Amid the growth in incomes and the overall economy, Turkey’s retail sector has acquired modern-scale segmentations with plenty of local and foreign players benefitting from rising consumption. Indeed, the sector has expanded rapidly in recent years, with urban centres like Istanbul seeing an array of new shopping centres constructed. Meanwhile, the traditional corner stores and local discount and retail outlets have also been playing a robust game, as Turks exercise their right to shop both at the local bakkal (a corner shop that is often family-run) and at new shopping malls.
Facts & Figures
According to the Trade Council of Shopping Centres and Retailers (AMPD), 2012 saw sector turnover growth of around 7%, and 9% growth in employment, although this figure covers only the modern retail sector. Indeed, Turkey’s retailers are often divided along modern and traditional lines, with the latter including pazars (markets) and bakkals.
Much of the traditional sector’s economic health is hard to judge, with a great deal of unregistered and unofficial trade, as well as unofficial credit being extended to customers.
The modern part of the sector includes all malls, high street shops and chains – a sub-sector that until relatively recently was quite small. Indeed, the first real mall in Turkey, Akmerkez in Istanbul, opened in 1993, only a year before the AMPD itself was founded.
Figures from the Turkish Statistics Department (TurkStat) show that in 1993 too, the wholesale and retail sector represented some 15.7% of GNP at current prices, or TL313.7m ($135.5m). This has since jumped dramatically. By 2000 the number was TL20.5bn ($8.85bn), and a 16.3% share, and by 2005 it was TL82.2bn, a 16.9% share. The most recent figures from TurkStat, for September 2012, show this figure had reached TL130.08bn ($56.17bn), up from TL115.6bn ($49.9bn) for the same period of 2011.
Following The Weather
Retail tends to follow a seasonal pattern as well, with September marking a surge as school year resumes and summer vacations end. However, these days, the season has become much longer in tourist hotspots.
“In the past,” Tolga Engin, the general manager of the Istiniye Park mall in Istanbul, told OBG, “June, July and August were somewhat sluggish months for retail. However, this is changing with the arrival of more tourists and foreigners, especially from the Gulf.”
Per capita income is the key to a robust domestic retail sector, however, with this breaching the $10,000 mark in 2010, according to the Economist Intelligence Unit. This is also still growing, with Deputy Prime Minister Ali Babacan predicting in early 2013 that the figure would be around $13,000 by 2015.
Given these income levels and a population of around 70m people, the current total of 332 shopping malls and some 60,000 modern shops countrywide, according to the AMPD, is still relatively low.
By 2011 the total leasable area for Turkey’s malls was 7.5m sq metres, according to real estate outfit Istanbul Gayrimenkul Değerleme ve Danış- manlık (IGD), a 20% increase on 2010. Figures for 2012 were not available, but widely thought to show a similar increase. This gave a density of 100 sq metres per 1000 people in 2011, while in the EU, the figure averaged 220 sq metres. The traditional centres of Istanbul, Ankara and Izmir have also now been joined by Kocaeli, Sakarya, Denizli, Bursa, Eskişehir, Kayseri and Trabzon as high-density areas for malls.
Around 100 of these malls are in Istanbul, including four out of the top five by size, with 30 to 35 more malls in the pipeline for the city in January 2013. The issue in Istanbul, which has a population of around 12m, is the high density of these malls in certain locations – usually the more upmarket areas – while other districts do not have any malls.
The city’s traffic conditions and high petrol prices also play a part here, with few residents wishing to travel any distance to shop, as such journeys can be arduous. Thus, the local store continues to be a major player, with the battle continuing to locate new malls in downtown and inner city areas closer to where people live and work. This naturally pushes up prices, as bidding for such real estate is highly competitive.
The AMPD also calculates that when the traditional and modern retail sectors are combined, the sector has grown some 117% since 2000. That both have managed to grow pays tribute to the resilience of the traditional sector, which in other countries has been rapidly vanishing recently.
The AMPD calculates that the current sector balance is 45% modern to 65% traditional, in terms of turnover. This is partly because traditional stores in Turkey are often very well located and able to out-convenience modern stores, with strong local loyalty and a culture that can make visiting rival stores something that is deeply frowned upon. At the same time, the unregistered nature of much trade in the traditional sector allows lower overhead and labour costs, while large chains have to comply with a wider, and often costlier, range of regulations.
Yet the modern sector, particularly its major chains, has the advantage of economies of scale, while also having a large advertising and promotional budget and often a global brand to back it up. Working by shift is also an issue, with smaller shops and chains finding this difficult to cope with, although the larger chains are having more issues with this, as larger labour forces become better organised and able to bargain for improved shift conditions and higher wages.
On the whole, however, AMPD reckons that the balance is slowly shifting to the modern sector, with a 50/50 balance possible within the decade. Traditional stores that play to local strengths and networks, however, and adapt to modern business practices, will more likely survive in the long term.
Naturally, all of this recent growth and activity has not gone unnoticed by global retail outfits, particularly in the food segment. Most recently, US giant Walmart was reported interested in a $2.65bn deal for Migros Ticaret, which has a chain of 874 supermarkets across Turkey and had sales of TL4.8bn ($2.07bn) in September 2012. Surpassing Migros, which is controlled by London-based equity firm BC Partners, was discount store BIM, with TL7.3bn ($3.15bn) in sales from its 3584 generally smaller outlets in the first nine months of 2012.
Carrefour and Tesco – the first via its Turkish venture CarrefourSA, and the second via its subsidiary, Kipa – are also present. Sabanci Holding has a minority stake in CarrefourSA, which has the third-largest share of the market after Migros and BIM.
Kipa, meanwhile, counts 185 stores nationwide, but only nine in Istanbul. This has puzzled many, given the importance of Istanbul to the overall economy. One of the reasons it has been difficult to expand, though, has been the strength of the existing market, with rivals both large and small already staking out their claims. One feature of this is the success of district chains, which are typically outfits that begin with one store and then manage to expand. The now high-end Macrocenter supermarket chain is one such example.
Some district chains are well located and well run, leading to the expectation that they will eventually grow to national or international size. Alternatively, those district chains that are unable to expand for whatever reason may be bought out by competitors.
This might be an opportunity for investors to capitalise on the ground work done by the local district stores, securing good locations and expertise at a lower level than the grand, countrywide takeover.
Meanwhile, one other area of great potential is online retailing. A Google-sponsored report by Boston Consulting Group in March 2013 forecast 19% growth per year for this sub-sector up to 2017, on the back of overall economic growth. This would raise the 2011 internet economy of TL22bn ($9.5bn) to TL64.3bn ($27.8bn) by 2017, representing 2.6% of GDP. Of that TL22bn ($9.5bn) in 2011, TL8.8bn ($3.8bn) went on e-commerce. Currently, some 47% of Turks use the internet, with this forecast to reach general EU levels of around 70% over the next few years.
This creates tremendous potential for online retailers, with several of these already in the market, such as Daybuyday, which deals with online shopping. One obstacle to this might be the postal infrastructure, yet as transportation links improve countrywide, it is hoped that this will be a diminishing concern.
The growth of retail is now being more widely recognised by the government. Representatives from the sector are being invited to take part in government-sponsored industry planning meetings, with these gatherings adding focus to the targets for 2023.
A new law for the sector is also under discussion, with retail sector players now looking forward to a time when Turkey may have a population of some 85m and an average income of around $25,000. These figures present a considerably different retail landscape to the one of today – and one that sector outfits, both traditional and modern, are quite eager to tackle.
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