(This article was published in a local journal in 2009)
Summary: This article aims to identify and describe the interaction of 3 groups of factors which somehow seem to be neglected during an analysis of the business of shopping centres in Turkey. The Turkish retail industry and its shopping centre business present a picture of a market in transition , where errors have been made in the recent past, but a huge growth potential for the future exists if the right steps can be taken.
With only several months into the impact of the global financial crisis in Turkey’s consumer markets, developers and tenants seem to be wondering how and why they made the decisions in the recent (2003-2008) period of development fever and have begun to voice serious concern for the future. Some shopping centre investments have been stopped or postponed; some are facing renegotiation of rents. Retailers who have grown 2-3 fold during this period are preparing to downsize.
There are two groups of causes of the rapid retail development in Turkey during 2003-2008 and the current wave of pessimism about the future.
One group of causes is related to global trends and the flow of foreign capital into the Turkish market, including real estate. The second group of causes is local and specific to Turkey: insufficient analysis of geography, society and structure of the retail industry in Turkey, and how they interact in the Turkish case. A serious neglect of such analyses have led shopping centre developers and retailers to overestimate the volume of demand and underestimate differences between market segments, leading to unrealistic business plans. In some cases, business plans were not made at all.
Three factors have been overlooked by developers and retailers during this period :
One is Geography:
· Turkey is a vast geographic area (780,000 sq.km.). Looking at the size of the country and its economy and population as “one” market creates a mistake from the outset. Turkey includes “many” markets, not one. For retail database management purposes, one can identify 18-20 regions each of which requires an analysis on its own.
· Each region may then be further broken down to trade areas with strikingly different business potential , considering the factors outlined below.
The second factor that is overlooked is customer segmentation. The distribution of private disposable income , definitions of socio-economic-status groups, and structure of demand may vary widely within each region and trade area. At the national level, the top 5% of population controls more than 25 %, and top %20 of population controls more than 50% of private income. At the very local level, the “A” income group in Diyarbakır may command higher income levels than the same group in İstanbul.
Wide differences in cultural identity and life-styles is the third factor. The ratio of population in urban areas from 30% to 65% in two decades.Post-1985 studies of Turkish cities reveal social and cultural dimensions directly relevant to retailing which are rarely considered by developers and retailers. Differences in life-styles as determinants of behaviour in retail choices is rarely analyzed. There are at least 15 different life-style definitions/market segments that have to be considered during analyses of market potential.
The current structure of the retail industry is a strong barrier to formulating a successful business strategy and this is often neglected by developers and retailers:
- 45-50 % of private retail consumption is known to be still immersed in the black economy, dominated by informal retail operations.
- Both the central tax authorities and local governments support informal retailing, obviously for political reasons.
- The informal retail sector prohibits a faster transition to modern retailing and the creation of modern retail chains and brands.
Leasable area in shopping centres increased 15-fold during 1995-2008. This has gone together with an increase of only 15% in the number of local retail chains that can become tenants in shopping centres. The outcome: all centres look alike and try to serve the same market segments. Coupled with lack of research on customer segmentation, operational results may remain behind targets. For example,
- One of the results of the above factors is the blurred lines between shopping centre types .
- Failure to develop successful shopping for segments defined as “A+” have gone together with the development of outlet centres at city-centre locations.
- Regional-size shopping centres have felt that they either have to brand themselves as “outlet” or include hypermarkets and electronics superstores in their formats- or have done both in a single project.
All such attempts point to an industry in transition, moving by trial and error, and making important errors, based on lack of research-based decisions.
The solutions for the future lie in 3 important areas:
1.The awareness of developers and retailers of the importance of scientific research and attention to detail in relation to the customer base;
2.A comprehensive effort in legislation for the retail industry in general.
3.Re-structuring of the retail trade organizations
The above analysis provides an outline of the critical areas of research that have been neglected to date. (a) As far as legislation is concerned, a good starting point should be urban planning, which should aim to bring clear rules and guidance for shopping centre development, making it a business for the serious entrepreneurs and not small construction companies. (b)The second step should be taken in capital markets, by introducing rules and incentives for REITS to invest in shopping centres. ( c)The third and crucial step should undertake a serious control of the black economy and aim to increase the share of organized retailing to at least 85% in 10 years.
Finally, incentives must be provided to retail chains for investing in human resources.
As far as re-structuring of trade organizations is concerned, there is a need to re-organize the trade bodies along the lines of ICSC,NRF,FMI and ARES. One can then expect a period of healthy growth for the retail industry in Turkey towards joining the EU: 150% growth in 10 years is not a dream; it can be made a reality.