ISTANBUL: Turkish business is feeling the pain of the dramatic slump in the lira, with many firms squeezed by higher rents and import bills and consumers holding back on spending in the hope the currency will rebound. The currency has lost a fifth of its value this year – fueling Turkey’s double-digit inflation and hitting many store owners who pay their rent in dollars.
In Istanbul’s Cevahir Mall, which sells a mix of high end and affordable clothing and electronic goods, retailers said their businesses, which run mainly with dollar-denominated overheads, were suffering.
Nedim Soy, owner of a franchise for the Turkish white goods producer Vestel, said the weak lira had pushed up costs, much of which were priced in foreign currency. “Every month, there is a price increase of 4 to 5 percent due to the instability in the exchange rate,” he said.
Soy was one of nine retailers in large and medium-sized firms who spoke to Reuters in the mall whose goods are both locally made and imported. The mall was quiet at midmorning during a visit this week.
Several of them, pointing to largely empty halls, said sales were down and customers, hit by higher exchange rates, were unable to afford price increases.
Some shoppers in the mall said they were tired of the rapidly increasing prices in dollar-based goods, especially in technology products where Turkey is almost completely reliant on imports.
“During these times, as consumers, we stay away from dollar-based products,” said Mutlu, a portfolio manager. Speaking outside the mall, he said he was holding off buying expensive foreign products until the lira stabilized.
“I’m waiting for the election and after,” he said.
President Recep Tayyip Erdogan sparked a sell-off in the already weakening lira last week when he said he planned to take greater control of the economy after next month’s election, deepening concerns about his influence on monetary policy.
The lira’s losses, which have eroded the purchasing power of ordinary Turks, could bode ill for his chances in the June 24 parliamentary and presidential elections.
The Turkish Statistical Institute said Wednesday that consumer confidence had fallen in May to its lowest level this year.
Its confidence index hit 69.9 points this month, from 71.9 points in April.
Anything below 100 reflects a pessimistic outlook.
An association of Turkish retailers called on the government in November to grant tax breaks after their profits and growth was hit by the weak lira, saying that several large retailers had scaled back expansion plans last year.
The slide in the lira accelerated Wednesday as it slipped 5 percent to a record low of 4.929 to the dollar, driven by a lack of trust in the central bank’s ability to rein in inflation. Erdogan, a self-described “enemy of interest rates,” has called repeatedly for rates to be lowered.
Bilal Sayan, deputy manager at clothing retailer Sarar, said his store was having problems meeting its dollar-denominated rent – the biggest problem facing mid-size companies now in Turkey.
The number of local Turkish customers had also fallen steeply, leaving businesses increasingly reliant on tourists benefiting from the exchange rate, he said.
In 15 years of rule, Erdogan and his AK Party have encouraged the building of malls around Turkey, driving economic expansion through construction and retail growth.
Istanbul evolved into a travel destination for shopping, especially for tourists from the Middle East, who now offer one of the glimmers of hope for Turkish businesses.
“We’re experiencing an Arab spring. Unfortunately, that’s the life we’re living,” department store employee Tolga said.