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Wednesday, August 16, 2000
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Foreign-owned chains flourish as domestic stores face bankruptcy By Frantisek Bouc That's the good news. The worrisome news is that nearly all the retail chains flourishing here are foreign, following the bankruptcies of several Czech retail chains. According to the CSU report, retail sales have expanded as the number of retail business units has doubled over the last 10 years. The retail business network is expected to grow even more with the recent influx of foreign investment into the country. Zdenek Skala, an analyst with the Incoma consultancy company, said the Czech Republic has attracted more foreign chains than any other former Soviet bloc country. "The number of retail business chains has brought about not only intense competition among them, but also pressure for more effective production methods and better quality goods from suppliers," Skala explained. "Actually, retail business [development] was one of the driving forces of the entire [country's] economic transformation." Local analysts say increased competition in the retail sector has forced necessary restructuring in most other sectors of the Czech economy. The CSU reported that non-food industries dominate the retail sector. According to the report, the number of non-food shops climbed from 15,000 in 1989 to 60,000 in 1999. Czech retailers suffer Czech retailers, however, are increasingly watching the retail-network expansion from the sidelines as mighty foreign chains take over Czech markets. The last blow to Czech retail chains was delivered in May, after the Regional Business Court in Prague heard various creditors' complaints and declared bankruptcy for the Interkontakt Group -- until recently the biggest retail firm in the Czech Republic. Interkontakt was ranked first among Czech retail companies in 1998. That year, it reported 13.1 billion Kc ($336 million) in revenues, and its network featured 330 shops in the Czech Republic, plus more than 500 business units in Poland and more than 40 in Slovakia. However, Interkontakt's massive expansion was accompanied by an increase in debts, and the firm was gradually forced to sell out its properties. A lack of funds compelled Interkontakt to undergo significant restructuring. Interkontakt sold 50 supermarkets to Delvita in 1998. The following year, fierce competition forced Interkontakt to abandon its retailing activities and focus on renting its remaining enterprises to other firms. Following the previous bankruptcies of food retailers Vit-Potraviny in March 1999 and Pronto Plus in February 2000, Interkontakt became the last major Czech retailer to go bankrupt. Zdenek Somr, president of the Economic Chamber of the Czech Republic, told The Prague Post that a lack of funds, price wars and inflated expectations of the country's economic development caused the failures of big Czech retailers. "Expectations three or four years ago were that the Czech economy would continue to boom, but it turned out to be wrong," Somr said. "Local retailers were unable to realize immediate profits and were struggling with insufficient funding." Today, it seems few Czech firms are successfully following the pattern of shoemaker Tomas Bata. Bata started his business from scratch in a workshop in Zlin between the two World Wars and gradually transformed it into a global company. Plea for support Many Czechs established enterprises after the Velvet Revolution in 1989, but because they were unable to maintain their market positions they eventually sold out to richer foreign firms. Somr said he is not aware of any Czech investors willing to back the building of new retail chains these days. He added that it is essential that small and mid-size Czech firms receive more support from the state. "The sector of mid-size firms determines the overall stability of the whole economy as well as its independence," Somr said. "We know that because of over-production in Western Europe, we could easily import all our goods ... but that would lead to a situation with 10 million customers and no Czech producers." Frantisek Bouc's e-mail address is fbouc@praguepost.cz More Business stories
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The Prague Post, a weekly newspaper published in the Czech Republic.
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