How will Alfa and Akropolis merger affect retail market in Latvia?

The real estate company Akropolis Group, which owns three “Akropolis” shopping and entertainment centers in Vilnius and “Akropole” in Rīga, has purchased one of the largest malls in Rīga, “Alfa”. How will this deal affect the retail market in Latvia?Latvian Radio spoke to industry experts August 21 to find out.

In recent years, major investments have been made in the development of shopping centers (TC) in Rīga. Two years ago, the shopping-and-entertainment center “Akropole” and a new mall Sāga opened. TC “Origo”, also “Alfa”, were expanded, investing around €55 million. Mārtiņš Vanags, Chairman of the Alliance of Real Estate Designers, said that Latvia still trails significantly behind Lithuania and Estonia in office and housing construction but there are no significant differences in terms of trading centers.

The “Alfa” deal is the largest in the past 10 years, most likely in the Baltic.  “It is a good sign, because it shows that the business has been able to develop in the Baltic so that objects of the scale of “Alfa” are also at the disposal of players in the Baltic market,” said Vanags.

Inguna Gulbe, head of the agricultural market promotion center, said that changing the owners of the shopping center “Alfa” would not have a significant impact on the retail sector.

“I think nothing very radical and the cardinal will change. The brands and assortment that were there will remain roughly the same. If you look at what is in the Akropolis of Lithuania and Riga – there are no big differences. A noticeable change that might be, as it has also been observed in other places, that the network of “Rimi” shops is being replaced by the “Maxima” network. Both are equivalent chains with roughly the same quality and assortment.

“[To talk] about whether there is too much concentration is difficult in Latvia because any major company in Latvia is very small on the background of large companies in the European Union. Looking at what is happening at the moment, the center malls are empty, for example, the 'Galerija Centrs' is very empty because many work remotely. We see a lot of supermarket tenant sites empty because Covid has had an impact. But “Spice,” “Alfa” are full, you can't even park,” Gulbe said.

Representatives of the Rimi network, which leases premises in Alfa, declined to comment because they have not yet met the new owners of the mall. The merger of Akropolis and Alfa will be further examined by the Competition Council (KP), which evaluates the merger of all large companies.

Economist Dāvis Perševics, the economic analysis department of KP explained: “The Competition Council needs to assess mergers of large companies so that there is not too much concentration in a particular market. [..] We are looking at which markets overlap the activities of the merging parties, through a variety of economic analyses. Of course, if it affects the Maxima and Rimi markets, it will also be assessed.”

However, Vanags acknowledged that shopping malls have still not recovered from the effects of the Covid-19 pandemic and are looking at the future cautiously.

He said: “The retail sector was directly affected, actually banned from operating by government decisions. Shopping centers have lost around €65 million since last spring. It was a few months when only grocery stores and pharmacies could work in malls, and the revenue fell by as much as 80%.

“Of course, the malls also received aid from the government, but they cover if a quarter of the losses. At the moment, the situation is much better than it was in winter, because it is simply allowed to work and there is no need to look for innovative ways to trade outside, which do not exactly match the profiles of the mall. Overall, the mood is cautiously optimistic. But the big question, of course, is what will happen in the fall. All centers have vaccination points so that the common desire is to overcome this pandemic and to continue life and business in a normal way.”

 

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