In Retail Revolution, East Europe Savors Western Shopping

BUDAPEST MEGA-MALL

To the developers of a $60 million Budapest "mega-mall," the Deli family is a dream come true.

Antal, Zsuzsa, and their three young children piled into their Lada Saturday morning and drove more than 100 miles for the opening of the Polus Center. Wading through thousands of visitors on the site of a former Soviet Army barracks, the Delis bought groceries and music cassettes and took in a movie at the snazzy six-screen cinema. They plan to come back once a month.

After four decades of shopping-as-drudgery under communism, East Europeans are getting a taste of one-stop shopping convenience, with a dash of Americana, and they are loving it.

The influx of Western-backed malls and discount stores is part of a retail revolution that promises to slash prices and boost choices for millions of East Europeans.

"If you have the money and can live a better life; the quality goods are here," says Antal Deli, an iron-foundry foreman from northeast Hungary who pockets nearly triple the $200 per capita monthly average. "That's what life is all about."

Not everyone here shares Mr. Deli's buying power. But Western retail stores and malls are heading east on the hunch that the market is big. That may mean devastating competition for formerly state-owned retailers. Already, the foreign-controlled share of Hungary's retail market is 40 percent and climbing, says Guillaume Dorel, a Swiss retail expert based in Budapest.

Polus Center, a Canadian-Hungarian joint venture with 520 shops anchored by a K-mart-like Tesco store, marks a new phase in the Western invasion.

The largest mega-mall in the former Soviet bloc, it is highlighted by an American Wild West-motifed hub of fast-food restaurants, an ice-skating rink, a 10-lane bowling alley, and video arcades. It caters to consumers across the socioeconomic spectrum. The developers expect to draw shoppers from Slovakia and Romania, in addition to tourists from Germany, Austria, and Italy.

As such malls multiply - the Polus developers alone are considering two dozen more in East Europe - their aim is to draw in the masses long relegated to wistful window-shopping and a bustling black market (one-third of Hungary's economy).

Behind the Iron Curtain, the command economies of Central and Eastern Europe disregarded demand and dictated set quantities in few styles. Shoppers gratefully snagged whatever was available. To boot, they were lorded over by rude or apathetic clerks who, because their job was guaranteed and the customer had no shopping alternative, had no reason to be attentive.

Hungarians, however, were somewhat less deprived than their neighbors. The government's liberal policy of "Goulash communism" encouraged some lavish consumption, but wound up creating a pent-up demand for more and more. So when communism fell in 1989, consumers hit the ground running.

Initially, scores took day trips next door to pricey Vienna to load up on goods. But the ranks of Hungary's affluent have expanded to warrant their own malls. While the Hungary of the early 1980s boasted one of the most equitable distributions of income in the world, today there is an ever-widening gap of rich and poor, says Istvan Racz, an economist at CS First Boston in Budapest. "Sociologists may not like this situation, but people in retail must recognize that this is an opportunity for them," he says. The foreigners, at least, have taken notice.

IN the past seven years, German, Austrian, French, and English retailers have emerged locally with discount stores, supermarkets, "hypermarkets," and shopping centers. And with the US "over-malled," prominent mall developers like Toronto's TrizecHahn Corp. - builder of San Diego's Horton Plaza, Denver's Park Meadows, and now Polus Center - have forayed into East Europe.

The newcomers are quickly filling huge gaps in the market with wider selections and generally lower prices, all under one roof. With clean, well-lit facilities, and respectful staff, they're slowly lifting the expectations of Hungarian consumers, still accustomed to long lines, gruff clerks, and high-priced imports.

The success of the malls and their tenants will depend on how they're received by state employees, factory workers, farmers, and retirees, more so than the nouveau riche, who constitute perhaps 2 or 3 percent of the total population.

For cost-conscious consumers, price is still an overriding factor, but they are also fed up with cheaply made products and designer knock-offs. With the little money they have, they're choosier but increasingly willing to pay more for quality.

How much truly "disposable" income do Hungarians have?

On the surface, it would appear most Hungarians have none. The cost of living is soaring and most salaries go toward food, car, utilities, and housing. Food is especially expensive. But monthly income statistics are deceptive: Often people hold two or three jobs and evade taxes as if it were sport. And many Hungarians spend beyond their means on Western cars, Nikes, and Levi's jeans to impress strangers.

"The Hungarians appreciate this shopping culture," says retail analyst Mr. Dorel. "If they have the money, they'll shop."