Second-hand clothes the austerity fashion in Eastern Europe
By Gergely Szakacs and Wiktor Szary
BUDAPEST/WARSAW (Reuters) - The global financial crisis hit hard in central and eastern Europe, but one industry has thrived: second-hand clothing stores.
While in western Europe the squeeze on household finances prompted many consumers to turn to discount retailers like Primark , their peers further east - where wages are significantly lower - have shifted to the used clothing sector.
Second-hand clothes retailers in Hungary, Poland, Bulgaria and Croatia have grown rapidly and, as the pace of income convergence between the West and Eastern Europe slows, they are investing millions of euros to expand their businesses further.
Brisk trade in Bulgaria, for example, has prompted one company - Mania - to open new stores in Romania and Greece, while in Hungary major player Hada is opening a 1.6 million euro sorting hall to cope with booming demand.
These companies and their rivals source their goods from western countries, buying them from so-called cash-for-clothes firms who pay people to recycle their old or unwanted outfits. Some are in pristine condition with the original price tag still attached.
There is no shortage of demand for their wares in central and eastern Europe, where most people are in lower-income brackets, by western European standards.
The pace of income convergence with the West had slowed dramatically since the crisis, the International Monetary Fund said in a report on former communist countries in Europe, a quarter of a century after the fall of the Berlin Wall.
"From 1995 to 2008 the region as a whole was catching up towards average EU incomes at a rate of about 1 percentage point a year, from around 35 percent to nearly 50 percent. Since the crisis this rate has dropped sharply," it said, adding that prospects for growth had also deteriorated.
In Hungary, central Europe's most indebted nation, where the economy has yet to catch up to pre-crisis levels despite a jump in growth this year, the import of used clothes has more than doubled from 2008 figures to 56 million euros last year.
Hada, which has 60 stores in Hungary and controls about a third of the market by its own estimate, will open the 1.6 million euro sorting hall in eastern Hungary next year, adding 155 jobs to bring its workforce to around 900 people.
The firm imports 30-40 tonnes of used clothes per week from Britain - its main sourcing market. It has grown into an operation with annual turnover of 32.4 million euros ($40 million), from a family business started in 1995 and run from a decrepit hall in a remote village near the border with Ukraine.
"Back in the day it was the family, my wife, grandmother and sister-in-law sorting the clothes," founder Gyorgy Hada said.
The firm coped with the financial crisis by shutting down weaker stores and opening new ones in areas with more purchasing power, including bigger shopping malls in Hungary.
"I think the crisis has taught customers how to take care of their money very well," Hada said.
In Poland, the region's biggest economy, over 40 percent of people shop for second-hand clothes regularly and 100 million euros worth of used clothes were imported in 2013, up from about 60 million on average in the previous years. They mainly come from Britain, Germany and Scandinavia.
Poland was the only EU member to avoid a recession during the global crisis but its recovery is also slowing as the Ukraine conflict and weak European growth are taking their toll.
Grojecka Street in Warsaw is well-known for its "ciucholands", or second-hand shops, with a dozen or so of them in close proximity to one another. In all, there are 21,000 such stores across Poland according to a 2011 estimate.
Prices vary depending on the shop, from around 30 zlotys ($9) a kilo to around 80 zlotys a kilo, but also depending on the day of the week, with prices falling as the week progresses and a new delivery approaches.
The conflict between Russia and Ukraine, which is hitting the region's economies to varying degrees, has boosted the sale of second-hand garments in Bulgaria, one of the poorest members of the EU.
Mania, a company which started its business with a single garage shop in 1996, now has 50 stores in three countries, employing more than 600 people. It hired 100 new workers over the past 12 months, said its owner Sevdalin Spasov.
The company, which imports clothes mainly from the United States, Canada, Denmark and Switzerland, plans to double the number of its Romanian stores to six and open a second and a third store in Greece next year.
"In 2014, the second-hand clothes market in Bulgaria and Europe is developing under the direct influence of the conflict between Russia and Ukraine," Spasov said.
"Following the sharp decline of the rouble and the Ukrainian hryvnia, large amounts of goods were redirected (from Russia and Ukraine) to countries neighbouring the conflict zone, including Bulgaria," he said.
In Zagreb, the capital of Croatia, which became the 28th EU member in July last year, several second-hand shops have sprung up across the city in the past decade. The country has had six straight years of recession.
Nena Beric, a 53-year old lawyer by education, runs one of the oldest second-hand shops in Zagreb. She has owned it for 10 years. "Back then, we were the only one. But now, as people become increasingly poor, such shops have multiplied. They are all over the place and they are all doing fine."
However the consumer spending squeeze in western Europe has had a knock-on effect for used clothes sellers further east.
"Everything's got more difficult recently, because of the crisis, and so has this business," said Jolanta, who has worked in one of Warsaw's shops for six years.
"People in England are now getting poorer, and the clothes they get rid of - they are nowhere near as good as they used to be."
($1 = 3.3855 Polish zloty; $1 = 0.8015 euro)
(Additional reporting by Angel Krasimirov in SOFIA and Zoran Radosavljevic in ZAGREB; Editing by Pravin Char)