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HIGH-END IS RED HOT IN TBILISI RETAIL
With the economy picking up in Q1 2010, the high-end retail market in Georgia has regained its pace. Investor.ge maps out the high-end market in Georgia, its past and future trends, customer base and associated difficulties.
Lizaveta Zhahanina
A Market Overview
Nearly two years after the financial crisis hit Georgian markets, the extent of its impact is becoming clearer. While the crisis took a toll on many sectors of the economy, high-end retailers have escaped relatively unscathed.
“The war and economic crises did not hurt the high-end retail market too much,” said Nino Masurashvili, head of the retail department and deputy CEO at TBC Bank in an e-mail interview.
During the 2008 war, very few VIP clients of the bank withdrew money from their accounts. In comparison, the rate of withdrawal was much higher for those with small and medium deposits.
Many of these VIP customers, however, stopped spending – causing havoc on the retail side of the market.
“In the beginning of 2008 we opened this brand in Tbilisi,” said Nana Shavshishvili, Director of “MNG Ltd.” and owner of the Furla franchise in Tbilisi. “I must say that everything was very good, no fears, but, of course, the August events had a tremendous impact on this momentum.”
Shavshishvili said that the war and its psychological impact threatened her business to a far greater extent than the global economic crisis.
“Somewhere in the autumn [of 2008], everything was still continuing by inertia, but starting with the winter it turned really awful and difficult,” she said. “We just had to hold on to preserve this franchise.”
The economic downturn did not discriminate between high-end and premium brands, resulting in plummeting sales of both. Natia Ninidze, brand manager for Hugo Boss and Ermenegildo Zegna with “Victoria 98 Ltd.” said that the crisis affected the company’s lowest brand, Boss, and its highest brand, Zegna, with the same magnitude.
Businesses that opened during the crisis period, such as Missoni Home and Oval Restaurant and Steakhouse, also felt the impact.
Tamar Vasadze, the owner of Oval, said she made all the preparations for the restaurant’s opening before the events of August and did not want to abandon her plans. Eventually she decided to open in February 2009.
“It was not the best time because there was an economic crisis in the entire world, especially here, but still we took a risk and opened the business,” she said. “If we had done it before the war it would probably have been better for us.”
Recovery, however, eventually came across the board.
“After the crisis subsided we have had two or even three times higher turn-around,” said Irakli Abdushelishvili, manager at Missoni Home.
Who is Buying High-End Retail
TBC Bank divides the overall market into four segments ( “high-end,” “upper middle class,” “lower middle class” and “below the poverty level”).
The high-end segment is stable and accounts for about 10 percent of Georgian households. TBC Bank characterizes this sector in the following way: “[They] do not have material need ... can buy with own money or credit an apartment. Or … can afford everything except an apartment and things of a similar value.”
The upper middle class is defined as the people who “have enough money for buying big household [appliances] but … cannot afford a new car with [their] income or credit.” In comparison, the lower middle class, according to TBC Bank’s scale, includes those who find it hard to buy big household items, such as fridges and TVs with their income.
Ninidze believes that about 20 to 25 percent of Georgians could afford to shop at Zegna, a world-renowned designer label famous for its menswear. But only 30 to 35 percent of the store’s customers are Georgian, the majority comprising expatriates and foreign businessmen visiting Tbilisi. Prices for a Zegna wool suit start at about 3,500 lari, depending on the quality and garment’s specifications. A dress shirt here averages 600 lari, if not on sale.
Shavshishvili is also basing her optimism for the future on a greater number of foreigners shopping at her store. “You work not only for the population of your country, tourism also has a great impact. Especially for the European brands, because of the tourists from Europe,” she said.
While some high-end stores are content to focus on a narrow market with deep pockets, other stores are hoping easy access to financing will broaden their potential customer base.
“These brands do not work for the masses and the accent should never be placed on this; when you open this brand you never count your business or your profit based on the entire population,” Shavshishvili said.
Missoni Home, however, has a credit program to make its products more accessible to the middle classes.
“This was a marketing decision: the more customers you have, the greater profit you get,” Abdushelishvili said.
The high-end market also seems to be male dominated. “Victoria 98” currently sells only menswear (in three franchises and two multi-brand stores in Tbilisi). “I think in Georgia men earn more and they spend money on themselves, women do not earn as much and cannot go shopping for high-class brands,” Ninidze said.
Challenging Opportunities
Even though high-end customers are spending again after two years, opening a new store in Tbilisi tailored to high spenders is an expensive, uncertain enterprise, with long term returns.
“We are not thinking of making big business in Georgia,” said Lasha Ananidze, owner of Amnesia, a new multi-brand store in Saburtalo which carries labels like GF Ferré and Costume National. Ananidze also owns similar stores in the UK and Italy.
Ananidze opened Amnesia for his wife and daughter, without pinning much hope on making his income in Georgian retail. “I may sell one pair of shoes per day here, but in Sheffield, England [I sell] 50 to 60 pairs of shoes, so my market is not here,” he said.
The store has been open for two months, with 50 to 60 customers visiting daily. Only between 5 and 10 percent of them make a purchase.
Ananidze plans to open two more stores, one on Vazha-Pshavela and another on Abashidze, but he is watching the market closely before making any major expansions. “We will wait until New Year and then assess the situation; if everything is OK, the store will stay, if not, we will close,” he said.
Amnesia operates with an all-year-round 30 percent discount on its products to provide incentives for the customers and clear the shelves for new arrivals. Without this, the products simply do not sell. With the discount, a pair of shoes from GF Ferré summer collection at Amnesia cost, on average, 300 lari.
Stable and Growing
Currently, the high-end market “is expanding but not rapidly,” Masurashvili said. The TBC Bank’s VIP client base has been steadily growing since April 2008, rising from around 7 percent then to around 10 percent by April 2010. “This is quite a stable market increasing at a slow pace,” Masurashvili said.
With the crises now behind them, Shavshishvili said that the horizon is clear for bringing new premium and high-end brands to Georgia.
“Today one can talk and think absolutely calmly; one can open stores with these types of brands here without fears,” she said.
Joop!, a premium clothing brand, opened a franchise in Tbilisi in January 2010, currently only carrying menswear collections.
It belongs to Address Retail Management, a company that has introduced seven European brands to the Georgian market.
David Songulashvili, a managing partner at Address, said that Joop! is the first premium brand opened by the company in Georgia (otherwise the company is aiming at the mass market with stores like Tom Taylor and Etam) and so far it has been doing “not badly and is improving month by month,” Songulashvili said.
Managers of both Joop! and Hugo Boss said that these brands are considering expanding to bring women’s collections to the Georgian market, based on their market performance.
According to TBC Bank, moods and expectations are running high. “Now it [the high-end market] has almost fully recovered,” Masurashvili said.
“The expectation of the population about future economic well-being is much more optimistic than before and this is true also for high-end clients.”
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