Navigating Currency Volatility: Understanding 1.95 Euro kaç TL and its Impact on Turkish Retail

The rapid appreciation of foreign currencies, with the dollar exceeding 2.17 TL and the Euro surpassing 3 TL, has brought significant attention to shopping malls (AVMs) in Turkey where rental agreements are often denominated in foreign currencies. This currency volatility has created considerable pressure on retailers, prompting discussions on how to mitigate the financial strain caused by these fluctuations. As the Turkish Lira weakened, retailers found their operational costs, particularly rent, escalating sharply, impacting their profitability and overall business sustainability.

In response to this economic pressure, some proactive measures were taken to stabilize the situation for retailers. Aziz Torun, Chairman of Torunlar GYO and the Real Estate Investment Trusts Association (GYODER), emerged as a key figure in addressing this challenge. Recognizing the strain on tenants, Torun took the initiative to implement a fixed exchange rate policy within his shopping centers.

Back in September, when the dollar first breached the 2 TL mark, Torun had already adjusted the exchange rate in his AVMs to a more manageable level, setting it between 1.75 TL and 1.87 TL. He introduced what was termed the ‘Başçı exchange rate’, referencing a perceived benchmark, and indicated a cap of 1.95 TL for the dollar by year-end. Extending this support further into the new year, Torun announced fixed rates for the first three months of 2014, setting the dollar at 1.85-1.95 TL and the Euro at 2.65 TL. This decision provided a degree of predictability and relief for retailers struggling with the fluctuating exchange rates.

This fixed exchange rate commitment, effective from January 2014 across seven AVMs including İstanbul Torium, Bursa Korupark, and Zafer Plaza, aimed to provide stability during a turbulent economic period. Torun emphasized the necessity of support, stating, “This is the time for support.” He further explained, “We do not see the situation as an opportunity with the currency increasing in 3 days. When calculated according to TEFE-TÜFE averages, the dollar is already around 1.95 TL. We are making an adjustment according to inflation without victimizing the tenant.” This approach was also extended to partner AVMs such as Netsel Marina, Bulvar Samsun, and Sera Kütahya.

Panora AVM in Ankara also responded to the economic climate by announcing its own fixed exchange rate policy to buffer against the adverse effects of currency fluctuations. For the initial quarter of 2014, Panora AVM fixed the dollar at 1.75 TL and the Euro at 2.40 TL, demonstrating a broader trend among AVM operators to provide some financial respite to their retail tenants.

However, the broader retail sector remained concerned about the long-term implications and sought industry-wide solutions. Sinan Öncel, Vice President of the United Brands Association (BMD) and owner of the Twigy brand, voiced the industry’s apprehension. “We will wait for common sense to prevail,” Öncel stated, highlighting the urgent need for AVMs to adopt fixed exchange rates more broadly. He pointed out the critical year-end shopping season, a peak period for retail, where businesses were intensely focused on sales amidst the uncertainty.

Öncel indicated that while no immediate collective decision had been reached within the BMD, meetings were planned post-holiday season to address the escalating issue. He warned of a challenging year ahead for retail in 2014 if AVMs did not adopt a more understanding stance. “If common sense does not prevail from the AVM side, I can say that a very difficult year awaits us for 2014,” he cautioned, underscoring the potential for significant disruption if currency-related rental costs remained unchecked.

The rising currency rates not only impacted rents but also inflated the cost of goods, further squeezing retailers’ margins. Öncel highlighted the strain on consumers, noting that credit card limits were largely maxed out, and installment plans had been restricted. He also pointed out the burden of common area maintenance fees in AVMs, often also invoiced in foreign currencies, adding to the financial pressure. Despite the crisis coinciding with the busy holiday shopping season, which offered some buffer, Öncel suggested that the damage would have been far more severe had it occurred during a less active retail period. He observed a shift towards more affordable options among consumers but noted their continued participation in gift-giving, a cultural aspect of the season.

Hulusi Belgü, President of the Shopping Centers and Investors Association (AYD), acknowledged the severity of the currency surge. He emphasized the importance of the sustainability of these fluctuations before implementing widespread fixed rate policies. Belgü indicated that a comprehensive assessment of the situation would be undertaken after the year-end period. “Today may not be the right time. Prices are increasing with every discussion. We cannot make quick decisions, but we want to support,” Belgü stated, reflecting a cautious yet sympathetic approach from the AVM investment side, balancing the need for retailer support with the complexities of a volatile economic environment.