Black Friday has come to Russia and saw purchases of fashion and perfumes soar this year, but overall the Watcom Shopping Index is still having its worst year since its inception in 2014.
The “silent crisis” years of 2015-2016 has hit the traditional retail sector hard, although it is also becoming clearer that the rapid growth of Russia’s e-commerce is now also starting to impact sales at the bricks and mortar outlets.
The index, which measures the number of shoppers in Moscow’s leading malls using face recognition technology and security cameras, put in another poor performance in weeks 45-48 of this year, with the index hovering at around 490 against the last three years when the index was well into 530s for all these weeks.
Real incomes have been rising all year and the more important real disposable incomes (money left after food and utilities purchases) has also turned positive after two years of negative growth, but these gains are only feeding into retail sales slowly. Real income was up 4.2% in October y/y but real disposable income has not quite managed to break above zero, falling slightly again for the fifth month in a row by 1.3% y/y in October. Nevertheless, retail sales turnover was up 3% in October, prolonging its climb out the cellar that started in the summer.
But it was not all bad news for shoppers. The big malls have been battling the downturn by making use of entertainment and special promotions to keep the punters coming and this year they threw themselves at the US “Black Friday” phenomena – a traditional day of deep discounts on consumer electronics and fashion – that was a big success.
The one-off promotion saw fashion sales jump by 46% week-on-week, as well as big gains in perfumes and cosmetics (37%), and consumer electronics (23%). Fashion and perfume sales were also up compared to last year’s sales in the same week, by 17% and 12% respectively, although the sale of electronics was essentially flat y/y.
Retailer Finn Flare’s president Ksenia Ryasova said that in the 47th week footfall grew by 22% compared to the same week of the previous year, due to the Black Friday promotion, according to Watcom. The general director of Lush, another retailer, Dmitry Azarov, added that throughout the 47th week, crowned by Black Friday, footfall increased in his mall by 11% in Moscow and 8% in the regions, even before the promotion was launched.
Roman Skorokhodov, the president of Watcom, told bne IntelliNews: “Taking into consideration the decrease in consumer activity, the shopping index growth in several categories appeared to be the biggest throughout the year. At first, it can be explained by the aggressive marketing activity in retail and shopping centers on the whole as well as by deferred demand. In a situation of keen competition the consumer is in a win-win position as they are offered discounts, bonuses and better service.”
What is less clear is the extent that Russia’s booming e-commerce is starting to serious disrupt traditional retail sales.
The real estate sector remains fairly moribund – except in the warehousing subsector where orders over the first nine months of this year were up over 50% almost exclusively on new demand from e-commerce companies.
Traditional retailers are already stepping up to the plate to meet the challenge and the flow of deals and joint venture announcements has been unrelenting. Russia's largest household electronics retailer M.Video is a recent example and said on November 13 it would teaming up with Chinese e-commerce giant Alibaba to expand its online offering.
Russia's e-commerce market grew by 22% year-on-year to RUB498bn ($8.6bn) in January-June 2017, which is only about $1.5bn less than the combined turnover of Russia’s top 50 retailers. And e-commerce will clearly overtake traditional retail very soon. Russia’s share in of the global e-commerce market could reach 10% by 2025, while e-commerce in Russia’s total trade turnover could amount to 20%, according to the government’s e-commerce development strategy, although currently the share of e-commerce in total retail turnover (including essentials like food) is estimated at 3-4%.