VILNIUS - Carving out a piece of what's left of the retail sector will be the key to survival for the malls of Lithuania, with 2009's empty consumer purses forcing shops to the wall, experts say.
Rent is the primary source of income for developers who build malls, so a lack of retailers means a lack of revenue.
Shopping malls have sprouted up across the country in recent years following steady growth in retail sales, but a new gloomy picture is emerging with the effects of the economic crisis.
New numbers from the Statistics Department show a 27 percent nose-dive in retail spending for January year-on-year, with a 31 percent drop against December 2008.
The result has been a swath of retailers shutting their doors in key positions in the country.
Panorama Mall, which opened its doors in November, was widely criticized for opening in the middle of the crisis. Akropolis, Lithuania's largest chain of mall developers, also opened its fourth large mall in the northern city of Siauliai, the country's fourth biggest city, on March 6.
Despite obvious question marks over the timing of the opening, the company thinks it won't be a problem.
"The company of course can see the economic situation, but it is a strong brand name and we think the people will come to Akropolis. The prices will be reduced, so [the former Managing director of Maxima and current Akropolis CEO] Mindaugas Marcinkevicius said he thinks people from Siauliai won't go to Poland to go shopping," Frederikas Jasonas, Akropolis' public relations manager, told The Baltic Times.
Jasonas said they even expect customers from Latvia.
"Siauliai and the region of northern Lithuania and from Latvia will go there. Akropolis in Vilnius has people from Belarus and Akropolis in Klaipeda gets clients from Kaliningrad," he said.
Other experts in the field have baulked at suggestions that it will change consumer behavior, saying a new shopping mall won't change anything.
"This is not a question of the lack of shops, but it is about the devaluation of the currency across the border and it has become uncompetitive for goods to cross the border," Antanas Anskaitis, country director of Lithuania and Poland for Baltic Property Trust (BPT), told TBT.
BPT owns a number of property developments in Lithuania, including Europa Mall in Vilnius.
"It is very fortunate for these developers [Akropolis] that they filled all the shops. We think Siauliai will be a very complicated retail market because it is overdeveloped 's I don't think they will enjoy it as much as their other developments in other cities," Anskaitis said.
Siauliai now has four large shopping centers and is only an hour's drive from Mega and Akropolis in Kaunas.
"Rent is a product of how successful the business is. Some are more profitable, some are less 's the general situation with rent is that when the market is sour, [the question is] 'how do you maneuver this?' The changes in rent only change when the retailer changes or when the lease is renegotiated 's this happens very slowly," Anskaitis said.
Akropolis Siauliai successfully filled all 163 stalls in the shopping center, but have yet to negotiate all the prices for rent, Jasonas said.
Panorama Mall in Vilnius has seen a strong start because it began negotiations with tenants before the crisis, its marketing director told TBT.
"We started to work with our partners three years ago, so it was a peak time and everyone was competing for places, but times have changed," said Vytenis Kurapka, marketing director of Panorama.
"If the economy goes well, then it will be OK, but if it goes bankrupt then it will be bad. In Siauliai there are four or five malls and per square meter per capita, there is too much trade space," he added.
Anskaitis thinks the crisis will determine which malls have the tenacity to survive, and which do not.
"It's a gloomy situation everywhere and every shopping mall is an intimate part of consumer life and all retail sales in all categories are slowing down. Now, which malls will survive with a competitive edge is the name of the game 's in this climate of a shrinking market, where the small purchasing power will land. One must be more creative in this shrinking market, which is shrinking up to 40 percent."
Maintaining a competitive edge will determine which malls remain profitable and which lose money.
Europa shopping mall's brand is very strong, Anskaitis said. Spaces that have been vacated have been rented to new tenants even faster than before because the brand of the center is so strong.
"This is conventional wisdom [that rent should come down], and if you don't have a tenant, then it comes down. But we have changed some smaller retailers and the new ones have paid substantially more than before," the BPT director said.
Maintaining such hikes in rent across the board is impossible, he said, adding that he is expecting retail rents to drop overall in Lithuania.
"Overall, there will be less rent paid to the landlord over the next three years 's that's for sure, but how this will be divided up and among which landlords is the name of the game."
Other malls rely on location for their ability to attract customers. Panorama is on the busiest intersection in the country, giving it maximum exposure, Kurapka said. He said this would ensure that they continue to have good business.
"When Ozas [shopping mall] comes there is going to be a big shopping mall area, but for Panorama, it is on the busiest intersection in Lithuania and so it is uniquely placed. Location still matters," he said.
Ozas will be the capital's largest shopping mall and is expected to open in autumn 2009.
The new Akropolis will aim to beat out the other malls in the city with its Olympic sized skating rink and the biggest Maxima supermarket in the region. It is also the first mall in the country that has signed a contract with fast food outlet McDonalds, which will open the store in summer 2009.
"The new Akropolis in Siauliai is a bit smaller than the other ones in other cities. [It is] 50,000 square meters, so it's a bit smaller than Kaunas and Klaipeda, but it is all the same. Skating rings, multiplex and bowling," Jasonas said.
Despite the mall's opening during a crisis, it is welcome news for the city as it is expected to create over 1,000 jobs.