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Santa Fails to Deliver Truly Bumper Year for Russian Retailers

A moderate rise in sales over the Christmas period sees demand for food and clothing down on the part of many Russian consumers, while easy pay-by-instalments credit terms are driving the growth of the consumer-electronics market.

Photo: Christmas came to Russia’s malls in 2017, but it wasn’t accompanied by all that many consumers. (Shutterstock.com/Elena19)
Christmas came to Russia's malls in 2017, but it wasn't accompanied by all that many consumers.
Photo: Christmas came to Russia’s malls in 2017, but it wasn’t accompanied by all that many consumers. (Shutterstock.com/Elena19)
Christmas came to Russia's malls in 2017, but it wasn't accompanied by all that many consumers.

Despite expectations, spending by Russian consumers in the run-up to Christmas 2017 failed to hit the heights last seen in the pre-crisis 2007 festive period. There were, however, signs of modest growth, with takings said to be up some 3% compared with the same period in 2016.

These moderately good tidings were highlighted in a recent survey conducted by Romir, a Moscow-based market-research company specialising in the retail sector. Its findings were based on the spending patterns of 11,000 households in 180 Russian cities and towns, all of which had a minimum population of 10,000.

Despite this apparent uptick, though, once inflation has been factored in, the overall level of spending in December 2017 was pretty much identical to that of December 2016, which itself was notably down on previous years. Worse still, in a number of Russia's core regions, spending actually decreased, with the northwest of the country down by 3.7% and the Urals down by 5.4%. Sales, however, did hold up in both Central Russia and Siberia.

A fuller picture should appear once the larger national retail chains, such as the X5 Retail Group and Dixi, publish their Q4 sales results. These, however, are expected to be pretty much in line with the official statistics, especially as both groups had focused on lower-priced lines over the Christmas period, an initiative backed by high-profile promotional campaigns.

At present, the majority of industry analysts see two particular dynamics reshaping Russia's retail sector, while also contributing to lacklustre sales over the Christmas period. Firstly, there is a continuing decline in spend in the food and clothing sectors, traditionally areas where retailers have benefitted from a huge festive sales surge.

Secondly, there are noticeable signs of growth in the non-food sectors, with easy credit terms stimulating the sale of consumer durables, often at the expense of FMCG and garment purchases. When combined with moderate salary increases and low inflation, the cumulative effect has been a change in consumer-spending patterns, with investments in education, home refurbishment, holidays and durable goods now prioritised above food and fashion purchases.

In line with this, M-Video, Russia's largest consumer-electronics chain, reported overall annual sales growth of 7% in quantity terms and 5% in revenue terms for 2017. It was a similar story with MediaMarkt, the German consumer-electrics retailer with 67 outlets in Russia, and Eldorado, the second-largest domestic chain.

Tellingly, almost 30% of sales in the consumer-electronics sector involved instalment credit plans, frequently on a zero-interest basis. This reflects both a lingering reluctance to spend on the part of consumers and the need to secure sales – even those with very narrow margins – on the part of cash-flow compromised retailers.

In light of this, it should come as no surprise that car sales in Russia were also up, rising 14% year-on-year as of December 2017. Similarly, according to the Russian Federal Tourism Agency, spending on overseas travel grew by 20% year-on-year during the course of 2017, with the overall total matching the pre-crisis levels.

This renewed penchant for travel again had a negative impact on Christmas sales levels, with many affluent consumers opting to spend the holiday period in sunnier climes. One of the key beneficiaries was Turkey, where the number of Russian tourists grew 10-15% in December 2017 year-on-year. A number of other destinations – including the Dominican Republic, Vietnam, Bali, Hainan and Thailand – are also said to have had a substantial influx of affluent Russians over the same period.

In light of all this then, it does beg the question as to just what are the best products that Hong Kong businesses should be looking to export to Russia over the course of 2018. In all likelihood, it seems that goods that come under the “postponed demand” heading are likely to be the best bets.

Specifically, demand is expected to be high for construction and home-refurbishment items, as well as for furniture, gardening equipment and lighting products. It is also believed that there will be a robust market for electronic household gadgets and other home appliances.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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