E-commerce dramatically eats into foot traffic at Moscow’s leading shopping malls

E-commerce dramatically eats into foot traffic at Moscow’s leading shopping malls
Retail sales at Moscow tops shopping malls is falling as Russian shop online / bne IntelliNews
By Ben Aris in London April 6, 2018

E-commerce has dramatically eaten into the foot traffic at Moscow’s leading shopping malls in the first months of this year as Russians increasingly move online to buy everything from sugar to shoes, according to the latest Watcom Shopping Index.

The Watcom index, which measures footfall in the leading shopping malls in Moscow in real time using face recognition technology and the security cameras in the top malls in the capital, has been falling steadily for several years since its inception in 2014.

The index showed a jump in foot traffic in the run up to the holiday season in December. The week just before the New Year’s Day holidays (a more important holiday than Christmas in Russia) had an index score of over 605, which was better than the 2016 result (578.63), but still behind the results of the previous two years (620.25 in 2015 and 629.6 in 2014).

However, since then the results for the first 14 weeks of 2018 have been well below all the results for the last four years, dropping to a low of 434 at the end of January, its lowest level since the index was launched.

That is despite a recovery in incomes. Retail turnover crashed during the silent crisis years and contracted throughout 2015 and through to 2017 on the back of falling real wages during the period. Real incomes turned positive in the middle of 2016, but the more important real disposable incomes – money left over after food and utility bills – only turned positive at the start of this year. But the improving income dynamics are not reflected in the foot traffic at malls, which have continued to fall, which strongly suggests Russian shopping habits have changed dramatically.

In 2017 the turnover of Russia's e-commerce reached RUB1.04 trillion ($18bn), growing by 13% year-on-year, according to Association of Internet Trade Companies (AKIT), outpacing the growth in retail turnover, which grew 3.1% in December y/y.

The Watcom chart shows clearly the fall in traffic in the leading malls at the start of this year, which is now about half the level of 2014 and is unlikely to recover to the previous highs.

But even the shift to online shopping has been affected by Russia’s economic woes. While the e-commerce volume topped the trillion-ruble mark, the growth rate did not live up expectations and slowed almost two-fold as compared to 2016, although other studies put the growth of e-commerce at 26% in 2017.

Despite the growth of online stores, the development of new shopping malls has started to recover this year after a two-year hiatus, especially in the regions — mostly in the 11 cities with more than one million inhabitants. Almost half (48%, or 225,000 sq m) of the new shopping mall commissioning is happening in the Russian regions in 2018, real estate consultancy CBRE said.

However, the design of new malls is also changing, with developers favouring smaller malls that have more emphasis on entertainment than stores and are closer to residential complexes as stores go more local and specialised.

And the economic uncertainties continue to weigh on retail turnover. Watcom president Roman Skorokhodov believes that the decrease of the Shopping Index this year is the result of the weakening of consumer activity due to the unfavourable economic situation, inflation, and other factors. The real income of Russians decreased by 7% in 2017 and the index was further depressed by calendar effects, namely a four-day weekend in March due to International Women’s Day on March 8.

At the same time the change in design is also already making itself felt. Big shopping centres with a focus on entertainment generate 75%-80% more traffic than those without, says Skorokhodov, if they have five entertainment orientated tenants and 15%-20% more with two tenants in this category, including a cinema.

 

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