Retail trade to remain subdued in 2010

The total value of the Romania’s retail trade declined by 10.4% in 2009 year on year to 195.4 billion lei (€46.2billion), and could drop further this year, by an estimated 2.3% to 2.3 billion lei, according to the findings of “Retail in Romania 2010” report by consulting company PMR

The decrease was largely caused by the reduction of non-food sales that went down by 13.5% in lei last year to 144.6 billion lei (€34.1 billion). Changes in consumers’ buying behavior as well as the decline of the value of purchased food have also contributed to this drop. According to PMR, the retail sector is expected to recover no sooner than 2011 when the first moderate growth in retail sales value is expected to occur.

Despite the challenging market conditions, the retail market in Romania continues to give good prospects to investors. This is mostly due to aspects of the crisis that are favorable to businesses such as the falling cost of labor as well as decreasing prices of real estate. Additionally, numerous insolvencies on the market have made it possible for retailers to take up vacated commercial areas in attractive modern shopping centers abandoned by crisis-hit companies. It has also opened up new M&A opportunities.

In addition, the economic downturn has acted in favor of modern retail formats also in the way that large retail networks, with stable sources of financing, were much better prepared to cope with price competition with other retailers and were able to attract customers by offering cheaper commodities without harming the business. This trend was more visible in the grocery segment, where modern retail gained a considerable market share in 2008-2009.

Furthermore, the Romanian retail market is still at an early stage of development and is highly fragmented while modern retail formats remain underdeveloped. The 15 largest groups active in retail accounted for an estimated 17.2% of the country’s total retail sales in 2009, according to “Retail in Romania 2010.” To compare, in 2008 the amount was 14.7% and 14.0% in 2007.

The Romanian market has been dominated by foreign retailers and only four of the 15 largest companies in 2009 were originally from Romania. Due to the challenging environment, international companies are expected to even further strengthen their position on the Romanian retail market. The economic downturn forced out several important Romanian players from the market while others scaled back their expansion due to the unfavorable economic situation and liquidity shortage.

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