As incomes rise and consumers become more discerning with their disposable income, Bulgaria's retail sector continues to grow. This year has seen a sharp increase in shopping mall construction as the country's retail sector continues to gain maturity after lagging behind Central Europe for several years.
Earlier this month, an international real estate consultancy firm reported that by the end of the first half of 2007, the gross leasable mall area under construction increased by 138,500 sq metres to 201,000 sq metres, making retail the most active sector of commercial real estate.
There are currently six malls in Bulgaria with a total gross leasable area of 105,000 sq metres. Take-up of units is high: "except for a few schemes with poor concept design and management, all major shopping centres have full occupancy", reported the consulting firm.
There has been a glut of announcements of mall investments over the past year, filling a gap in the market that has emerged as Bulgarian consumers become more affluent and discerning. Countries in Central Europe such as the Czech Republic and Hungary have led the way in retail development among the former communist states of the region, but as these markets become saturated, foreign retailers and mall developers are turning their attention to the south-east. Bulgaria's GDP growth rate, which has averaged 6% for the past three years, and is expected to achieve at least this rate in 2007, and open markets have created a new consumer class.
While operating malls and planned developments are clustered in Sofia, attention is turning to other cities. Bulgaria's third largest city, Varna, has been singled out by the consulting firm, which said the Black Sea port is "is shaping up as a very competitive market with five projects within a one-kilometre radius". Varna is the centre of Bulgaria's summer tourism industry, with resorts stretching north and south along the coast. Sector analysts see tourists as a growth retail market. Last year, a total of 5.2m foreign visitors came to Bulgaria and the government predicts a rise of 6.4% to 7% this year.
The development of malls has been matched by - and increasingly goes hand in hand with - the entry of hypermarkets and discount food retailers into the country.
There has been much anticipation about which major retailers might start operations in Bulgaria, to follow competitors such as Germany's Metro, Kaufland and HIT, Hungary's CBA and Austrian chain Billa, among others. While over the past few years, the German firm Lidl, part of the same Schwartz holding company as Kaufland, has flirted with the idea of entering the market, it has not done so yet. However, there are rumours among industry insiders that it may once again be considering opening shops in the country. Slovenia's Mercator has announced it will open shops in Bulgaria by 2010.
The potential of malls has drawn in Europe's largest retailer by sales, Carrefour, which will base its first hypermarket in Bulgaria at the heart of these shopping centres. The chain is the developer of a new 90,000 sq metre Sofia mall, where it will open its first store in Bulgaria within the next 12 months. The total investment of $109.3m will create the largest retail centre in the region. The mall is expected to employ around 2300 people, according to Carrefour.
Jerome Louber, CEO of Carrefour Bulgaria, said several of the company's hypermarkets would follow the model used in Sofia and would be incorporated into mall projects, adding that "the next 15-20 years look very promising".
However, Carrefour will have to contend with strong competition from Bulgarian supermarkets such as Piccadilly, which also often bases its shops in malls and shopping centres. It has announced plans to extend its network of stores to 16 by the end of 2008 - up from 10 at the end of last year. Piccadilly has found its niche among middle-class shoppers looking for a range of foods from essentials to more boutique products.
However, there is some scepticism about Bulgaria's short-term ability to absorb all the mall projects currently being floated, given the relatively small population and still low incomes. It is likely that not all those on the drawing board will be built in the near future.
Some large foreign retailers have decided the Bulgarian market is not for them. Few industry observers expect an entry from the UK's Tesco, which has thrived in Central Europe. This February Ramstore, a branch of the Turkish firm Migros Turk, pulled out of Bulgaria with company representatives telling OBG the firm intended to concentrate its resources in the Commonwealth of Independent States in a move to realign the company's priorities.
Even so, the number of mall developments and the entry of serious players such as Carrefour are indicative that confidence is not only robust, but also growing.