BMI View: Global economic fluctuations, changing consumer demographics and poor governance foster a poor retail outlook for Serbia where high unemployment persists and suppressed household incomes continue to lag behind regional averages in the CEE. Past 2016, however, household incomes, employment and GDP growth will recover and the potential for retail expansion will improve, with communications and tourism offering the greatest prospects.
The Serbian economy, which depends heavily on the trade with the EU and Russia, has been suffering since the onset of the financial crisis. The country's output struggled to make any significant gains and unemployment skyrocketed. Many households make conservative decisions in the retail market as a consequence of a 19.5% unemployment rate, which makes almost a fifth of the country's labour force dependent on social welfare. Economic projections for Serbia indicate that the recovery of the retail market will be delayed: real GDP is projected to rise by only 0.3% and 1.0% in 2015 and 2016 respectively. 2015 has marked a turnaround in the country's growth and monetary stimulus (the central bank cut interest rates six times in the first three quarters of 2015) will put the economy on the right track: real GDP growth is anticipated to average 4.0% during 2017-2019. As a result, the unemployment rate will start declining more rapidly and is forecast reach 15.0% at the end of our five-year forecast period.
Macroeconomic factors will create a positive outlook for retailers in Serbia. As more workers enter and re-enter the labour market, household income growth is anticipated to pick up. In dinar terms, net household income is projected to grow at a compound annual growth rate (CAGR) of 7.2%. More than half of these gains will be erased by increased inflation (expected to hover around 4% mark during 2017-2019); however, even with growing prices, net gains will allow the middle class to see its incomes rise considerably. This expansion will be the main propelling force behind a strong rebound of total household spending. Total household expenditure will post a CAGR of 6.2% in dinar terms, offsetting the projected average inflation. Even though these net gains will not be solid enough to outperform other countries in CEE, Serbia's retail market is on track to recover and provide more stability to its players. With the country's aspirations of EU integration in mind, the shadow economy and barriers to entry are likely to decline as Serbia's retail appeal grows.
However, despite an increasingly stable economic recovery, Serbia will be exposed to several key social risks. Its overall population continues to decline at an annual rate of 0.4%, with young adults experiencing the largest decreases. The 20-39 years old age bracket has a projection of a 1.4% average annual decline for 2016-2019. As a key spending segment, it will contribute to a slow decline of Serbia's market size. In the medium term, net household income gains offset population losses; however, major demographic shifts will harm the country's attractiveness for retailer's considering long-term expansion. As a result, some consolidation is already taking place in the Serbian market, notably in the mass groceries retail (MGR) segment. In addition to Agrokor's acquisition of Mercator and Univerexport's takeover of Angropromet in 2014, Aman purchased Intermarche's Serbian network and Visnjica Ducani to reinforce its positions in Serbia's MGR market. The expansion of local retailers has plateaued in recent years and Lidl, which plans to venture into Serbia's market in 2017, is currently the only firm with major organic growth expectations.
Idea, one of the three largest MGR chains, has become the second groceries retailer to launch an online store in Serbia. The service is available in Belgrade, Novi Sad and Nis and targets busy families and professionals in the three largest cities.
Schwarz Group has announced it will have its first major Lidl store in Serbia running by March 2016 and will be located int the city of Smederevo.
Atterbury Europe has acquired a third stake in MPC Properties, the Serbian retail portfolio company, as a means to capitalise and expand on fast developing retail environments in Eastern Europe.
Aman has acquired the Interex Supermarket Chain from French retailer Intermarche. The sale accounts for nine locations and EUR50 million in annual turnover.
Key BMI Forecasts
In local currency terms, total household spending is set to remain flat in 2015 and continue expanding steadily over the forecast period. In US dollar terms, meanwhile, the figure will dip by 20.6% this year as a result of dinar's depreciation against the dollar.
In dinar terms, net household income will grow by a CAGR of 7.2% over 2015-2019 thanks to growing employment and rebounding wages towards the end of the forecast period.
The total population will decrease by an average of 0.4% annually over the forecast period - one of the fastest rates in the region.
Unemployment will decline from 19.5% this year to 15.0% by the end of the forecast period thanks to recovering economic activity.
The Serbia 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 Serbia 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 Serbia to test other views - a key input for successful budgeting and strategic business planning in the Serbian retail market.
- Target business opportunities and risks in Serbia 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.