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November 23rd, 2008
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Retail building outpaces demand

A glut of shopping space rises in the center of Prague

By Michael Heitmann
Staff Writer, The Prague Post
June 11th, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
The Myšák Gallery shopping center might see a few more feet if it weren't in the overbuilt Prague 1.
Shopping centers in Prague are opened at too fast a rate, a new study by the Austrian research company RegioData suggests.
“Regardless of the location, too much retail space has been created in a number of Central and East European cities, including Prague, especially within shopping centers,” said Mark Ruhsam, marketing director of RegioData Research.
“The retail space density has reached levels that [in some locations] surpass Western Europe,” he added. This in turn leads to shorter life cycles for retail centers, with newer ones replacing older ones, he said.
According to RegioData, there are 910 square meters (9,800 square feet) of retail space per 1,000 inhabitants in the Czech Republic. This is still far lower than the ratio in Austria (1,680 sq. meters/1,000 inhabitants), but the gap is closing fast.
“This is good for customers because they can expect more modern retail space,” he said. But, for investors, “it means that not all new projects have sufficient customer potential.”
Some of the study’s conclusions sound counterintuitive, since Eurostat data released in February identified Prague as the 12th-wealthiest region in the European Union. The survey put per-capita gross domestic product (GDP) in Prague — adjusted for purchasing power parity to account for local conditions — at 160 percent of the EU average. The entire Czech Republic sat at only 76.6 percent.
Purchasing power is not an exact parallel to GDP, which is the basis of the Eurostat survey, and inhabitants of Prague have above-average purchasing power, Ruhsam said. Despite this, retail space has still managed to outperform that growth, he added.
At the same time, the growing purchasing power has attracted an increasing number of foreign investors and retail chains. There are still lucrative investment opportunities in all Central and Eastern European countries — even for newcomers.
The Palladium shopping center at náměstí Republiky in Prague’s city center is a prime example.
“We can confirm that interest of [foreign] investors, as the Palladium complex was sold off even before its completion last year,” said Veronika Kozová, a Palladium spokeswoman. Germany’s Hannover Leasing became the new majority owner.
“There are very few building locations comparable to the one where Palladium is now, so that there is naturally a high demand as soon as such building sites open up,” Kozová said.
Crisis immunity
One strong point of the Central and East European retail market in the eyes of investors is its near immunity to the aftershocks of the U.S. subprime mortgage crisis.
“The market is steady and there haven’t been any signs of an overheating market, although prices in some regions like Bucharest and Sofia have grown strongly,” Ruhsam said.
Retail space continues to be in high demand in Prague’s center. In a crowded market, stores need to adapt and find new ways of standing out.
“New shops in the center of Prague have to embrace diversification by offering new brands, new retail concepts, or a comfortable shopping environment,” Kozová said.
Foreign retail chains need to take into account local characteristics like lower purchasing power and differing household demographics, which can be done by choosing different pricing models, for example, Ruhsam said.
“A good concept is obligatory for long-term success. Only those that meet their clients’ needs are successful, no matter if it’s in Western Europe or Central and Eastern Europe,” he added.
As far as big, modern shopping malls are concerned, space constrictions in downtown Prague have proved to be a formidable obstacle.
“The center offers only limited options for modern shopping centers,” Kozová said. That’s why EPD, the company Kozová works for, has set its sight on foreign opportunities now that the Palladium project is completed, she said.
As downtown Prague becomes increasingly saturated, some regions in Bohemia and Moravia are still catching up. There, shopping centers or hypermarkets are often built in the open countryside, for lack of established shopping areas in city centers, such as pedestrian-friendly downtowns.
Among the retailers betting that these big-box stores have a limited lifespan is Zdeněk Juračka, chairman of the Union of Czech and Moravian Consumer Cooperatives. He predicts that consumer interest in large hypermarkets, which combine supermarkets and department stores into one, is on the downswing.
Meanwhile, there is an increasing demand for more small-scale neighborhood supermarkets, he said, such as the new Žabka store on Prague’s Maiselova street. “People don’t want to have to walk through a hypermarket for two hours anymore. They are disappointed by the long cashier lines and want faster service,” he said.
Juračka agrees that the food retail market is nearing saturation in Prague. But, even in the capital, there will always be room for specialized stores such as bakeries and butchers, he added.

Michael Heitmann can be reached at mheitmann@praguepost.com


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Reader's comments:

add your comment
[11:32 25/06/2008] : Michael Heitmann's article suggests that shoppers will be attracted to new venues and modern facilities.
However, whether it be in the Czech Republic, or anywhere else in the world, service will be the deciding factor.
With the popularity and convenience of Internet shopping, many major retailers in the United States have felt the impact and are now depending primarily on the services offered at the store level to maintain a profitable margin. The key now and in the future will be the outlet that offers the type of service customers will appreciate. This will depend entirely on management and employees' attitudes on customer service and how high a priority it's given.
Whether it be a bank or retail store, when you are greeted with a smile as a valuable customer, your loyalty jumps accordingly. You can build all the fancy stores you want, but if you don't give the service customers appreciate, you may soon find yourself unable to pay the rent, new modern facility or not.


Ed Ingold
Prague
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