the European Union to see economic growth and improvements in overall retail sales in 2009, we estimate that sales in terms of value of clothing and footwear in the country fell by approximately 6% in 2009, as these were undercut by a 7% reduction in clothing and footwear prices during the year. What’s more, in 2009 retailers such as Monnari, Reporter, Galeria Centrum and Semax fell into insolvency. The disappearance of these retailers from the market may have a knock-on effect within the clothes manufacturing industry. According to Dun & Breadstreet (D & B), approximately 48% of clothing manufacturers are currently suffering from some form of financial difficulty, while only 15% consider themselves to be financially healthy and with a positive outlook for the future. D & B estimates that during 2010 up to 120 clothing manufacturers could be declared bankrupt in Poland.

The situation will improve, though not yet in Hungary
In the next few years, we predict that the market in the region will return to growth. Sales in most of the countries in question are expected to improve in 2010, with the exception of Hungary. In Romania improvement on the textile market is already visible. More than 10 fashion retailers see sufficient growth potential in the country to pursue expansion strategies in the country in 2010. Among them are Hugo Boss, Marks & Spencer Marinopoulos Romania, Kiabi, LC Waikiki and Minerva. Other fashion retailers expected to appear on the Romanian market include the French company 1.2.3., the Polish entities Coyoco and Tatuum, the Greek retailer Body Talk, and the Italian brand Brooksfield.
PMR analysts expect that, at the end of 2010, the combined value of the clothing and footwear markets in the CEE region will increase by 3.6% year on year with a more substantial growth – of 8.6% – to follow in 2011.

Paulina Burzawa
Business Editor
PMR Publications