Retailers enter Iceland in end to price tyranny

Bloomberg

A common complaint heard on the streets of Reykjavik—apart from the weather—is about prices. A standard burger will set you back as much as $20, while branded sneakers cost double what they sell for in the US.
That’s about to change.
Nearly eight years after McDonald’s pulled out of Iceland due to spiraling costs, international retail giants are now flocking to the north Atlantic island, attracted by a booming economy and a surge in purchasing power. Costco Wholesale Corp., the US-based chain, inaugurated its first Icelandic store in May. Swedish clothing colossus Hennes & Mauritz AB plans to open two shops there by the end of the month. Dunkin’ Donuts jumped the gun in 2015.
Consumers are loving it. The central bank, which is eager to cut rates to prevent the krona from appreciating, is welcoming the competition as a potential counter to growing wage pressure on inflation. Local retailers are less impressed.

Love-Hate Relationship
Costco has already sold more than 80.000 membership cards, meaning one in four Icelanders have snapped one up. Some established rivals are already cutting prices, others are pulling out altogether. The combined sales of Costco’s traditional competitors in Iceland fell 3.6 percent in June compared with the same month last year, according to the Center for Retail Studies.
Iceland’s biggest retailer, Hagar, which in 2016 controlled about half of the country’s convenience goods market, has seen its share price drop by a third over the past three months. Hagar has already closed a number of clothing stores in anticipation of H&M’s arrival, with its stock falling as much as 7 percent on August 8 after it reported reduced sales in its interim financial statement.
A reliance on imports from far flung places means generations of Icelanders have grown accustomed to high prices.
“We’re used to just paying up because we can’t go anywhere else, and that is why people welcome Costco,” said Brynhildur Petursdottir, chief editor of the Consumer Association’s newsletter.
Now that the Icelandic crisis is officially over—capital controls that were introduced in response to the 2008 collapse of the its main banks have been removed—foreign retailers are sensing an opportunity.