05 May

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The year 2014 is expected to be a year in the Turkish retail sector in which increasing differentiation in terms of profit earnings is going to be felt among the various different industries. Especially crucial to understand the increasing differentiation among different sub industries with the Turkish retail sector is the complex interdependence that Turkey’s energy needs have created among traditionally unconnected sectors.

Turkey’s energy bill currently amounts to USD$60 billion which in turn accounts to the 25% of the total imports of the country. Given the fact that Turkish high economic growth dictates an energy dependency which is not likely to go away in the short term due to the underdevelopment of the renewable energy potential of the country, the economic policy makers of the country have to look for some other ways to reign in the current account deficit of the country which have been crippling the economic prospects for the long term future of Turkey. Hence, the authorities having found themselves in a situation where the local savings are low and the energy bill mounting high, turned their attention to other sectors like the retail to implement a policy of spending cuts to deal with the ever growing problem of current account deficit.

Recent Legislative Changes

The recent changes in the Turkish legislation brought some novelties to clamp down the consumer demand for some consumer goods that are deemed to be contributing to the current account deficit.  The number of installments which had previously reached 24 in the past for the mobile phones has recently been reduced to one. The spending sprees for the imported consumer electronics which have been perceived as one of the important contributors to the current account deficit are trying to be prevented by such regulations. The maximum number of installments for furniture and consumer electronics are reduced to 12. The number of installments for the automobile purchases went down to 24 which used to be 48 in the past.

The Repercussions for the Retail Sector

Here starts the inevitable differentiation within the retail sector. Especially given the heavy reliance of the Turkish consumer to the banking credits that provides long term payment opportunities in maximum number of installments, the year 2014 might be a rocky one for the retail sector. The specific sectors which are subjected to a more stringent installment regime might be affected more compared to the ones that are subjected to la ax installment regime. A recent survey conducted among the Turkish retailers has cited the ratio of the retailers who think that their profitability are in decline compared to the same period of the previous year as 52.9%.

As a result of the growing differentiation due to different installment regimes some specific areas within the retail sector do not feel the pressure that is felt by others. Especially the recent news state that not only the number of visitors to the shopping malls but also the number of shopping malls themselves are on the rise in Turkey. The giro index for the shopping malls reveals a 5.8% increase during March 2014. The price of the rentable area for a square meter in shopping malls in Istanbul  and Anatolian cities reflect the current rise in which the price has increased to reach 654 Turkish liras in Istanbul as well as 499 Turkish liras in the cities of Anatolia.

Conclusion

The year 2014 will be most probably a year of mixed blessing for the retail sector. Due to the complex interdependence that exist between the country’s energy needs, the current account deficit, the need to boost national savings and the health of the national economy, a policy of spending cuts have been adopted. Such policy specifically focuses on some key retail sectors like consumer electronics,  especially the mobile phones which are regarded as the contributors to the current account deficit due to their importation from abroad. That’s why a differentiation inside the retail sector in terms of profitability is almost inevitable especially given the fact that various different sub industries are subjected to different kinds of installment regimes. The declining demand for consumer electronics when juxtaposed with the growing prices per square meter for the shopping malls both in Istanbul and Anatolian cities testify to the growing differentiation within the sector.


Herdem Law Firm, Istanbul Turkey

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