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Ringleader of brands

Shopping centre pioneer and CEO of Baneasa Developments Ali Ergun Ergen reveals how to keep a mall healthy during and beyond the recession. Profile by Corina Ilie

September 2010 - From the Print Edition

In 2006 and 2007 Romania was trapped in a development frenzy of shopping centres, with up to six set to open in cities such as Arad and Ploiesti at the same time. Since then some projects have vanished, some were so indebted the developers sold them below their building cost and many are not bringing their investors the returns they anticipated.
So is this really the best time to be running a mall?
There are opportunities. The financial crisis flushed out many low quality retailers and left room for large international fashion brands, such as Sweden’s H&M and Spain’s Zara, to find space to grow. Some malls in places which serviced a small catchment areas or had a wrong tenant mix or poor management have also not opened, allowing the existing competition to seize their tenants.
When the crisis ends, the market will be split between profitable shopping centres in good locations, which can expand, and bankrupt malls, some of which will need to find a new role, argues Ali Ergun Ergen, CEO of Baneasa Developments, the developer of north Bucharest’s Baneasa Shopping City.
“I do not see any new shopping centre projects in the next few years,” says Ergen.
A lack of finance and more retailers asking for a cut in rents or extra benefits to open inside a mall are the main reasons why developers cannot keep investing in shopping centres. “Under these circumstances it is almost impossible to build a new retail scheme,” says Ergen. “Tenants are asking not only for lower rents, but also fit-up contributions from [the mall] owners.”
The CEO believes many shopping centre owners lost their tenants and customers due to poor management and an overcrowding of malls in the same area. Ergen says the unexpected expansion of the retail market in the years before the crisis was based - in many cases - on developers having access to a piece of land, rather than having a clear strategy that this was the right place to build a successful business.
Many developers did not pay attention to the tenant mix, as long as they cashed in rents in the short-term. Over time, this has proven to be a poor strategy as low performing brands closed down. Ergen says the crisis has changed the owners’ approach towards the tenants and the tenants’ approach to shopping centres. “The owner-tenant relationship has never been as tense before now,” says the CEO.
Situated in Bucharest’s affluent north and opened in 2008, Baneasa Shopping City is a mall in a complex which includes Ikea, Bricostore and Carrefour. The mall is planning the expansion with three new areas - a 15,000 sqm multiplex cinema, an entertainment area including bowling, billiards and video games and a petrol station. This is a 22 million Euro investment and will cover 35,000 sqm of the Baneasa project’s shopping area.
The centre is 97 per cent rented, but tenants who have seen sales constantly going down could no longer stay in the centre, while the rents of others, which had more chances to recover, were renegotiated.
“We approached the retailers before they came to us and we told them that their sales seemed to be going down and we tried to find a better strategy together, where it was possible,” says Ergen. “The renegotiation of the rent is a very complex process. We have to analyse carefully a lot of parameters and compare a low performing store with others of the same type, to see if it is profitable to keep.”
The CEO says the mall also had tenants with low sales, who were willing to pay even higher rents to keep their stores open, but the owner did not keep them, as they did not offer a profitable proposal in the long-term.
The departure of smaller, low performing retailers and a more competitive rental proposition has created possibilities for big international fashion chains, some of them willing to enter Romania this year and the next. H&M will open in Bucharest’s AFI Palace Cotroceni, Bucuresti Mall, Plaza Romania and, in spring 2011, in Baneasa Shopping City. Baneasa Developments started the negotiations with H&M in 2006.
Two more international brands - one addressed to women and both new on the Romania market - will open stores inside Baneasa Shopping City in November and in spring 2011. According to Ergen more international brands will open in Romania and other eastern European countries, because the growth potential has reached certain limits in western Europe. Moreover, brands which entered the country by franchise before the crisis, so they did not risk their own revenues in an untested market, will start opening stores directly.
“The market is not very mature yet, but there is enough retail stock for at least five or six major cities and investors can now easily collect statistics about the potential of these cities,” says the CEO.
International brand franchisers have opened larger size concepts in Romania lately, similar to those in western Europe. According to Ergen, three years ago the franchisers were afraid to open larger stores. After the beginning of the crisis, the store sizes have increased from around 150 sqm to 200 to 250 sqm on average.
But retailers are more careful about selecting shopping centres where they want to be present. Before the crisis, retailers aimed to open stores in as many shopping centres and look at the overall profit – but now they have realised that some stores are unprofitable, because they target a different demographic to that of the shopping mall.
“Priorities have changed,” he says. “Now retailers are selecting shopping centres by location and prefer central locations where the traffic is higher. They have more knowledge, they are more educated and they negotiate better with the owners.”
Many retailers closed their stores in the country at large to keep those in Bucharest, where sales were higher. “Retailers expanded so fast in Romania, before the crisis, because the sales in Bucharest were supporting the low sales in other cities,” says Ergen. “When they opened stores in other cities they never thought about parameters such as customers and average income.”

WHO IS ALI ERGUN ERGEN?

Turkish Ali Ergun Ergen has been one of the chief pioneers of the development of large-scale shopping centres in Romania. Before becoming CEO of Baneasa Developments in 2005, he spent five years as general manager of the Turkish Anchor Grup, where he coordinated the development of the first malls opened in Romania - Bucuresti Mall in Vitan and Plaza Romania on Blvd. Timisoara - both in Bucharest. Before coming to Romania, he was a planning engineer and planning chief for projects in Turkey, Turkmenistan and Kazakhstan.
Ergen graduated from the Istanbul Technical University as a civil engineer and enjoys travelling, reading and playing tennis.



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