Retail profit margins to slide

One survival solution would be to adapt the size of commercial space and the product portfolio, Cabat said. “Until recently, retail profit margins largely varied from one player to another. I have even seen 50 percent margins. The market will mature in the coming period, and margins will reach a normal level, of 1-3 percent,” according to Cabat.

Furthermore, retailers are facing financing difficulties. “Some 95 percent of the financing lines for companies, including many players in retail, are currently blocked. That is why many investment projects will be postponed,” Cabat explained. The global financial crisis, which is already being felt in Romania, is also likely to lead to a “boom in default rates,” which has risen to 10-15 percent from 2-3 percent.

On the other hand, retailers can benefit from the crisis, as rental fees for commercial space could drop by up to 50 percent, CFA’s President said. As for consumer habits, these will also change. Romanians will no longer opt for premium food products, focusing instead on very low-priced products, according to the Vice President of the Association of Major Retail Networks in Romania (AMRCR), Alexandru Vlad. “The crisis is still in an early stage in Romania. It is likely that this will be fully felt only as of 2009, especially in the services and retail fields. Consumers will change their habits and turn to retailers offering low prices. Thus, hard-discount stores will increase their market share,” Vlad said. Furniture and household appliance retailers are the ones to be hardest hit, according to Vlad. Premium and luxury product sales will also be affected.