20 Feb 2017
Global Brands Cautiously Endorse Upturn in Russia's Retail Sectors
With new arrivals and comparatively few departures, could Russia once again become home to a battle of the brands?
Brand presence has been an intrinsic part of Russia's post-Soviet consumer boom and remains one of the most reliable – though indirect – indicators of the overall health of the country's economy. Over recent years, a number of sectors, ranging from commercial-property developers and retail groups to service providers and catering companies, have come to rely on such activity as a steer for their own imminent and future prospects.
In terms of the current state of play, a new report by Colliers International, the Canadian real-estate group, sheds some light on how many of the global brands fared in Russia in 2016, while also looking at their prospects for the coming year. Although broadly optimistic, the report shows that the country's wider economic problems are still casting a long shadow over its retail sector.
Overall, 33 global brands expanded into Russia for the first time in 2016, a figure that is down by about one third in comparison to 2015. This fall in the level of newcomers is largely a reflection of the equivocal economic situation, the generally decreased purchasing capacity of most consumers and a poor performance by the national currency for most of 2016, a situation that changed late last autumn when the rouble rallied against both the US dollar and the euro. Any retail spaces left vacant by this shortfall, however, were swiftly filled by one of the many local chains, although the actual tenants were, by and large, less glamorous and upmarket than the intended occupants.
Of these 33 new brands, 26 launched stores in large shopping malls, with only seven opting for the high-street format. Understandably, sites in shopping malls and centres are normally the priority targets for most brands, given their virtual guarantee of greater footfall. By contrast, only high-street operations in premium locations – such as Moscow's Stoleshnikov Lane or Vasilievsky Island Line 6 in St Petersburg – offer the volume of sales traffic required to maintain a flagship store.
Just over half of these newcomers were fashion brands, including the Russian debuts of Armani Exchange and Barbour. In another development, 2016 was also the year when Victoria's Secret brought its full range to the country for the first time. Previously, the company had limited its offer in Russia to cosmetics and accessories.
Among the other arrivals were Kiko Milano and Holika Holika, two cosmetics and perfume brands, as well as several consumer-electronics brands, notably LeEco, Xiaomi and Fujifilm. Perhaps surprisingly, no children's wear or toys and games brands expanded into Russia last year. Given that Russians prioritise spending on their children above all else, such an omission flies in the face of most expectations.
In total, just three multinational brands left Russia in 2016 – Magnolia Bakery, La Senza and Prenatal Milano. In the case of La Senza, its departure was triggered by the intense competition in the lingerie sector, where La Perla, Marc & Andre and Intimissimi tend to dominate. The arrival of Victoria's Secret is expected to only further increase the pressure on retailers in the sector. Overall, though, with 12 global brands quitting Russia in 2015, the 2016 outcome is seen as broadly positive.
As to 2017, the findings are largely positive, if not wholly optimistic. Overall, Collier's research suggests Russia will welcome at least as many new brands as last year, with two having already launched PR offensives across the country. First up is Lindt, with the Swiss confectionary brand going mass market after previously only being available in specialist outlets and the more high-end supermarkets. It is set to be joined in the newcomer stakes by Glossip Milano, with the Italian cosmetic brand making its first foray onto Russian territory.
Among the local retailers, the move to open new 'drogery' chains, selling cosmetics, perfumes, cleansing utensils and accessories, looks set to continue. Typically, these new outlets are expected to be located close to the brand owner's existing supermarkets and hypermarkets, opening up the possibility of cross-marketing and a resultant reduction in promotional costs.
Leonid Orlov, Moscow Consultant