Oxstones Investment Club™The growth rate of the Russian retail sector dropped severely last year due to worsening economic conditions, weakening purchasing power growth and the depreciating rouble. As a result, the retail market’s value increased by only 5% in 2009 after several years of roughly 25% annual growth. Nevertheless, the situation has improved this year, and the retail market is expected to once again reach double-digit growth rates in subsequent years.
According to PMR’s recent report “Retail in Russia 2010. Market analysis and development forecasts for 2010-2012”, the Russian retail market was valued at RUB 14.6tr ($461bn) in 2009, an increase of 5% compared to the previous year. The severe drop in the growth rate – down from about 25% growth annually between 2004-2008 – was negatively affected by the sharply decreasing GDP, which fell 7.9% in 2009, the declining growth rate of disposable incomes, rising unemployment and worsening consumer confidence.
The improved economic conditions this year, and relatively positive forecasts for following years, are the primary reasons for the retail sector’s improved results. Rising consumer confidence has been observed for several quarters, and a stronger income growth will positively impact the retail market. According to our forecasts, the Russian retail market will grow by over 9% in the present year, and further acceleration is expected in following years.
Grocery market more resilient to turbulence
The impact of the crisis changed the Russian retail market’s overall structure. While before 2008 the non-food segment’s share had been systematically increasing with each year, its share dropped by 3 p.p. in 2009 to the lowest level in more than seven years. The demand for necessities, such as food goods, is usually less sensitive to unfavourable changes in the economy, compared to the sales of non-food items. As a result, the value of food retail sales in Russia maintained a positive growth rate last year, as opposed to the sales of non-food goods. A significant percentage of Russian consumers experienced serious economic effects on their day-to-day life due to the crisis. This negatively impacted their decisions about purchasing durables. Consumer electronics and the DIY sectors were two of the most severely affected segments of the non-food retail market.
At the same time, the food segment saw a considerable growth of value, albeit one significantly lower than in previous years. According to PMR estimates, the value of the grocery retail market grew by 13% last year to RUB 7.1tr ($224bn). As in previous years, the share of the modern retail format continued to rise. However, the growth rate was more moderate than in previous years, which was mostly due to lower investments in new shopping area development than in the prior-crisis period.
Falling consumer confidence has restrained demand, while the rouble’s devaluation has negatively affected the financial results of companies and increased liabilities to creditors. Undue reliance on credit for operating expenses and vast investments before the crisis resulted in liquidity problems, growing indebtedness and difficulties accessing external financing for many retailers. As a result, many long-term investments have been put on hold, and companies have shifted their focus toward operations efficiency and profitability.
This press release is based on information contained in the latest PMR report entitled “Retail in Russia 2010. Market analysis and development forecasts for 2010-2012”.
PMR www.pmrcorporate.com is a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR’s key areas of operation include business publications (through PMR Publications), consultancy (through PMR Consulting) and market research (through PMR Research). Being present on the market since 1995, employing highly skilled staff, offering high international standards in projects and publications, providing one of most frequently visited and top-ranked websites, PMR is one of the largest companies of its type in the region.
Tags: Eastern Europe, emerging market consumers, emerging markets, private equity, retail market, russia, Western Europe