BMI View: Retailing in the Czech Republic has experienced a robust recovery over 2015, with greater spending allowing retail sales growth to accelerate. We attribute these improvements to healthier market conditions and higher confidence among Czech households. Stronger economic growth will help lower unemployment and raise household incomes. Despite this, the retail market is relatively matured and this will limit the expansion opportunities of many retailers while major players will be investigating merger and acquisition opportunities.
The Czech Republic's economy has managed to maintain the fastest growth in the region. With 2016's projected real GDP growth rate of 4.0%, it is set to lead the economic union of 28 countries. This represents a marginal slowdown from 2015's 4.2% however also follows a contraction in 2012-2013 and a modest 1.9% expansion in 2014 and is a sign of a strong and consistent recovery. Improving economic indicators, such as falling unemployment, are helping boost retail sales. Sales growth (excluding automobile purchases), accelerated in September 2015, with an increase of 5.1% y-o-y. We expect sales figures to continue to climb as Czech households accumulate more savings and are increasingly able to make more non-essential purchases bringing growth to clothing and household goods sub-sectors.
The recovery of the retail sector will manifest itself in ways different than network expansion. No new shopping centre construction is expected to start during 2016 in the whole country suggesting an adequate supply of mall retail area. It is also important to note that the Czech retail market highly strongly competitive with a relatively high number of strong leading chained retailers operating in the country. Therefore, while sales may be climbing, in order to remain competitive, retailers will be encouraged to offer a larger number of discounts and offers to consumers. While essential spending will constitute 57% of spending in 2016, we believe spending on non-essentials will climb in the medium-term. Consumers already have a substantial number of options to make their non-essential purchases. There are around 100 shopping centres in the Czech Republic, with most established retail brands occupying a wide presence in the country's saturated market.
The projections for the 2016-2019 are likely to put Czech Republic even closer to the income levels of its western neighbours, such as Germany and Austria. With an expected average annual household income growth rate of 5.2% in koruna terms, the Czech Republic will leap forward to become a high income country. An average household is anticipated to earn USD24,857 in 2019, the highest among 27 countries in the CEE. The country's population is set to expand too: with an average annual growth rate of 0.1%, the number of residents in the Czech Republic will rise by 22,000 to 10.57mn in 2019 thanks to a healthy birth rate and growing immigration. As wages in the country continue rising, the Czech Republic will attract more and more immigrants who will occupy the midrange salary positions. Nevertheless, as both the country's population and average incomes grow, Czech Republic will reward multiple retail sub-sectors allowing the retailers to expect rising sales.
Key Updates and Forecasts
Zoot, a Czech online fashion retailer, announced its entry on the Romanian market, with investments of some EUR 8mn.The investment group Rockaway Capital has agreed to buy the second biggest internet retailer on the Czech market , Mall.cz, and the price comparison website, Heureka.cz, for CZK 5.4 bn.The French Children's clothing label, Petit Bateau, has opened its first store in Prague.
Naspers Ltd., Africa's biggest company by market value, is selling stakes in two Internet companies, Netr et ail and Heureka, in the Czech Republic for USD201mn.
Total household spending will grow by 8.0% in 2016 and will continue to accelerate reaching its growth peak of 10.4% in 2017 significantly expanding market potential for all retailers.
Household income is set to grow substantially during 2016-2019. Income per household is projected to rise from USD20,124to USD24,857. The share of households in the USD10,000+ income bracket will grow from 92.02% to 93.5%.
In contrast with the regional trend, the Czech population will be growing throughout the forecast period at an average annual rate of 0.3%.
The Czech Republic Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Czech Republic Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Czech Republic to test other views - a key input for successful budgeting and strategic business planning in the Czech retail market.
- Target business opportunities and risks in Czech Republic through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.