Hungarian and Czech retail markets likely to recover from crisis soon

2010-05-26

The economic downturn affected all the markets of Central and Eastern Europe (CEE). Each country experienced difficulties reflected in drops in retail sales, however, not all of them experienced these decreases at the same time. In the Czech Republic, the steepest drop in sales was registered in November 2008, while in Hungary it occurred a year later.
At the moment, the first signs of the end of the economic downturn are becoming visible and CEE markets are beginning to slowly recover from the crisis.

Pace of drop in the Czech and Hungarian retail markets slowed during Q1 2010
Retail markets in the Czech Republic reacted to the economic downturn relatively quickly. After years of prosperity and growth the first year-on-year drop in retail sales was reported in November 2008, just months after the first symptoms of the global financial crisis occurred. Since that time sales in the retail sector suffered constant drops in monthly terms. The worst situation was recorded in September 2009, when the consequences of the economic downturn were fully visible. At that moment, the Czech Republic registered its steepest year-on-year drop in retail sales of 6.2%.
In turn, the Hungarian retail market suffered drops long before the crisis started. Retail sales indices were negative every month since the beginning of 2007. The economic downturn only strengthened the earlier trends – the most serious situation was at the end of 2009, when November’s retail sales decreased by 7.9% year on year.
However, the beginning of 2010 brought slight improvements for both markets. The pace of decline in the Czech Republic and Hungary has slowed down significantly in March 2010 to -0.7 and -4.0 respectively. At the same time, other European countries, such as Poland and Slovakia, have even reported the first increases in retail sales after months of decline.
Thus, we expect that the most difficult times are already behind Hungary and the Czech Republic, and soon these markets will follow the example of Poland or Slovakia.
The most significant factors upon which the expansion of the retail market depends include the improvement of the economic landscape, accessible bank loans for an increasing number of shopping galleries, and a growth in demand for premium products.



How has the economic downturn influenced customers’ shopping habits?
The worsening market conditions caused by the global downturn forced Czechs and Hungarians to change their shopping habits.
In 2008, for example, Hungarians were shopping more frequently, yet spending less money than they did before the difficult economic situation occurred in mid-2008. The frequency of shopping in hypermarkets increased by 5.3% in 2008, while the value of the average consumer basket fell by 3.2% compared to 2007, according to the GfK Hungaria. The same tendency was observed in the supermarket channel.
What is more, in 2009 only about 40% of Hungarian consumers indicated that they were buying all the products listed on their shopping lists, up from 37% a year earlier, according to Szonda Ipsos and Kirakat.hu survey.
In the Czech Republic three-fifths of the population have changed their shopping behaviour, according to GfK Czech Republic. These consumers postponed purchases of non-essential goods until a later date, and instead were choosing cheaper substitutes than in the past.
What is more, Czech consumers preferred shopping at large-format stores in 2009, according to a survey conducted at the end of 2009 by the agency Focus, Marketing & Social Research. The popularity of discounter stores rose by 10 p.p. last year in comparison with 2005, while the ratio of customers shopping in other retail formats remained largely unchanged. It is at discount stores that Czech consumers claimed to have spent the most money on food products monthly (31%) during 2009.
Another change observed in the Czech market during the time of crisis in 2009 was a constantly increasing volume of FMCG products on promotion purchased by Czech consumers, according to GfK Czech. To compare, in 2007 the volume of goods sold while on promotion accounted for one quarter of all FMCG sales in the country. A year later, this had risen to one third and, during the crisis-ridden year of 2009, the share rose further, to almost half.
Therefore, the retail chains operating in the Czech Republic during 2009 predominately opened discounters and hypermarkets, whereas the number of supermarkets in operation remained at a level similar to that observed in 2008, according to data from GfK Incoma.



Future investments in the shopping centres areas
During 2009, approximately 6 million m² of new shopping centre space was developed across Europe, a 28% year-on-year decline, following three years of consecutive development growth, according to MIPIM.
In 2009 Hungary completed 69,500 m² of shopping centre area, according to Cushman & Wakefield. This year construction of only 37,000 m² of shopping mall area is estimated to commence. However, from 2009 until the end of 2014, a total of 450,000 m² of new shopping centre space is to be added to the Hungarian market.
In the Czech Republic: in 2009 there had been initial plans for 390,000 m² of new shopping centres area, yet only 82,000 m² were completed by the end of the year.
In 2010 six new shopping centres are expected to appear in the Czech Republic. These are Fashion Arena Outlet Centre, Harfa Gallery, Avion Park Ostrava, Fora Liberec, Forum Shopping Centre Chomutovka in Chomutov and Prior Olomouc.
The new commercial centres will have a combined area of 101,000 m². This represents a decline of 19% in comparison with the area of new shopping centres opened in 2009, and also the lowest result since 2000.

Paulina Burzawa
Business Editor
PMR Publications