'Slowed deterioration': Fitch gives hope for growth to Russian retailing
Other experts are being more pessimistic
Fitch has given a cautious forecast of retail trade recovery in Russia in 2018. Nascent insignificant turnover growth in retailing after a two-year decline gives hope, as well as recovery in consumer confidence index to pre-crisis levels. Realnoe Vremya experts think that it is too early to rejoice: consumers still have no money to whet the demand. This does not prevent the largest networks to increase market share.
Fragile hope
Fitch Ratings international agency has released a study on Russian consumer sector, which predicts that the year 2018 will be relatively favourable for retailers and consumer goods companies: market factors will help to maintain their results. However, analysts warn that changes will be 'moderate at best'.
The retail turnover in Russia was falling 2 years in a row, in 2015-2016 the decline was more than 15%. This year, Fitch has noticed 'the first signs' of improvement in the consumer situation, which has been contributed by a record low inflation, three consecutive quarters of economy growth and lower interest rates on consumer loans.
All this, Fitch reports, has helped to restore consumer confidence to the levels last seen only before the collapse in oil prices and the currency crisis in 2014. In the second quarter of 2017, for the first time since 2014, it was recorded an increase in retail sales. According to analysts, the engine of this process was non-food segment, but in July food retail sales also began to grow.
''Together, these trends point to a gradual operating environment improvement for retail and consumer goods companies. The large decline in real disposable consumer incomes over the last three years means consumers will remain very price conscious, suggesting increasing demand will be concentrated in the mass-market, with only limited recovery in premium segments,'' the study states.
Also, according to Fitch, due to low solvency consumers will depend on promotions of the largest online retailers such as X5 Retail Group, Lenta LLC and O'key Group S.A. ''This is likely to continue pressuring margins for both retailers and producers next year.''
For domestic food producers, a recovery in consumer spending will mean an increased competition, including from foreign companies, the report states. In 2013-2016, the import of food products to Russia fell sharply under the impact of the embargo and falling incomes. It has begun to recover since 2017. The import ban from the United States and the countries of the European Union still remains, but the imports of meat, vegetables, fish and dairy products from the CIS, Latin America and Asia are rising.
Vacuum cleaners have become unfit to use
Experts and market participants interviewed by Realnoe Vremya believe that a positive shift in consumer expectations does not guarantee a significant recovery in retail trade. According to the director of Center for Market Research at the HSE [Higher School of Economics], Georgy Ostapkovich, consumer confidence index has been growing for four quarters, ''but this trend, unfortunately, is characterized by the slogan 'slowed deterioration' so far. The index itself remains in negative zone, perhaps, in two or three quarters it will reach break-even.''
Of course, low inflation — it is good, but for real demand recovery it is necessary to bring down the trend of real incomes falling. From November 2014, their indicator decreased almost monthly, Ostapkovich reminds.
Experts say that retail sales have reached barely visible growth, but it has been provided, first, by crediting, and second, due to the non-food segment. How to explain the demand for these products? By the fact that people took a break in 2014 because of lower incomes and began to postpone their purchases. Now vacuum cleaners, TVs and household appliances in the hands of the population have just become unfit to use, they need new ones, Ostapkovich explains.
It is difficult to everyone, for someone it is useful
It is too early to make conclusions about improvement in consumer sector, and it is even more premature to talk about reaching the pre-crisis level, Andrey Karpov, the president of Russian Association of Retail Experts (RAERR) says. The growth of trade by a few tenths of a percent is a statistical error, he said.
According to Karpov, a marker of the real situation this year will be the dynamics of preceding new year's sales — it was absent since 2014. ''Retailers are very upset and are making efforts to improve this situation. But it is almost impossible to improve: either the consumer has money or not. Whatever reports may tell, in fact the consumer has no money, they save.''
At the same time, Karpov says, development of networks depends not only on consumer activity. Now some retailers are feeling a little better, some of them worse. For the first, crisis is just an additional development opportunity. According to the president of the RAERR, decrease in demand was more difficult for regional networks than for bigger players. In turn, large networks tried to take over their businesses. As a rule, it concerned lease rights the purchase, since the full absorption was less favourable — ''everyone have debts one way or another'', Karpov says.
According to him, all who have the margin of safety, are using the opportunity: Lenta, X5 Retail Group are actively developing; most likely, in 2018 Magnit will undertake active measures. In November, its principal owner Sergey Galitsky sold 7,5% of the company for $736 million, the interlocutor reminds. ''This amount is going to remind itself. Otherwise, what does Galitsky want to do with the money?''