Retail chains: Wave of new growth

The recovery of the construction and real estate sectors has increased the sales of companies offering self-assembly furniture. Pictured: Nikos Infantidis, IKEA manager for Bulgaria

Retail chains: Wave of new growth

On average, retail sales grew 10% for a second year in a row in 2017, while profits rose by 24%

The recovery of the construction and real estate sectors has increased the sales of companies offering self-assembly furniture. Pictured: Nikos Infantidis, IKEA manager for Bulgaria


• Best results achieved by sporting goods, furniture, and drugstore chains.

• Jumbo had the highest profit margin, while Jysk registered the biggest revenue increase.

In 2017, the top 30 retail chains in Bulgaria sold goods for a total of 7.77 billion levs. This represents a 9.6% increase over the previous year, when sales also increased by 10%. The revenues of 10 retail chains climbed between 20% and 30% each, while one of them grew by 90%.

Meanwhile, the combined net profit of the top 30 companies went up by 24%. Kaufland, Technopolis, Jumbo, Fantastico, Lidl, METRO and IKEA, booked a net profit in excess of 10 million levs each. Only one company reported losses - Maxima, and that was due to its expansion.

Growing between 3% and nearly 30%

The year was successful for each retailer to a differing degree, depending on the sector. The revenue of the eight food retailers on the list - Kaufland, Fantastico, Lidl, METRO, BILLA, T-Market, CBA, KOME - grew by 9.4%, which is about the average for the top 30. It is worth noting that the four largest retailers reported a decrease in profit as compared to the previous year. This is not surprising, since according to data provided by Nielsen, about 39% of foods sold in the country last year was purchased during special promotional sales.

The chains of sports goods stores were the indisputable hit of 2017. Decathlon's and Sport Depot's sales rose by an average of 27.6%. Furniture chains IKEA, AIKO, and Jysk reported revenue growth of 21.6%. The record holder for revenue growth (89%) - the Danish interior design chain Jysk - comes from this sector as well.

The ascent of drugstores also continued. DM and Lilly reported average revenue growth of 20.6%.

The revenue of the household items and toy store Jumbo rose by 22.6%. The toy store Hippoland reported an increase of nearly 12%.

The three largest clothing retailers - H&M, Zara, and LC Waikiki - showed an average growth rate of about 17%. The three largest players in the fashion sector, however, also reported a decrease in profits, possibly because of sharper competition and mass promotions.

The home improvement sector achieved a gain of 10.8%, which is principally the consequence of Praktiker's good results, while Mr.Bricolage and HomeMax (formerly BauMax) contributed to a lesser extent.

The three chains that specialize in alcohol and tobacco sales - Lafka, Avanti, LS Travel Retail - reported a 5.7% increase altogether . Lafka, which has been linked to MP Delyan Peevski, had a slight decrease in revenue.

The sales of home electronics and appliance chains Technopolis, Technomarket, Zora, and Techmart grew by only 3% altogether. However, Technomarket - also connected to Mr Peevski - reported a serious decline.

In 2017, the top 30 retail chains employed 32,313 people, 4.7% more than in the preceding year. Four companies enacted layoffs. Two of them also reported revenue drops -regional retailer CBA and LS Travel Retail Bulgaria. In the case of the latter, this was due to an operational reorganization.

Supermarket chains

Nearly 65% of the net revenue of the top 30 retailers was generated by eight supermarket and discount chains.The ranking of the six nation-wide chains remained unchanged from 2016 - Kaufland, Lidl, Metro Cash&Carry, BILLA, Fantastico, T-Market.

The leader Kaufland (1) was the only retailer in the country with a revenue of over 1 billion levs (closer to 2 billion levs). Kaufland Bulgaria's sales were double the amount of the retailer ranked second (also a company from Germany's Schwarz Group). Kaufland generated 22% of the revenue in the top 30 group. In 2017, the company's growth in sales slowed to 4% from 12% in each of the previous two years. Income decreased by 9%, and Kaufland's profitability was slightly below Fantastico's. The latter's management was replaced last year. Additionally, the chain began an active TV marketing campaign and continued to gradually refurbish the layout of its stores, in an effort to improve customer experience. This is likely to have a positive impact on this year's results.

Lidl's (2) revenue growth rate of 12.4% was the largest among the top 4 retailers, but their combined income dropped by 10%. The company has the ambition of becoming the number one retailer in the country by 2020, and has plans to open seven new stores this year. METRO (3) reported an almost identical rise in sales. The income of the cash & carry chain, whose main customers are from independent stores, the horeca sector, and offices, dropped for a third year in a row - this time by 12.5%.Billa Bulgaria (4), the chain with the most stores in the country, continued its expansion in 2017 by opening a number of new stores, and increased sales by 9%. At the same time, income shrank by 20%, after it rose at the same rate in 2016.

Another FMCG chain in the process of expansion - the Lithuanian T-Market (Maxima Bulgaria) - grew revenue by almost 25%. At the same time, this is the only company of the top 30 that still operated at a loss (almost 9.5 million levs) in 2017. In the last two years, the company opened 25 new stores (an increase of almost 50%), with plans for another five to open in 2018.

Fantastico (6) was the outstanding performer of the sector. The sales of the supermarket chain, which focuses its operations on Sofia, grew by 14%, while income rose by 4%. The company also took the subsector's palm for profitability - 5%.

Two regional supermarket chains also made it to the top 30. CBA (14), which focuses on Varna and has its base in Veliko Tarnovo, recorded a 7% growth in sales and a 121% rise in income. In the case of KOME (24), with stores in Sofia, Dupnitsa, Pernik, Ihtiman, Kostinbrod and Slivnitsa, sales grew by 9%, while income rose by 19%, even though it remained below 100,000 levs.

Drugstores and excise goods

If we add both drugstore chains (2.7%) and the three chains that specialize in tobacco and alcohol (5%) to the net revenue of the FMCG retailers in the top 30, the share of that sector in the ranking goes up to 73%.

The drugstore niche continued its steadfast development. According to analysts, this was at the expense of supermarkets. Last year, DM's (15) sales grew by 19.5%. DM Bulgaria, a company that continuously opened new stores in the past two years, achieved a profit in 2016, and managed to double it to 1 million levs in 2017. At the moment, the chain has 72 stores nationwide. The sales of their competitor Lilly Drogerie (20), with 68 stores, grew at an even faster tempo - 22%. The company's profit increased significantly - from 820 000 levs to 2.3 million levs.

The chain Lafka (7), a company that has built a network of more than a 1000 kiosks countrywide, managed to maintain its 2017 sales at virtually the same level as the previous year's (-0.25%). At the same time, Lafka's parent company Tabak Market swung from a net loss of 10.96 million levs in 2016 to a profit of 1.6 million levs. The company also laid off a quarter of its employees in 2017, reducing their number to 1540 people.

The other two companies of this segment - Avanti and LS Travel Retail Bulgaria - are of a similar size. The former is a Bulgarian company with 32 alcohol, tobacco, chocolate, and coffee stores in Sofia. Avanti's sales rose by 21.5%, and its income also grew. However, these gains were made starting from a modest base.

LS Travel Retail Bulgaria is a subsidiary of Lagardere Travel Retail - a world leader in transport and travel zone retail. The sales in their stores Inmedio, Relay, 1 Minute, Discover Bulgaria, rose by 11%. Their income reached 2.4 million levs. The company reduced its workforce by 18%, and now employs 122 people. Company sources explained that the job cuts were due to a change in the way of operation at some sites - from direct employment to a partnership model.

Electronics and appliances

Technopolis Bulgaria (5), owned by Videolux Holding, maintained its 2016 position as the leader of the home electronics and appliance retail sector. The company's revenue growth equaled the average in the sector, while its profits rose by 171%, marking the second best net value after Kaufland's. Profitability stood at 6.5%.

Two years ago, in 2015, Technomarket was the leader in the sector, but the company's sales have been decreasing since - by 38% in 2016 and by a further 23% in 2017. This is one of two companies with a drop in sales among the top 30 retailers in 2017, and the only one with a double-digit decrease. At the same time, Technopolis operated profitably and increased income from 130,000 leva in 2016 to 2.19 million levs in 2017.

Technomarket also is the only chain among the top 30 with a drop in sales in each of the last two years. The decrease started in 2016, when a company linked to Delyan Peevski purchased the retailer. At the end of that same year, the ownership of the chain was transferred to Dubai-registered TGI Middle East, a company also connected to Mr. Peevski. In 2017, it became a subsidiary of Blagoevgrad BT. At the same time, litigation between Glorient Investment BG (the property owner that leased commercial space to the retailer) and Technomarket went on for a year and a half. The two companies reached a settlement and withdrew their respective lawsuits, as Capital reported at the time.

The crisis at the former sector leader seems to have given an impetus to smaller players. Zora (10), for instance, increased its sales in each of the last two years, with growth in 2017 in the double digits, at 22%. During this period, the company opened new stores, swung from loss in 2015 to profit in 2016 and further grew profit in 2017. Presently, the chain operates 35 stores in 25 Bulgarian cities.

The sales of Magnum - D (16) grew by an impressive 28%. The company, which owns the chain Techmart, now operates 11 stores and an online retailer. The company is the representative of a number of electronics and appliances brands, as well as Midea. It also distributes its own brand Arielli, and represents air conditioner brands AUX and TCL. It entered the retail business five years ago.The majority of sales revenue came from air conditioning systems and refrigeration equipment, with TV sets taking a considerable share, too. In 2017, its profit rose to 4.0 million levs, from 941,000 levs in 2016.

Home improvement

The leader of the home improvement sector is a chain owned by the same company that owns Technopolis. Videolux Holding acquired Praktiker (12) four years ago. The chain, with a 25.6% rise in revenue, was among the 11 companies in the ranking that achieved growth of over 20% in 2017. Its profits increased from 1.99 million levs to 6.3 million leva. Profitability stood at 4.4%, slightly lower than Kaufland's. The home improvement sector owes its growth to Praktiker's performance.

The sales of Mr. Bricolage (Doverie Brico) rose by 1.5% and profit grew by 22.6% to 3.8 million levs in 2017. The chain operates 11 stores in eight Bulgarian cities. The revenue of HomeMax (Baumax Bulgaria) went up around 1%. Its profits, while rising, amounted to 590,000 levs. In 2014, the Austrian chain Baumax sold its business in Bulgaria to Bulgarian carpet retailer Carpet Max. In 2015, it attracted an investor company associated to Chimimport AD, and the chain was renamed to HomeMax. In 2016, Baumax Bulgaria purchased Retail Park Plovdiv. The company now operates seven stores in seven cities.

Furniture and interior

While the combined sales of the three largest furniture chains represent about 3% of the top 30 retailers' total, their revenue grew by 21.6% in 2017.The sector leader IKEA (House Market Bulgaria) grew revenue by 13%. The company's profits rose by almost 50%,reaching 11.9 million levs. Its impressive profitability of 10.9% is the second highest among the top 30. AIKO's (Aiko Multi Concept) revenue increased by 14%. Profits grew by more than 50% to six million levs. Profitability was also high, at 8.7%. The majority shareholder in this company is XXXLutz - the second largest furniture company in the world.

The record holder for sales growth - the Danish chain Jysk (Jysk Bul) - is from this sector. The company entered the ranking for 2017 at number 30 thanks to an 88.9% increase in revenue. In the last several years, the company opened a number of new stores. It first reported a profit in 2016. Profit increased by 50% 1.6 million levs in 2017.

Fashion and clothing

Three companies represented the sector in the top 30 - H&M (13), Zara (25), and LC Waikiki (27). Their combined revenue growth was 17% in 2017, and their share of the top 30 revenue was 3.4%. H&M's sales grew by 17%, but its profits dropped 45% to 1.8 million levs. Zara Bulgaria's sales grew by the comparatively moderate 12%, while profits dropped 12% to 6 million levs. The other brands of the Spanish company that operate in Bulgaria did not make it into the top 30. LCC Waikiki Retail BG, with a 23% increase in revenue, was the only company in the sector with growth of over 20%. Its profits fell by 8.5% to 2.8 million levs.

Sporting goods

One of the preeminent tendencies of 2017 was the increased consumer interest in the offer of sporting goods chains. They took the bottom places in the top 30 ranking, and their share of the total revenue was just 1.4%. However, customers spent 26.5% more money than in the previous year at the five locations and the online store of French chain Decathlon (Decathlon Bulgaria, 28). The company's profit rose by 53% to 4.1 million levs, with profitability at 7%. The revenue from Sport Depot's 25 locations and online store rose by 29%, and profit went up by 17% to 2.7 million levs. Its profitability was 6.5%.

Toy stores

The toy and household items retailer Jumbo (11) reported very good results. Its sales rose by 22.6%. The Greek company, which traditionally reports the highest profitability (19.9%) in retail sector rankings, increased its profit by 25% to 29.5 million levs - the third largest in nominal terms. Another company in this sector - the Bulgarian chain Hipoland (26), increased its sales by 13%, while profits decreased by 13%. The chain operates 26 outlets in 14 Bulgarian cities.

Jumbo, with a profitability of 19.9%, is the most profitable chain in the ranking. The company is a subsidiary of JUMBO SA Greece, which registered its Bulgarian branch in 2005. It has stores in the main Bulgarian cities - Sofia, Plovdiv, Varna, Burgas, Ruse, and Stara Zagora. The last one opened in November 2016, which together with the improved performance of Jumbo's other stores, was the reason for the 22.6% sales increase in 2017.

• Best results achieved by sporting goods, furniture, and drugstore chains.

• Jumbo had the highest profit margin, while Jysk registered the biggest revenue increase.
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