BusinessMagazin

Tag: Crisis

  • Warehouses in Crisis

     The beginning of August brought a change in the professional life Vlad Radu Dumitrescu, who had acted as country manager of ProLogis, one of the world’s biggest developers and owners of logistics space. ”It is true that I have stopped working for the company as of August 1. We were a team of eight originally, and now there will be two people left,” Dumitrescu said, without providing details on the reasons behind the team restructuring. According to information in the industry, ProLogis has decided to put an end to plans to develop new logistics spaces, after completing the development of 108,000 square metres in the ProLogis Park Bucharest A1 project, located alongside the Bucuresti-Ploiesti motorway.

    According to Dumitrescu’s previous statements, the developer should have started construction of a new stage of the logistics park near Bucharest, which was supposed to have a 45,000 squaremetre lettable area – out of an overall 300,000 square metres – and was in talks to acquire the land necessary for a similar project close to Arad. Dumitrescu says he had decided back in autumn to scrap the project near Arad, as well as plans to start a new stage of the ProLogis Park Bucharest Park A1.

    The already built area is 100% rented out. The situation is not unique on the market. The local team of Eyemaxx Real Estate is also down from eight to three employees, with Johannes Rudnay, general manager of the Romanian branch, being among those who left. ”At this point, demand for logistics space is not strong,” Andre Hofer, CEO of Eyemaxx, says about the freezing of the company’s development plans. Eyemaxx sold its 50% stakes in two logistics projects in Timisoara and Ploiesti at the beginning of May, as well as three other plots to its former partner, Austrian investment fund Immoeast. Andre Hofer says he does not know if Eyemaxx will develop the projects taken over by Eyemaxx; it is as yet uncertain whether the company will pursue its pre-crisis plans to make 500 million-euro investments in ten logistics parks. The freezing of development plans was manifest in the first six months of the year, when Bucharest and the surrounding area saw only 40,000 square metres of logistics space delivered, compared with 350,000 in the similar period of last year, according to a study conducted by Colliers International.
     

  • Try not to cut the power

    Somewhere in a hidden corner of the Alexa shopping centre in Berlin is a place where visitors would be ill-advised to go, despite potentially being attracted by the tunnels and rooms that shoppers may not even be aware of. It is a place where the stench is almost unbearable, and the amount of rubbish is measured in tonnes: a facility that sorts and collects waste material produced by the shopping centre.

    ”This is one of the biggest mistakes being made in Romania – people talk about waste material and rubbish, but not about prospective resources. Another mistake is that in Romania sorting and collecting waste materials costs us money, whereas in Germany we get money for this,” says Ingo Nissen, country manager of Portuguese developer Sonae Sierra, which entered the Romanian market by buying River Plaza in Ramnicu Valcea. The manager, who supervised the development of the Alexa shopping centre in Berlin, talks about the recycling rate of waste material produced daily by a mall as a means of cutting operating costs, both in terms of the prospective sums received for collecting the waste, and in terms of cutting cleaning costs. ”For River Plaza we have set a 25.9% recycling target, but we have already exceeded it, we are at 29%. In Alexa, the rate is 60%; it is not easy to motivate people in Romania, but this is a good rate.”

    Recycling targets are just one of the methods used for cutting operating costs of shopping centres, amid an around 20% rent decline, according to real estate consultants. ”Tenants do not perceive the rent they pay as a sum consisting of service charges plus the actual rent, they see it as a whole” explains Georgiana Andrei, senior retail broker with consulting firm Colliers International. According to a company study, service charges paid in Romanian shopping centres are among the highest in the region – close or even higher than in the UK – at 11 euros per square metre.

    TRADUCERE DE LOREDANA FRATILA-CRISTESCU SI DANIELA STOICAN

  • Don’t say we didn’t warn you

    Romania’s economy is functional and on the rise; next year we will start spending the money from the EU, especially for infrastructure investments, so that we will not have to deal with the depreciation of the economic growth. It is not us saying it now, President Basescu did it last autumn. It was October 21, a little while after the speculations on the forex market that had caused the RON to depreciate suddenly and one month before the parliamentary elections. Coincidentally, on the same day, Premier Tariceanu stated that Romania would post a 4 to 6% economic growth in 2009.

    Back then, as well as now, the way businesspeople and authorities treat the economic information, the events happening before their eyes – in the US, in Europe and here at home, is the first step in the battle against the crisis. Those who look for the information and take advantage of it always stand to gain; those who ignore it either cannot shield themselves from the crisis, or (in the case of the government) only manage to prolong the dangerous illusion that the crisis will eventually pass on its own – unless it has already done so.

    ”Honestly, I didn’t imagine the situation in America would have such powerful effects in Europe, too, and especially in Romania,” admits Florentin Banu, the man who developed the Joe wafers brand and the Artima supermarkets. ”As proof that I did not anticipate it, I am now reeling from the heavy blow in terms of not only my real estate investments, but also of the plastic business.” Banu controls Banuconstruct, which develops apartment blocks in Timisoara and the plastic and mould factory Interpart Production.

    ”Unfortunately for me, I did not anticipate the crisis. When trouble started on the American real estate market I thought there might be repercussions on the Romanian real estate market, too, but nothing more,” Cosmin Alexandru, founder of branding consultancy Brandivia and cofounder of Erudio, in his turn admits.

    Another man who paid attention to the real estate market was Marius Stancescu, chairman of business services firm Riff Holding, to whom, however, the obvious price bubble fuelled by the boom of cheap loans reminded of the Japanese crisis in the eighties, so that he started to ”stubbornly” look for information on similar situations in other parts of the world – South America, South-East Asia, where the overheating of the economies in the nineties caused the well-known crises of the time. ”I found lots of similar events to what was happening in the US and obviously to what was going to happen on the old continent,” he says, confessing he had tried to warn as may Romanian entrepreneurs as he could about what was going to happen, but to no avail, precisely because things looked so good in our country, that the possibility of a crisis seemed out of the question.

    Among those who anticipated the crisis would be imported in Romania, as well, was Marius Sfintescu, manager of private equity fund 3TS Capital. ”I anticipated we would see the expansion of the US crisis to the entire world, including Romania. I used the specialised media as a source of information.” Which is why Sfintescu was one of the few business people who agreed to answer BUSINESS Magazin’s question about what his opinion on the policy of the foreign governments in dealing with the crisis; whether he felt that the relaxation of the monetary policy was too slow in Germany or France, considering the deflationary climate and whether it was important from now on for the developed states to concern themselves with the reduction of the monetary mass in good time in order to avoid a stagflation friendly environment in 2011.




    TRADUCERE DE LOREDANA FRATILA-CRISTESCU SI DANIELA STOICAN


     

  • Sailing again

    Millionaires are tired of not spending and yacht producers have been quick to react, launching more products that ever. A stroll in the marinas and harbours on the Mediterranean is enough to take the pulse of the economy. Two years ago, the harbour of Monte Carlo was a permanent exhibition of mega-yachts that used to bring the rich and famous to their favourite love nest. This happened at the time when the economy was booming and yachts were one of the symbols of the social status for which businesspeople often led a fi ercer battle than that for a company takeover. Meanwhile, the fi nancial crisis has tempered the consumers’ appetite for the biggest, most expensive, most powerful yacht, and marinas in some cases have become sale showrooms.

     

    For instance, the marina of Varazze, Italy, where every second ship displays the ”Vende” (for sale) sign. In this context, the yacht market has coped with strong winds, even storms in some cases. Ferretti, one of the biggest yacht producers, which in 2007 was acquired by Britain’s Candover investment fund, was on the point of entering under the Italian state’s control because of debts. The French producer of luxury yachts Couach has fi led for bankruptcy protection. ”The yacht market dropped by 20-30%, and in the November 2008-February 2009 period it was completely blocked,” explains Paolo Vitelli, founder and CEO of Azimut-Benetti group, the world’s biggest producer of yachts, which in 2008 produced ships worth 960m euros. Vitelli says the group was somewhat more sheltered from the storm because of the family business structure and the decision not to get listed.

     

    The company’s founder admits the company’s activities were reshuffl ed, costs were slashed and everything was rationalised. The effects were visible at the third edition of the Azimut-Benetti Yachting Gala, an event the group organises annually for dealers and clients. However, Vitelli maintains the market is showing signs of a rebound. ”The very rich, though they lost 20-30% of their wealth, have got tired of not spending. As a result, the high-end market is coming back to life”. As for the medium segment, the founder of Azimut-Benetti says it is made up of a category of clients that was rather psychologically affected by the crisis. To relaunch sales, the company sealed a contract with CGMER, a fi nancial group specialising in fi nancing services for yacht owners.

  • Mall-mania is a thing of the past

    After a hectic week in Grenoble – a small town in the French Alps, of about 150,000 people, which also attracts several tens of thousands of students every year, two young people from Bucharest, who were attending college in France, realised they had almost no food left in the fridge. They decided to go to the Carrefour hypermarket on the outskirts of the Grenoble, one of the two big shopping centres of that town the next day, on Sunday.

    When they got there they saw the car park was empty and the hypermarket was closed. ”I was shocked maybe. I thought I was in a movie, I couldn’t understand what was happening,” one of the two remembers today, almost a year after that incident. As they would later find out, the hypermarket was rarely open on Sundays, like other big stores in France. The legislation in force in several countries in Western Europe until the end of the nineties prohibited large stores to open for business on Sundays, partly for religious reasons and partly because of the negotiating power of the unions, which wanted Sunday to be a day off for employees.

    Fiercer and fiercer competition among store chains and developers of shopping centres led to the dropping of such laws in many places, while in others a special permit is still needed to open a large store on Sundays – something that can seem at least surprising to a Romanian used to see the supermarket or the hypermarket allow them to do their shopping on Saturdays and Sundays, when the rest of the stores are closed. What happened to the two young people is relevant precisely because of this: after almost half a century of communist regime, when those who could not get out of the county, namely most of the people, actually, had only general stores to deal with instead of malls and hypermarkets, the opening of the first Western-type shopping centres stimulated a consumer spending appetite that almost defied economic conditions.

    The desire to adopt the Western cultural model and the pleasure to set foot into a ”temple of consumer spending” as abroad, turned the first malls in the country into an instant attraction. The willingness of a consumer sometimes fresh out of the grey retail (in the true sense of the word) to shop and spend their free time in modern shopping centres has encouraged developers to announce project after project, and retailers to expand at the same pace, driven by the good results in Bucharest and in the first such centres opened outside the capital city. The mall-mania, if we can call it that, both in terms of consumers and in terms of frantically announced plans by developers and retailers, has also led to poorly thought out projects, as they are considered today or to unrealistic rents paid for a retail space.

    Such times, when the newly opened shopping centres would become genuine pilgrimage places for consumers are gone, both because of the economic crisis, and as a result of the novelty of the mall concept wearing off, after such centres mushroomed, even excessively in some places. ”A great deal of money has been made in Romania without actually producing something – from real estate, from foreign investments. An atmosphere where everyone made profit was created but now everyone must suffer,” comments Ali Ergun Ergen, the man who coordinated the building of Bucuresti Mall and then of Plaza Romania and later supervised the development of the shopping area in the Baneasa project. He admits the market has developed like crazy over the last few years because all retailers had the same constant increase expectations for consumer spending. ”It’s like a balloon that you keep inflating; it will eventually burst.”

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Architecture for Crisis

    Every city that wants to be seen as a tourist attraction boasts at least one emblematic modern building, designed by a famous architect. In addition to prestige, this also brings travel revenues. ”In order for Bucharest, in turn, to boast an architectural symbol, it is essential for a trend to be created. In Spain, the mega projects were launched in Barcelona, and then the other cities started to ask for buildings designed by famous architects,” explains Bofill.

    The architect says the crisis is the best time to make such plans, with the launches to take place after the crisis is over. In Bucharest, he has designed an entire quarter for Spanish company Avantia, on a 12 hectare plot bordering Lacul Morii (Morii Lake). It will include office buildings, extensive commercial areas and residential buildings, covering 590,000 square metres in overall built area.

  • The African Queen

    Under the circumstances, Africa is now the queen of spring and summer collections of major designers. One of the most successful products of African inspiration on the market has been the spring/summer collection created by Marc Jacobs for Louis Vuitton.

    To add flavour to the shoe line (called Spicy), the designer has included elements usually associated with Africa – snakeskin, feathers and semi-precious stones. The collection is dedicated to Josephine Baker, the famous singer and dancer from the 1920’s Paris, whose exotic features conquered the City of Lights. The shoes now lead the African fashion caravan and, despite the crisis, are selling like hot cakes.

    Chloë Sevigny is a Hollywood star who appeared on the red carpet wearing a pair of Vuitton Spicy, and has sparked a craze for this model among celebrities. Demand is high, all the more since every pair is different, suggesting the idea of unique, handmade objects, something that Africa excels in.

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican

  • Feel free to cream off the milk

    Shmulik Porre, president and CEO of Tnuva Romania needed only one week to weigh the parent company’s proposal to take over the reins of the Romanian subsidiary. ”It was time to make a change in my career,” says Porre, who was general manager of the largest paint manufacturer in Israel for five years before accepting Tnuva’s job offer.

    It’s been over a year since then, and, when looking at the progression of the company he is running, Porre has no reason to regret making this decision: Tnuva Romania boasted the fastest growth rate on the market in 2008, when it reached 20 million-euro sales. This being the first full fiscal year since the company’s products hit the stores, it was in a way natural for its progression to be more spectacular than that of other milk processors. Porre takes pride in having built a project from scratch on a very competitive and dynamic market, especially since he says he is expecting a 50% turnover growth this year. So far, he has been among the few to make such appraisals; the other dairy processors expect 1-2% rises on average for 2009, at least 4-5 times lower than in past years.

    ”We think the industry will go up this year, as well, but we don’t believe it will be a two-digit rise, like in previous years,” says Traian Simion, general manager of Albalact Alba Iulia, the only large processor listed on the Bucharest Stock Exchange. The dairy market approached 1.3 billion euros in 2008, with dairy products getting top billing in supermarkets and hypermarkets over the last few years. For many years, the market saw a two-digit annual rise, surpassing all growth rates on consumer goods market.

    Now, companies anticipate that market moves have more to do with difficulties generated by the current situation, especially for small processors (which are faced with funding difficulties) than with anything else. Companies need to consolidate their position on an increasingly crowded market, with this year expected to be rich in transactions. For those that have businesses to sell, the timing is quite unfortunate, because the price has gone down significantly against the past few years, while buyers hold all the trump cards in negotiations and can afford to wait until a good deal comes along.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican
     

  • Some thrive in crisis

    Small prices to some degree marginalized Romanian cosmetic products, which consumers with increasingly high incomes were not very keen on buying. In 2009, price should be their trump card, according to Elena Cremenescu, founder of Elmiplant producer, now held by Greek group Sarantis. Cremenescu hopes this crisis will open up new opportunities on the market, referring mainly to the fact that, under the pressure of the devaluation of the Romanian currency, multinationals will increase prices in RON, and this will turn some of the customers towards cosmetics manufactured in Romania, which are cheaper.

    Elmiplant has a crisis strategy ready, whose main points entail launching new products (for skincare and bodycare). This year’s launches will boost the group’s products from 80 to over 100, following a half a million-euro investment. Elmiplant’s founder expects a 25-30% turnover increase in 2009, in line with the trend that has already been apparent in January and February. ”It seems a lot, but we are relying for this on all the products we will relaunch and on the advertising budget set aside, of 15% of the turnover,” explains Elena Cremenescu.

    Another Romanian player which is expecting growth, but of 10% (to 2.75 million euros), is Gerocossen, whose shareholders however admit that their profit margins now amount to 13%, as opposed to 20-25% last year. The largest Romanian cosmetics producer, Farmec, has a more conservative approach, expecting a 5% turnover rise, from 24.4 million euros last year, in the context of the economic crisis. Mariana Sinitaru, marketing specialist of the company, says the cosmetics industry is less exposed to the effects of the crisis, because consumers are not willing to give up daily care, even though a change in consumer behaviour will be noticeable, in that consumers will migrate to more affordable products.

    According to information provided to BUSINESS Magazin by representatives of the producer, Farmec preserved its growth rate last year, reaching comfortable growth rates: 30.3% for cleansing products, 25.7% for face care products and 9% for body care products.

  • A future for Romania

    Theoreticians and analysts have Michael Porter or Robert Reich, politicians have party programmes, entrepreneurs have their own strategies and visions, while journalists take a little of everything. Many people keep repeating that the current economic crisis should be an opportunity for reflection, for catching up on those reforms not done in time and for plans for what to do after the crisis. Can we hope to get a feasible strategy for Romania’s development after the crisis from theories and programmes, from the expertise thus far and from articles in the press? What fields suit us, who should identify them and what should be done?

    Almost all the businesspeople that BUSINESS Magazin has spoken with are talking about the necessity of a national development strategy, with consistency as the key word. The main development sectors are, as you can probably tell, agriculture, information technology and tourism, supported by a solid infrastructure and a quality education system.

    How one should get to such a winning bet list would make for a long discussion. On one side of the fence, of those who support the role of the free market forces exclusively, sits Dinu Patriciu, chief executive of Rompetrol, a firm believer in liberal policies: ”Were we to free the economic environment from constraints, opportunities would be born naturally,” says Patriciu, a billionaire who is the only Romanian still on the Forbes list of richest people.

    More businesspeople, however, believe in the necessity of the involvement of the state in setting economic directions to be followed, in partnership with the business environment, of course. ”The fate of Romania is in the courage with which the government, whatever colour it might be, undertakes the restructuring of public services and businesses from the ground up,” says Marius Stancescu, chairman of Riff Holding International, a business service company.

    ”There are countless models in developed states, we just need someone to do the research and apply the model,” he feels. Otherwise, unless a change of direction occurs, Romania’s economic future will show its ”incurable impotence” in the next ten years. Even pushed forward by EU’s integration mechanisms, if no government takes the risk of fundamental changes and is able to induce the effective use of public resources, we will always be ”the poor relative on a visit to the city,” Stancescu concludes.

    A cooperation between politics and economy would be ideal, Florin Talpes, chief executive of the BitDefender software developer, believes, as well. Ideal not because it is desirable, but because it has not happened until now. ”Romania’s governments have been showing a great neutrality towards the fields of the future until now. As for the political environment, I don’t think it favours medium to long-term strategy building and consistent application of such strategies,” Talpes says.

    The creator of BitDefender, the antivirus thought to be the best-known Romanian software application, says that a solid economy is a project that takes eight to twelve years and requires vision to begin it. ”However, political changes happen at intervals of less than four years and lead to replacement of all public servants down to school principals.” This means lack of continuity in strategies and renders Romania unable to show consistency in policies other than those imposed the structures we are part of, EU or NATO.
     

    Traducere de Loredana Fratila-Cristescu si Daniela Stoican