After rising strongly in the second half of 2016, the Watcom shopping index got off to its worst start in three years in the first weeks of 2017.
The Watcom shopping index ended 2016 on a strong note with footfall in Moscow’s leading shopping malls increasing to just below the 2015 levels. Retail sales have been recovering from the cataclysmic collapse in December 2014 when retail turnover contracted by 15.5% in just one month. Since then, as real incomes turned positive thanks to the success of the Central Bank of Russia (CBR) in bringing down inflation, retail sales were improving, but overall continue to contract.
Rosstat’s data release for the first month of 2017 turned in a pleasant surprise for Russia, with retail sales turnover falling by the least since the start of 2015. Retail sales turnover printed a 2.3% year-on-year decline that follows -5.9% in December 2016. Economists believe that retail sales should return to positive territory in the first half of this year, but the numbers show that the population is still feeling the pain of last year’s slow-moving crisis.
As always, Moscow remains an exception in Russia where incomes are as much as five-times higher than the rest of the country. The Moscow-based Watcom index is the most immediate and direct measure of retail activity in Russia as it measures the number of shoppers and their spend in real time using 3D camera technology.
The index started this year at its lowest level in January for the last three years, reaching a nadir of 473.56 in the last week of the month, traditionally the slowest shopping week of the year. But this low level was worse than the index results of 486.21 in 2016 and 502.20 in 2015.
Analysts at Watcom explain the dip on inflation and the on-going fall in real disposable incomes. While real income is now growing again, real disposable incomes (the inflation adjusted income left after food and utilites are taken out) are still falling. January saw a spike in real disposable income, which jumped by 8.1%, but that was due to a one-off payment to pensioners by the state. Real disposable income contracted by 6.1% in December and in February it is expected to go back into the red again, albeit at a lower level.
This contraction in spendable income is showing up in the Watcom index, which measures spending in the capital’s malls that are frequented by the middle class and augurs poorly for retail for the rest of this year.
“The shopping index’s drop in January of 2017 compared to December of 2016 was down by 12.2%,” Watcom said in a report that it shared exclusively with bne IntelliNews. “And compared to January of 2016 the index is down by 5.3%. In February the fall accelerated up to 8% despite a blip 1.6% on February 23, the day before Army Day that is widely celebrated in Russia.”
According to Olga Letyutina, General Director of Stolitsa Management that runs the Stolitsa shopping centres, the small format stores in malls performed differently this year compared with last year and traffic was up year-on-year. In January of 2017, footfall increased by 7-10%, while the Zyablikovo Shopping Centre showed the best result, seeing traffic up 14%, partly because an adjacent mall was pulled down. February 22 was the peak shopping day in that month when footfall was 20-22% higher than usual, falling off in the next days after the public holiday.
Afimall, the prestigious mall at the heart of the Moscow City business district, also bucked the trend, seeing foot traffic up 20% in January compared with the same month a year earlier, and February also saw growth of 17% year-on-year.
Afimall’s marketing director Marina Vaganova believes the outperformance was due to the improvement of transport accessibility, as the metro system has been improved and allows shoppers to reach the location more easily. Also the management has been very active in promoting the mall by offering free entertainment, special offers and using social media to good effect.
The Vegas mega mall in the Crocus City complex at the side of Moscow’s main ring road the MKAD also saw traffic increase by 6% in January of 2017 year-on-year, according to Olga Antonova, head of the tenant department at Vegas, which is one of the very largest retail complexes in Moscow. However, even Vegas saw traffic down by 3% in February year-on-year except on Army Day.
Watcom president Roman Skorokhodov summed up the situation saying: “Consumers are price sensitive and retailers can’t pin their hopes on holidays as purchasers are mostly waiting for the sales. The purchasing model has changed completely.”