Latvia is one of three Baltic countries in Northern Europe and a member of the European Union, among other international organizations. As of 1 January 2014 it has been part of the euro zone. The total market size is just over 2 million, and most people live in the capital Riga. The economy has been improving and growing strongly since 2010.
With more than half of population concentrated in and around capital Riga, it is not surprising that the main retail formats are also concentrated there. Most international fashion retailers are also focused on Riga, with only a few of them represented outside Riga. Latvian shoppers are used to having to travel for any significant fashion shopping trip either to Riga, or even perhaps to a close-by Lithuanian city, and beyond to visit Polish cities and towns, even the outlet centers in Germany.
Supermarkets and hypermarkets are represented in all the important towns in Latvia. The distribution of the various DIY formats is not dissimilar in that they are located in residential areas, close to their shoppers.
Of the three Baltic countries, Latvia has been the seemingly most reluctant to develop its own retail formats, with a significant proportion of franchise formats represented by Lithuanian or Estonian franchisees. Latvia has a strong tradition in the manufacture of fashion and other design, arts and crafts, food and food products. Another contributory factor is arguably that banks, operating in Latvia, have been reluctant to finance retail formats. However there are a few small local formats, for instance Stenders, Madara and Attirance, which have succeeded to attract international shoppers.
Modern shopping centers, at least all in large and medium-sized categories, have been developed, owned and operated by international or regional companies. Shopping centers are well designed, built and maintained and there are growing numbers of international brands. Progress since 1995, when real retail development started after Latvia’s regaining of its independence, is staggering. People are eager to shop, but there are nevertheless some peculiar aspects of the Latvian market that need to be considered by new entrants to the market.
|Unemployment rate (%)||19.5||16.3||14.9||12.1||11.0||9.7|
|LVL/€ (LV joined € on 1.1.2014.)||0.7028||0.7028||0.7028||0.7028||1.0||1.0|
|Interest rates 3-month (%)||0.7||0.3||0.2||0.1||0.1||0.1|
NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Eurostat; Oxford Economics
|GDP||EUR 23.3 billion|
|Public sector balance||-1.3 (2013)|
|Public sector debt|
|Current account balance|
|Parliament||Unilateral, 100 seats|
|Head of State||President Andris Berzins|
|Prime Minister||Laimdota Straujuma ("Vienotiba")|
|Election dates||October 2018|
|RETAIL SALES GROWTH: % CHANGE ON PREVIOUS YEAR|
Source: Oxford Economics Ltd.
|Largest Cities (2014)|
MAJOR INTERNATIONAL FOOD RETAILERS
RIMI, MAXIMA, PRISMA, STOCKMANN
MAJOR DOMESTIC non-FOOD RETAILERS
DEPO, Lauma Lingerie, Stenders, Madara Cosmetics, Dino Zoo
INTERNATIONAL RETAILERS in Latvia
Inditex Group (Zara, Bershka, Pull & Bear Etc), H&M, Mango, Marks & Spencer, Arcadia Group, Debenhams, Next, BALTICA, Stockmann Group (Stockmann, Seppala, Lindex), Tommy Hilfiger, Camel Active, NewYorker
Food and Beverage Operators
Costa Coffee, McDonalds, Chili Pizza, Double Coffee, Gan Bei, Harry Morgan, Vairak saules (most of total number are one-off enterprises)
|MONDAY - FRIDAY||SATURDAY||SUNDAY|
|10.00-19.00 (stores)||10.00-19.00 (stores)||Stores usually closed|
|10:00 – 22:00 (s-centers)||10:00 – 22:00 (s-centers)||10:00 – 22:00 (s-centers)|
LATVIA is one of Europe’s smallest markets with a population just over 2 million and relatively low retail spending per capita according to official statistics. Traditional retail sector restarted in Latvia in 1991, after it regained its independence. As in few other industries, retail development skipped a number of development stages so that the current supply of shopping centers is modern and is up to date technology wise.
Many international retailers consider the Baltics as a whole market, with its 6 million inhabitants, rather than individual countries, This makes it a more viable option for expansion. However there are still different languages and also shopping and other attitudes differ, which puts additional pressure on marketing efforts.
Total existing stock of shopping center (over 5,000sq.m) space in the Latvia totaled over 650,000sqm GLA as at 1 January 2014. Of the total 48 shopping centers (over 5,000 sqm) in the market, 5 are classified as large, 6 – medium and 37 are small (by ICSC standards). Hypermarket-anchored centres with catering and/or leisure elements are the most popular format.
Latvia so far has no retail parks or any organized modern warehouse retail location. Nor does Latvia have any factory outlet centers. There is one planned.
E-commerce has developed in Latvia along similar lines to the rest of Eastern Europe. International e-tailers appear to have some strange restrictions regarding sending particular goods to Latvia. Local e-tailers come and go. Banks are not eager to finance e-tail, so not very big number survives on in-house funding. Local e-tailers usually are narrowly specialized.
It is possible to enter Latvian retail market direct, though many choose the franchise route, which sometimes means that consumers believe that the franchise operator does not always offer the latest assortment.
There are no restrictions on foreign companies either buying or renting property in Latvia. Lease structures vary from location to location, but in general shopping center operators are increasingly introducing triple-net rent. The best shopping centers have waiting lists for tenants, so there is less scope for negotiations, though international retailers are still able to secure the best spots quickly and even with considerable landlords’ contribution for fit-out.
Although it is possible to occupy a new building within a few weeks, it is more realistic to expect that on average it will take 6-9 months from initializing the property search to taking occupation of an existing property. This includes time for considering location options, the identification of buildings or shopping centers, negotiating lease terms and fitting out the premises.
New Entrants to the Market
|Debenhams||Blue Ink||Superdry||Tally Weijl|
|TOP SHOPPING CENTERS BY SIZE|
|NAME||CITY||SIZE (GLA SQM)||YEAR OPENED|
|SPICE & SPICE HOME||Riga||67000||1998|
|KEY FEATURES OF LEASE|
|Lease Terms||Usually for anchor tenants, lease terms are 10+5+5 years with un-breakability clause for at least half of initial term. In any case, for anchor tenants after un-breakable period there has to be 6-12 months advance notice. Compensation for lost years might be required. For smaller tenants usually leases are for 2-5 years with 3-6 month termination notice for both parties.|
|Rental Payment||Rents are typically payable monthly in advance. Turnover/percentage rents are increasingly seen in shopping centres and also stand alone/High Street premises. A security deposit is not normally required for a tenant with a strong covenant or where a parent company guarantee (or less frequently a bank guarantee) is provided. For regular covenants, a deposit is required, by negotiation with 1-3 months’ rent equivalent commonplace.|
|Rent Review||Indexation is rather common practice (usually based on CPI by “Eurostat”), but it was generally suspended during recession. Usually indexation starts after 18 month of operation at the premises by the tenant. Sometimes parties agree on percentage from turnover, but, as incentive, for first 12-18 months tenant pays lower fixed amount. After performance review, rent principles are adjusted.|
|Service Charges, Repairs and Insurance||A service charge is usually payable in multi-tenanted buildings and covers management fees, security, cleaning, landscaping, internal maintenance of common parts, external maintenance and insurance, servicing of elevators, water, heating, air conditioning, management fees and property taxes. It excludes internal maintenance and insurance of rented accommodation, utility charges and is VAT applicable. The landlord is responsible for external /structural matters in shopping centres (charged back via service charge). The tenant is responsible for internal matters. The landlord usually insures the main structure and external fabric but will try to charge this back to the tenant. Insurance for common parts is also paid by the landlord and mostly charged back. The tenant pays for internal insurance directly, in case such insurance is required.|
|Property Taxes and other costs||The local government authority charge property tax, which can theoretically be from 0,2% till 3% of cadastral value of the property. Usually commercial property is taxed at 1,5% of cadastral value; the tax announcement is sent to each landlord before each taxation year. VAT at 21% is charged on rental payments.|
|Disposal of a Lease||Sub-letting is possible under the terms of the master lease, subject to arrangements between landlord and master lessee (usually done by hypermarkets). Assignment rights in general lease cases are normally barred, subject to special negotiations. Early termination is only by break clause, to be negotiated at outset of lease by mutual consent upon negotiation. At lease end, the tenant is responsible for re-instating the premises to the same condition as at the start of the lease, subject to normal wear and tear. All tenant improvements must be approved by the landlord subject to the alteration covenant in the lease and the fact that approval should not be unreasonably withheld.|
|Valuation Methods||There are not generally established valuation methods, but ground floor well exposed units will be the most valuable along with units next to popular anchor tenants and in front of super/hypermarket cash lines. Upper floors will be valued proportionally lower, subject to actual layout and vertical circulation of the shopping centre. Basements are traditionally with lowest rent. Usually shopping centre lease terms (for prime centres) are landlord led with “take it or leave it” position in most popular centres (usually with some tenant waiting list). After recession there is some limit, where tenants are willing to end negotiations: at about 8% of estimated turnover amount.|
|Legislation||Leases must be in writing, one copy for each signing party and the signing persons have to prove their signing rights. Longer leases are usually registered with Land Book. A mandatory standard form of lease does not exist although a market standard is in place. There are shorter forms to help smaller businesses, but these might include very short termination period from landlord side. Overall, lease legislation is based on Civil Law, which is Latvia by long standing tradition is based on the German Civil Law. Jurisdiction is almost always established in lease contracts, either regular Court or specifically indicated arbitrary court.|
MARIS J. OGAConsultant, CRE/RRE projects
Latio LLP (Baltic partner for Cushman and Wakefield)
8 K. Valdemara Street
Riga LV-1010 LATVIA
Tel: +371 67 032 300
Mob: +371 292 111 40