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The death of a splendid consumer culture

24 January 2019

Nobody made a movie like “Crazy Rich Asians” about Turkey’s conspicuous consumption habits, but my countrymen and women were as zany as their Asiatic cousins in the hey-days of the Great Consumer Culture Era, dated 2009-2017.   Ritzy Italian clothing, perfume and shoe brands filled shiny malls crawling with haughty shoppers, dressed both in modern and traditional garbs.  Huge 9-seater gas-guzzling   American SUVs clogged the already congested roads of Istanbul, with petite Turks barely visible behind gargantuan dashboards honking indignantly at cab drivers cutting them off.  The super-rich, rented converted Sultan’s palaces at the shores of  Bosporus, or in tiny Aegean islets  to organize weddings for their privileged siblings. $10 mn flats overlooking Bosporus sold like hot pretzels in weeks.

The end of an era

 

Alas, it wasn’t mean to last.  Turks lived like people earning $40K per annum with a per capita GDP of $10H at best, relying on dirt-cheap bank credit  (thanks to Erdogan’s “I hate interest rate policy), as the country experienced an almost non-stop economic boom between 2003-2017, interrupted only by the brief recession of 2009, as an aftermath of the Great Financial Crisis.

 

In 2018, despite historically high  growth in spending which doubled budget deficit in nominal terms and a bumper crop tourism season, the dolce vita ground to a halt, as the lira slumped at some by point by 60% vs. the dollar, and the decline in employment set in, which lasts to date. CPI soaring to 25% YoY, gnawed away at spending power, as lucrative state tenders and  no-contest procurement contracts, the main-stay of pro-AKP neuvue rich upper class dried up.

 

As a result, consumer loans grew by only 4% YoY in early January, which means a 15% shrinkage in CPI-adjusted terms, devastating purchases of ritzy high-rise penthouses, imported mega-jeeps and the fashion of acquiring the latest iPhone the day it is put on sale in USA.

 

According Turkstat, 20%  of the population reported a decline in  disposable incomes in 2017 already, the last year for which data is available.  57% shifted to cheaper brands to make ends meet. 33% had to acquire new debt,  while 20% reduced savings just to keep up with inflation and  rising household expenses. 28% reduced discretionary spending like vacations and movie-going….

 

2019 will be tougher

 

January Turkstat Consumer Confidence Index slumped 1% MoM to reach the second lowest level since the beginning of 2017.  A vast majority of respondents to the survey expressed pessimism about CPI, their wages and opportunities for jobs.

 

According to a brand-new poll by PI-AR surveying agency, 35% of participants complain of a weak economy, followed by fears of unemployment by 15%.

 

 

On Tuesday, another high-street clotting retailer Collezione (a domestic brand actually) with 130 stores across the country sought bankruptcy protection, joining lingerie, jewelry, home-decoration and shoe producers.

 

On Wednesday, one of  Turkey’s food production giants;  Anadolu Birlik Holding also threw in the towel. The parent company is in talks with lenders to restructure a portion of its $2 billion debt pile, according to two people with knowledge of the matter.

 

Anadolu Birlik Holding AS wants to extend maturities on loans it took out to finance investments in the energy sector, the people said, who asked not to be identified because the talks are private. The company is seeking to restructure less than half of its total debt and the negotiations may be finalized within the next two months, one of the people said, reported Bloomberg.

 

 

This is not a temporary slump

HSCB Securities research described the situation in 2019 in a report titled “Consumer in 2019: A difficult year”:

Turkish consumers are set for a difficult year in 2019 as signs of economic contraction are visible while inflation is expected to remain at elevated levels. Our Economist expects GDP growth slowing from 3.0% in 2019 to a contraction of 1.8% in 2019, reflecting a drop in consumer spending by 2.8% YoY 2019 and a sharp contraction of 11.3% in fixed investments. Although minimum wages which were raised by 26% for 2019 provides some offset in spending, the overall macro environment remains challenging for consumers.

 

“The operating environment for Turkish consumer companies has become tougher due to challenging trading conditions. We expect further slowing and consumers to trade down as broad-based high inflation hurts household budgets. In addition, the higher unemployment trend is likely to continue in the months to come. Thus we prefer resilient consumer companies” adds RenCap Research.

 

Time has come to pay the piper.

 

By Atilla Yesilada,

To inquire about the author, visit

www.istanbulanalytics.com

 

 

 

 

 

 

 

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