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June 1, 2018 www.intellinews.com I Page 10
Among the more important factors contributing to keeping the index well below its historical averages over the last four years is the rapid change in the nature of retail. As bne IntelliNews reported last month e-commerce is increasingly capturing market share from traditional bricks and mortar stores as retail spend online is growing several times faster than traditional retail. This trend was already well established in 2017, the index shows.
However, now that the economy is recovering and developers are starting to build new stores again, there is a general trend away from large format stores to smaller specialised local stores. Hypermarkets have had their heyday in Russia and are facing increasing competition from local convenience stores, which has forced the big supermarkets to go upmarket in a bid to hang onto their customers.
The switch to new closer to home venues is
still in its early stages. The vacancy rates in Moscow’s retail stores are following the general trend of improvement in the real estate sector, but they are not falling as fast as office and warehouses. Vacancy rates shrank in the first quarter of this year, returning to the same level last seen at the start of 2017, says real estate consultant JLL.
The vacancy rate on the main Moscow high streets declined to 8.4% in the first quarter of 2018, down by 0.6pp q/q on the back of rising real income. Other surveys like Sberbank’s Ivanov survey suggest that Russians are starting to make bigger ticket purchase such as cars as well as trading up again from cheap Russian- made products to more expensive imported goods, but these growing sales are not showing up in the retail sector traffic numbers.
The poor foot traffic result comes as incomes are clearly recovering. Real incomes went positive again at the start of 2016 and retail sales began to grow again only in March 2017. However, the all important real disposable incomes – the money left after spending on food and utilities – has been negative all this time and only went positive at the start of this year. That means the average Russian has some spare cash to spoil themselves a little again for the first time in over four years.
Rising incomes – average wages are a little over $700 now up from a low of around $400 in recent years but still behind the pre-crisis high of over $800 – will drive consumption this year and support growth, but analysts agree consumption will not become the big economic driver it was in the boom years.