BMI View: The Czech Republic has arguably the most mature retail sector in Central and Eastern Europe. Competitiveness across the sub-sectors will negatively impact opportunities for the retailers. However, the country will be exiting a long period of recession and the income of Czech households will be growing robustly until 2019 , stimulating the sales in the sector.
The Czech economy posted very strong growth figures in Q1 2015. Gross domestic product grew by 3.9% year-on-year (y-o-y) and enjoyed the fastest expansion in the European Union. Reliance on exports makes the Czech Republic susceptible to regional economic shifts, which partly determined the path of country's economic growth since 2008. Currency fluctuations have benefitted the country's manufacturers since the middle of last year - koruna, the national currency, depreciated sharply against both euro and dollar boosting price competitiveness of Czech products, particularly, automobiles and food. The Czech central bank has passed weak koruna policies and the country's government has relaxed its budget expectations for 2015 allowing stimulus for producers and converting the benefits to the consumers as well.
Economic recovery and growth promise optimistic growth prospects for the forecast period. Country's nominal GDP is projected to grow by 3.1% this year, at one of the highest rates in the EU. Strong economic expansion will propel the rise of household income which is anticipated to inflate by almost 37% by the end of the forecast period. Having in mind Czech Republic's high level of development, the figure is very high and suggests that the country will be further converging to Western European standards of living. While the unusually positive projection can be partly attributed to the Czech economy regaining the ground lost during the financial crisis and several years in the post-crisis period, low employment and rise in wages will further boost household income and spending.
Traditionally a leader in the Central and Eastern Europe region, the Czech Republic has arguably the most competitive economy and the most saturated retail sector. For the first time in 20 years, no new shopping centres will be started in a calendar year in 2015. Both food and non-food retail markets are shared by a large number of strong competitors. Most of the international retail brands are well represented in the Czech Republic making the entry to the market particularly complicated. The action in the sector is shifting from network expansion to the change of ownership as retail companies merge and acquire each other. With a highly saturated shopping centre retail space market, the rents are unlikely to grow considerably and will the retailers, especially in non-food markets, to take advantage of lower rental costs. Nevertheless, because of high competitiveness of the market we do not expect that network expansions will be highly rewarding for the retailers.
Tesco, a British retail chain, has been reported to be considering an exit from the Czech Republic as a part of its regional austerity plan. The retailer operates more than 200 stores and employs around 14,000 people in the country.
In the largest-ever Czech property deal valued at EUR570mn, Union Investment Real Estate acquired The Palladium mall in central Prague from another German private equity company.
Ahold, a Dutch retail chain and the owner of the largest non-discount groceries retailer Albert, increased its sales by 24.8% to EUR515mn thanks to growing demand and acquisition of 49 SPAR stores.
The Czech Republic, along with six more countries in the region, are calling the European Commission to take measures against groceries retailers that allegedly leverage their market power in negotiations with suppliers of agricultural goods.
Key BMI Forecasts:
Total household spending will grow by 1.5% in 2015 and will continue to accelerate reaching its growth peak of 11.6% in 2017.
Household income is set to grow substantially during 2015-2019. Income per household is projected to rise from USD17,724 to USD24,255. The share of households in the USD10,000-plus income bracket will grow from 90.8% to 93.3%.
In contrast with the regional trend, the Czech population will be growing throughout the forecast period at an average annual rate of 0.3%.