30 Dec 2016
Mixed Christmas Signals Show Russia's Economic Uncertainty
Statistical optimism over increased festive spend not reflected in experience of high street retailers.
For the first time since the 2013 crisis, Russian consumers are expected to up their year-on-year Christmas spend. According to a seasonal analysis released by Deloitte, the average 2016 per head festive spend is expected to be around US$270, some 2% higher than the corresponding 2015 figure.
Although the spend may have increased, Russian shoppers are still expected to distribute their budgets along broadly similar lines to previous years. This will see around 43% spent on gifts and a further 45% reserved for food and beverage purchases, while the remainder will go on travel and entertainment.
In terms of the most desired gift, Deloitte found that money was the preferred item amongst most Russians – 64% of all men and 69% of all women. In terms of their second preference, the choice was more divided along gender lines, with 52% of women opting for travel, while 45% of men specified a new smartphone. Strikingly, these preferences did not match what they actually expected to receive, with 51% of consumers saying that chocolate was their most likely gift, while 48% said cosmetics were most probably the items under their 2016 Christmas tree.
Despite Deloitte's findings, the on-the-ground experience of a number of Russian retailers paints a slightly less rosy picture. Euroset, Russia's largest chain of smartphone and wearable electronics outlets, for instance, claimed to have seen virtually no movement – up or down – in terms of its overall level of December sales. There is, however, still the hope of a last minute surge, with many Russians traditionally not celebrating Christmas until 7 January, the date designated by the Orthodox Church.
Sales seemed similarly becalmed at Auchan, Lenta and Karusel, Russia's three leading hypermarket operations. Overall, the three reported few signs of the impulse buys usually associated with the run-up to the festive period, with shoppers, apparently, planning their budgets strategically and deferring purchases in anticipation of sales and promotions early in the New Year. The only products seen as bucking this trend were premium spirits, with branded Cognacs, brandies, whiskies and gins set to be the best-selling items over the Christmas period.
The X5 Retail Group, Russia's second largest retail chain, however, was a little more optimistic, even admitting to hopes that the level of this year's Christmas sales might match the bumper pre-crisis level last seen in 2013. Back then, the company enjoyed a 40% sales surge in the weeks leading up to the holiday period.
The company did, however, concede that the market is now very different, particularly in light of the growth of the discount chains, notably Dixi and Magnit. With such operators now offering cut-price deals on a number of premium items – including seafood, champagne, Cognac and whiskey – customers have become far more price-sensitive and increasingly bargain-focussed.
With online shopping also on the rise – up from 23% of all purchases last year to 31% this year – many of the consumer electronics chain stores, including M-Video, MediaMarket and Eldorado, experienced a notable drop in footfall. Typically, many customers ordered online and collected in-store, a development driven by discounts of up to 15% on all such transactions.
Three other statistics, perhaps, bode particularly badly for Russia's retail prospects in 2017. This Christmas, some 66% of all Russians conceded that their economy was in recession, compared to 54% last year. At the same time, while 12% expected the economy to return to its pre-2013 level next year, 41% expected the recession to continue. Overall, a majority of Russians expected their spending power to reduce by at least 10% over the next 12 months.
Leonid Orlov, Moscow Consultant