The future of fashion retail in Czech Republic

New fashion brands are coming to the Czech retail market. We are seeing a rise in commercial property hand in hand with this. Bohemian and Moravian cities, in particular, are announcing CZK one billion real estate transaction after another this year.

Foreign capital, which was previously dominant in real estate, has been facing strong competition from local real estate investors in recent years. Shopping centres are not experiencing a lack of demand for long-term rentals, and shopping parks, in particular, are enjoying a boom this year, a wide product portfolio is available, thanks to shopping parks, also in smaller regional cites and trends in domestic retail are helping retailers. What are the specifics of the local market and how difficult is entering the Czech retail market for international fashion brands?

STARTING A BUSINESS IN THE CZECH REPUBLIC

Nela Paradjina, Head of Trust Management Team from the ASB Group, summarises what steps have to be taken (not only) by foreign retail companies when entering the Czech market before opening a branch. “The demands on administration and time linked to establishing a company, including other specific registrations authorising it or required to do business in retail are relatively high in comparison with other countries in Europe. The vast majority of clients, primarily in order to save time, prefer to buy ‘ready-made’ companies. The transfer of an ownership interest in an existing company basically takes one day.

“This is followed by registration of trades and mandatory and voluntary tax registration. With regard to the type and import of goods, there could be a duty to register with customs and hallmark authorities. Before opening a sales outlet, it is necessary to arrange documentation for occupational safety and properly train employees. Another specific area is public broadcasting of music/music videos in stores and obtaining licences from collective copyright administrators. The time necessary to handle the above is between 30 and 60 days, in particular due to the time demands for obtaining a voluntary registration for VAT and setting up compatibility of cash register software with the requirements of Czech financial administration in accordance with electronic records of receipts (most business use their own foreign software supplier and IT for the whole group).”

LEGAL AND TAX NEWS FOR RETAIL

Key legal developments concerning retail are commented on by Tomáš Doležil, a partner in the law firm JŠK and head of its corporate team. “The last year brought a number of new developments concerning the law, some of which should not escape retailers’ attention. This concerns the duty, much-discussed in the media, to record receipts in the ERR regime, which concerns retailers from this March, and a law that prohibits the operation of retail stores with a sales area over 200 m² on selected public holidays and limits permitted sales hours over Christmas.

“As far as concerns the near future, retailers can expect the introduction of a new regulation on personal data protection called GDPR. With effect from 25 May 2018 they will introduce a number of new duties when handling personal data, which, in fashion retail, are often, for example, data gathered as a part of loyalty programmes. It conclusion, it is certainly a good idea to draw attention to the amendment to the Labour Code, as a part of which there was strengthening of employee protection against discrimination and also the introduction of new misdemeanours that an employer can commit in this regard,” added Tomáš Doležil.

Tax news and the specific impacts on VAT are presented by Jana Pytelková Svobodová, Head of Tax Team Czech at the ASB Group. “Fashion retail stands out due to the very widespread use of gift vouchers. In this context every retailer should be interested in what impacts on VAT the settings of the vouchers it chooses will have. Evidently insignificant differences in the specification of conditions of use of a voucher can have as a consequence quite different tax treatment of the vouchers. What is key is to assess whether a voucher can, from the VAT viewpoint, be regarded as multipurpose and therefore something a retailer does not have to pay VAT on when it is sold to the customer, or whether it is a single-purpose voucher, whose sale must be subject to VAT. More detailed rules, but also a number of new questions in this regard were brought by the amendment to the VAT act, with effect from 1 July 2017, as well as the related official information from the tax administration.

“Fashion retail is also involved with new methods of promotion, including co-operation with bloggers. This co-operation between a retailer and a blogger often has the character of a barter (exchange), so here there can be hidden tax impacts, on both sides. The tax assessment of mutual relations and identification of mutually provided performance can vary, depending on the freedom and informal nature of co-operation.”

E-COMMERCE KEEPS ON RISING

Retailers’ revenues are continuing to rise this year. The share of e-commerce in total retail keeps growing and revenues from e-shops have reached almost a CZK hundred billion. Retail, the same as most other sectors, is undergoing a test in the form of digitalisation, where retailers are adapting sales and marketing strategies and trying to maximise the benefit of digital business. There is also significant growth in the share of omnichannel retailing, i.e. the use of multiple communication and sales channels to satisfy customer needs in the purchasing process.

The Czech “new age” fashion retail company ZOOT is a major trailblazer for this model. ZOOT’s PR manager Andrea Burgerová says: “ZOOT was been working with the model you know today since 2012. It was preceded by two unsuccessful attempts. There was no such inspiration abroad, at that time it was, to a marked extent, a unique thing-linking the variety of online selection with personal experience and with the chance that a person might not buy it in the end - it’s called omnichannel retailing. It’s interesting that the concept that, ‘I’ll order, try and pay for what suits me’ is accepted differently in different countries. At the start, Czechs were very careful, they didn’t want to believe that they could really order one t-shirt in two colours and three sizes. On the contrary, Romanians started to use the model’s benefit very quickly.

“At the current time we have 41 issue points on three markets - 22 in the Czech Republic, 10 in Slovakia and 9 in Romania. Over 70% of orders now go through issue points and 80% of it is ladies’ clothing. The issue points also serve as a marketing tool for us, where we can present the new brands,” she added.

The jewellery company PANDORA Jewelry, a leading seller of jewellery and accessories in the Czech Republic, is also active. “Very dynamic growth in e-commerce sales in eastern Europe, where the Czech Republic is one of the leaders, is leading us to a point that we cannot ignore. The basic task when taking sales growth plans into account and building loyalty in the future is a customer-centred approach with a strong online presence. First of all, in the countries of eastern Europe, where the Czech Republic is one of the leaders, we are seeing high growth in online consumption and use of smartphones,” said PANDORA Country Manager for the Czech Republic and Slovakia Dušan Šourek.
“Pandora is witnessing a marked increase in traffic at our website, which means that customers regard the website as the first contact point if they are looking for a new product or special offers. Retail chains will soon have to adapt to a multi-channel approach in which it is possible to categorise and perform each individual interaction with the customer as a part of any available channel - online purchases, offline returns,” he added.

…ON-LINE WORLD REVOLUTION AS AN OPPORTUNITY

The rise of the internet has led to new marketing trends in retail and opened up new options for communication between retailers and customers. What works on Czech customers and what are the main customer care trends? “Czechs’ requirements for customer care have, in recent years, been higher and higher, thanks to the opportunity to immediately share feedback over social networks and interactive websites, that are at the forefront of trends in digital customer care. The perception of a brand is mostly more influenced by the consumer’s total experience of the brand than the products themselves. Teren Management Europe therefore wants to offer a unique experience with the Forever 21 brand, for the entire duration of contact with the customer. An ‘omnichannel’ approach guarantees that we can get in touch with customers over one day or week and involve them in various ways,” said Alexandros Doukas, CEO of Teren Management Europe.

“In addition, Teren Management Europe is, with the Forever 21 brand, active in the digital environment, uses online tools such as social networks, content in digital magazines and influential marketing. Interest in the brand during digital activation is rising, although positive brand awareness remains for a long time afterwards, which was confirmed for us by recent research. In the Czech Republic, Teren Management Europe is attempting to ensure that customer care reaches a new, previously unseen level,” added Doukas.

Dušan Šourek from Pandora concluded: “Together with the popularity of social media we are also seeing that customers respond to a brand essentially more frequently and their demand is changing. Requests over messenger prove that people regard FB as another channel for service and a valid source of information. Behaviour during searches provides very interesting knowledge about customer needs they expect personalisation, an individual approach and intuitiveness.”

…POP-UP RETAIL AT THE END

The opinion of Dušan Hříbal from The Prostor: “People working in advertising and retail are constantly thinking about how to differentiate their brand from the others. The online world is omnipresent and e-commerce is growing year after year; we are also seeing an effort to present a brand in a unique and unrepeatable way. In this area I can see potential, in particular, for rising offline activities by large brands that present their products in the form of pop-up stores. For example, Nike likes using experience centres where customers can try the products out directly. A big advantage is that this concept enables the product to be perceived by all the senses.

These places, however, serve only to test goods, not to buy them. People can therefore get rid of the feeling it is necessary to buy goods and the relationship between a brand and the client therefore arises subconsciously.”

 

From our member in Poland, Czech Republic and Slovakia : ASB Group

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