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Hard-Pushed Russian Consumers Say No to Further Household Cutbacks

Whether their incomes continue to fall or not, a new report says Russians won't be trimming their budgets in 2017.

Photo: IKEA’s Moscow superstore: Ever more popular with DIY dacha owners.
IKEA's Moscow superstore: Ever more popular with DIY dacha owners.
Photo: IKEA’s Moscow superstore: Ever more popular with DIY dacha owners.
IKEA's Moscow superstore: Ever more popular with DIY dacha owners.

Consumer demand in Russia has bottomed out, with the country's hard-pushed residents unwilling to make any further cutbacks. This was just one of the findings announced by GFK Russia, a Moscow-based market-research consultancy, and comes as part of the 2017 update to its annual Russian Consumer Market Trends report.

The survey also indicated that, far from continuing to cut down, Russian consumers were now looking to increase their spending. In particular, many respondents indicated they were unwilling to cut down on food costs, even if their personal financial situation deteriorated.

If obliged to cut back, the majority of consumers said home refurbishment and household electric appliances would be the first to go, followed by holidays/travel and eating out. Perhaps paradoxically, the same respondents also maintained that their current plans were to actually up their spending on vacations, home improvements and dining out.

Overall, most respondents conceded that 2016 had been a pretty bad year for them financially. This sentiment was borne out by annual figures from a number of Russia's leading retailers, including Magnit, the X5 Retail Group and Dixie, all of which reported a decline in revenue for 2016.

In total, 56% of all respondents said their incomes fell last year. This was most pronounced among those Russians earning US$650 per month or less. Of those earning $1,800 a month or more, 31% said their income had actually gone up.

Across all respondents, the expectation was that 2017 would prove to be a better year, with most anticipating that their incomes would rise by at least 2.1%. This should come as some compensation to Russia's retailers, many of which were hard hit by disappointing sales over the Christmas 2016 period.

In terms of where respondents will spend their enhanced disposable incomes, a surprisingly large number cited store loyalty programmes as a decisive factor. Some 53% of all respondents participated in at least one loyalty programme. Of these, 60% had dispensed with physical loyalty cards, opting instead to use their digital equivalents, typically via a dedicated smartphone app. As well as supermarkets, some 50% of Russia's catering businesses now run non-digital and digital loyalty programmes, while the practice is said to be even more common among specialist outlets, most notably fashion and footwear retailers.

It is only among the discount retail chains where loyalty schemes have signally failed to catch on. Overall, the minimal margins that such retailers operate on are seen as leaving little scope for further loyalty-related price cuts. Additionally, many such discounters see price-targeted campaigns geared to massive discounts on particular sectors and products as their primary marketing tools, rather than as attempts to build preferential connections with individual consumers.

The survey also indicated that Russian consumers have developed a growing penchant for DIY, both as a pastime and as a budget-friendly form of home or dacha maintenance. This trend has been noted by many of the West's leading players in the sector, with Sweden's IKEA, France's Leroy Merlin and Germany's OBI all having opened major new outlets in Russia over recent tears. A number of hypermarket chains, including France's Auchan and Germany's Metro, have also substantially enlarged their DIY departments.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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