Bulgaria Counts on Retail Renaissance to Recover

Photo by BGNES

By Elizabeth Konstantinova

Bloomberg agency

On a bustling six-lane commercial highway leading out of Sofia to Bulgaria’s Black Sea coast, Carrefour SA is starting a fresh drive into east Europe.

Five years after abandoning the Czech Republic and Slovakia, markets dominated by rivals including Tesco Plc and Albert supermarkets, Carrefour opened its first Sofia store yesterday at The Mall, the country’s largest shopping center, with a concert. The Paris-based company, Europe’s biggest retailer, wants to have 12 Bulgarian outlets by 2013. And it’s not alone.

Retailers, including Carrefour, Lidl Stiftung & Co. KG of Germany and Slovenia’s Mercator Poslovni Sistem d.d., want to shore up flagging sales at home by expanding in Bulgaria, the European Union’s poorest member. The country, which fell behind other former-communist nations in raising living standards, offers better growth prospects than neighbors, whose more- developed markets are becoming saturated, while investors enjoy lower wages and costs, economists and industry executives say.

“We are counting on that,” Carrefour Bulgaria Chief Executive Officer Laurent Bendavid said in an interview. “The Bulgarian market has growth potential for European-type retailers.”

The economy will grow about 1 percent in 2010 after shrinking 5.1 percent in 2009, Finance Minister Simeon Djankov said on April 16. That compares with an estimated 0.2 percent contraction in Hungary, and growth rates of 0.6 percent in Slovenia and 1.3 percent in the Czech Republic.

Wage Differential

“Despite the crisis, things in Sofia are going well,” Bulgarian Prime Minister said yesterday as he cut the ribbon opening The Mall. “I hope the country’s economy stabilizes so that people will be able to buy more.”

Two decades after communism ended, the average wage in the nation of 7.5 million people was 1 in September 2009, the last reported figure. By contrast, average salaries in the Czech Republic and Poland, which shrugged off their totalitarian regimes at the same time and joined the EU three years before Bulgaria, topped ,100.

Bulgaria’s per-capita gross domestic product totaled ,916 last year, compared with ,194 in the Czech Republic and ,989 in Poland.

“I am an optimist about the Bulgarian retail market,” said Alex Papageorgiou, the CEO of Athens-based real-estate developer Assos Capital, an investor in The Mall. “It is starting from a low base and there is only one way it can go, and that is up.”

Record Investment

Bulgaria attracted a record 6.7 billion euros ( billion) in foreign investment in 2008, a year after it joined the EU. The next year, the global crisis slashed investment by more than half. It may bring in at least 3 billion euros this year, Bulgarian Investment Agency chief Stoyan Stalev said in an interview.

“It’s a good time to get into the market simply because you’re betting on this pickup in consumer growth,” said Simon Quijano-Evans, head of emerging-market research at Credit Agricole Cheuvreux in Vienna. “It’s going to take until next year to see a more meaningful pickup in consumer spending.”

Austrian real-estate developer Sparkassen Immobilien AG opened a 0 million shopping mall called Serdika with 210 shops in Sofia in March, and U.K.-listed Orchid Developments Group is completing a 5 million mall in Varna, about 470 kilometers east of the country’s capital.

Modernization Needed

“Bulgaria needs to be brought into the 21st century,” said the Investment Agency’s Stalev. “It lacks modern infrastructure on all levels.”

The Mall will be Sofia’s fifth shopping center, with brand names including New Yorker, Bershka, Zara, Gap and Marks & Spencer. Prague and Budapest, the capital of Hungary, each have more than a dozen malls.

“I’m so excited! There are so many new famous brand names here, and it is all under one roof,” said Milena Petrova, a 30- year-old nurse, outside the Peek & Cloppenburg shop in the Serdika Mall. “I’m beginning to see the benefits of EU membership.”

Ljubljana, Slovenia-based Mercator, the largest supermarket chain in the Balkans, opened its first superstore in Bulgaria last year, when the economy was collapsing and the company’s earnings fell about 50 percent because of the European recession.

Bulgarian Expansion

Carrefour, which reported on Feb. 19 that its 2009 profit slid 70 percent, will also compete in Bulgaria with German chains Metro AG and Rewe Handelsgruppe, which run the Metro hypermarkets and Billa supermarkets. Mercator wants six more Bulgaria stores, while Metro wants to add to its 11 outlets.

“Bulgaria is an interesting market,” Mercator Chief Executive Officer Ziga Debeljak said in an interview. “No retailer has yet built a leading market position. It’s “a good opportunity for further growth.”

The financial crisis in neighboring Greece may still affect the region, especially emerging-market countries in eastern Europe, said Tim Ash, the global head of emerging-market research and strategy at Royal Bank of Scotland Group Plc.

“The whole Greek saga is likely to mean that European growth and recovery will underperform,” he said. “Bulgaria is also more vulnerable because of the importance of Greek banks in the country.”

Just outside of Sofia, a few days before the opening of The Mall, workers scuttled along scaffolding to put finishing touches to the 66,000 square-meter glass-and-steel shopping complex of 185 shops, restaurants, cinemas and squash courts. Construction materials were still visible outside the building during the ribbon-cutting ceremony yesterday.

“We’re very happy,” CEO Bendavid said in the interview before the opening. “The key location and the excellent mix of tenants will contribute to its success. We are impatient” for opening day.

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