Russia's "Ivanov" consumers are becoming more optimistic about their future says Sberbank survey

Russian consumers are becoming more optimistic about their future and starting to spend on bigger ticket items again, according to Sberbank’s Ivanov consumer confidence index.
By Ben Aris in Berlin February 2, 2018

Russian consumers are becoming more optimistic about their future and starting to spend on bigger ticket items again, according to the latest Sberbank’s Ivanov consumer confidence index.

“This Ivanov Consumer Confidence Tracker showed an improvement in the consumer confidence index from -12% in the third quarter of 2017 to -10% in the fourth quarter of 2017, finally recovering to the pre-downturn second half of 2013 level. Consumer shopping habits continue to normalize, despite still-high trading down,” Sberbank said in a press release.

That tallies with the latest results from Rosstat’s consumer confidence index which also shows a marked improvement – albeit still in negative territory – over the last six months. Rosstat’s consumer confidence index has risen from 20s-30s in the last two years to around 11 for the last two quarters of 2017.

The rising confidence and willingness to spend on bigger ticket items are showing up in the retail sector in several places.

Car sales grew for almost all of 2017 and while foreign brand car sales dominated the boom years, Russian’s traded down to Russian brands en masse since 2008. That has started to change now as the foreign brand sales are now outpacing the growth in sales of Russian brands, even if Russian brands still dominate the aggregate sales volumes.

Another change is Russians are using credit much more in their purchase and the growth in credit is outpacing the growth in incomes. This trend is likely to continue – unless the Central Bank of Russia (CBR) stamps on consumer lending growth again as it did in 2013 – thanks to rapidly falling interest rates that are expected to continue to fall in 2018.

Another change in retail is that consumers are starting to trade up again to more expensive imported food items. Again during the crisis there was a mass trading down to cheaper domestic food brands at the same time as the share of food increased in the average shopping basket from a low of around 35% in the boom years to around 60% in the “silent crisis” years of 2015-2016.

Now consumers have a bit more money in their pocket thanks to the rise of real incomes, they are splashing out on better quality food products as the purse strings loosen a little. At the same time Sberbank reports that the share of shopping basket spending that goes on food has fallen dramatically in the last year or so.

“The Ivanovs plan to spend any wage increases on food (20%, while 39% of incomes are currently spent on food), clothing and household goods (15%, with 16% currently spent on the category) and savings (13%, just 7% saved currently). The savings ratio was flat q/q at 6.5% (versus 7.0% a year ago),” Sberbank says.

The share of Ivanovs, who sought to save on staples over the previous 2-3 months (i.e. curbing impulse purchases and switching to cheaper food items) was flat y/y and down 3 pp q/q at 65%, the lowest level since 2014, Sberbank reports.

“The importance of prices in shoppers’ decision-making has declined, narrowing the gap with quality, which has become a more important factor. Around 51% of respondents were ready to trade up for higher quality at a fair price,” Sberbank reports.

Malls and shops have been trying to counter the soggy retail sales with promotions and special deals and Russians in general can’t resist a freebie, although the effectiveness of these “for a limited period” deals is starting to wear off a little. The share of “promo-addicted” Ivanovs dropped further, moving from 62% in the third quarter of 2017 to 60% in the fourth quarter of 2017, Sberbank says.

Nominal wages have been rising for several years and were up 8% in December y/y. With the dramatically fall of inflation to a record low of 2.5% in December y/y, real wages also started growing in 2017 and were up 5.5% in December y/y making the population feel richer. However, the all-important real disposable incomes (money left after spending on food and utilities) did less well and is still bumping along the bottom near zero or slightly less in 2017; real disposable incomes ended 2017 with a -0.3% decline y/y.

All that has translated into soggy retail sales that began to grow again in April 2017, but have failed to gather any momentum; retail sales ended 2017 with only 2% of grown y/y.

Part of the reason is the Sberbank survey found that the increases in wages are half the rate of the official numbers. The survey indicates that wages rose by 4.9% y/y in the fourth quarter of 2017, below the 7.9% growth that the State Statistic Service recorded, Sberbank reports.

“There were q/q improvements in perceptions of personal wealth and the conditions for big ticket purchases, while country wealth perceptions were unchanged. We think the somewhat brighter sentiment reflects a pickup in real incomes in the fourth quarter of 2017 amid record-low inflation. We have been pleased by the gradual improvement across various metrics. This tells us that the improvement should be sustainable, unlike previous spikes that were followed by disappointment,” Sberbank said in its report.

Officially unemployment also remains at record lows, hovering around 5% of the population, but Sberbank paints a less rosy picture saying that unemployment and underemployment are actually much higher.

“The unemployment rate among our respondents dropped from 11.6% in the fourth quarter of 2016 to 10.9% last quarter, but increased by 30 bps on a q/q basis. Underemployment (the share of those employed part-time but willing to work full-time) reached a record high of 9.7%, up from 8.2% in the third quarter of 2017 and 8.1% a year earlier. The net hiring index came in at 35.0%, versus 33.5% in the third quarter of 2017 (due to seasonal factors) and 42.0% in the fourth quarter of 2016,” Sberbank reports.

With the presidential elections looming Russians in general think that the government is doing an ok job and that the country is going in the right direction.

Sberbank’s survey found little change in the main worries Russians have: corruption (cited by 64% of respondents), unemployment (55%) and inflation (48%). Only 18% of respondents were troubled by the ruble exchange rate, in line with the previous survey.