Turkish businessman Tekin Acar had contracts to open branches of his leading cosmetics chain in ten new shopping malls this year. A few days ago he cancelled nine of them after sharp falls in the lira meant he would struggle to afford the rents.
Turkey’s currency has lost around a quarter of its value since the middle of last year, causing havoc for retailers selling imported goods or paying rent pegged to the US dollar.
Many were already suffering from a sharp economic slowdown and dwindling tourism numbers after a spate of deadly bombings.
Foreign brands in Turkey are also suffering.
Dutch clothing chain C&A, Britain’s Topshop, German cosmetics firm Douglas and US-based dietary supplement retailer GNC have disappeared from shopping centres in recent months.
Retail spaces in some of Istanbul’s biggest malls stand empty.
“Since many brands have closed up stores one by one, people don’t notice it,” said Acar, who founded the cosmetics chain that bears his name in 1979 and has 76 stores across Turkey.
“In my 46-year career, it’s the first time I’m having trouble paying my rent, utilities and salaries. I’ve put all my income from other businesses into this, I’ve increased capital but it isn’t enough. I’m not George Soros, this is it for me.”
Hundreds of malls sprung up across Turkey in the past two decades, symbols of the rapid consumption-led growth that helped build President Tayyip Erdogan’s reputation when he was prime minister from 2003-2014.
But that growth has left structural weaknesses in the economy, and the suffering retail sector and wider economic malaise come at an awkward time for Erdogan.
He is expected to seek popular support in a spring referendum for bolstering the powers of his office and can ill-afford a sharp slowdown.
Acar’s business has been further hit by a hike last week in import taxes on some cosmetics and by restrictions on the products for which credit card payments can be taken in instalments, part of a drive to boost Turkey’s savings rate.
Many of the new malls were financed with dollar and euro loans and their owners, who have seen their debt burden rise as the lira fell, charge rent in hard currency to offset the risk.
The payback period for shopping mall developers in Istanbul has risen in recent years to an average of 22 years from 15-16, largely due to exchange rate risk and uncertainty about rental incomes, according to Hulusi Belgu, head of the Turkish Council of Shopping Centres (AYD).
His association estimates that $53 billion has been invested in the country’s 377 shopping malls over the past few decades, 70 per cent of it financed through debt, much of it dollar and euro-denominated.
There was “constant demand” from retailers to seek rent reductions because of the weaker lira, Belgu said, and mall developers were having to do their best to help.— Reuters
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