Market Report, "Turkey Retail Report Q2 2016", published

With a population of 79.6mn in 2016, rising to 82.3mn in 2020, Turkey is the second largest country in Central and Eastern Europe and a key retail market. T he largest market, Istanbul, has a thriving retail market, with a large number of new shopping malls under construction and good representation by foreign brands. Overall, the Turkish retail market is dominated by local retailers, but as the country has become more open to foreign investment, international players have increasingly been attracted by the opportunities on offer .

Households incomes are set to rise significantly over our forecast period to 2020, bringing increasing numbers into the middle class. However, manufacturing and construction will remain key employment sectors, along with agriculture, and this will keep income growth low and mean that the most significant opportunities for retailers will be in essential products such as groceries and in general at the lower end of product categories across the retail spectrum. The country will also remain divided geographically, with rural dwellers typically earning less than urbanites.

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However, at nearly 75%, the country is highly urbanised, and the key youth demographic (those aged 20-39 years, who typically have the highest disposable incomes) make up more than 30% of the population, creating opportunities for retailers, particularly in non-essential segments, wishing to expand in urban areas. Meanwhile, unemployment is set to fall over our forecast period, reaching 6.5% by 2020, again creating opportunities for retailers.

While Istanbul's retail market is largely saturated, retailers are increasingly seeking opportunities in Turkey's other large cities, notably Ankara and Izmir, as well as in coastal areas whose economies are more closely tied to tourism. For retailers or mid-range goods, particularly essential products, there are opportunities to be had in second and third tier town and cities, as incomes grow.

Key Views & Developments

In January 2016 a terror attack in Istanbul by Islamic State targeted the important tourist industry, raising security risks and potentially damaging the industry and the retailers dependent upon it.

In December 2015 the prime minister, Ahmet Davutoglu, announced that the minimum wage would rise to TRY1,300 a month, up from TRY1,000. The rise was set to come into effect in January 2016.

Real GDP growth came in at 4.0% y-o-y in Q315, prompting BMI to revise our full-year estimate up to 3.3%, although we still forecast 2016's growth at 2.9%.

The number of households with a net income of USD10,000 or higher is forecast to rise rapidly over our forecast period, from 41.8% of households in 2016 to 57.4% by 2020.

Unemployment is set to fall from a multi-year high of 11.0% in 2015 to 10.5% in 2016, falling steadily over our forecast period to hit 6.5% in 2020.

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