Russia’s Watcom Shopping index finished on a high, breaking above the 600-mark, as retail closed out one of the worst years on record.
The Watcom index, which measures footfall in the leading shopping malls in Moscow in real time, put in a good week just before the New Year’s day holidays began with a index score of 605.5. That is 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, despite the last minute present shopping rush in the 52nd week, the index has been running behind the last three years for almost all of 2017.
A combination of factors are at work to bring the index down, one of the most accurate indicators of shopping trends in Russia as it uses face recognition technology and mall security cameras to gather its data.
Firstly incomes have not recovered much in 2017. While real wages were comfortably in the black in 2017 thanks to record low inflation, the more important real disposable income (money left after spending on food and utilities) was only just breaking even: real wages were up 5.5% in December but real disposable incomes were down by 0.3% in November 2017, the most recent data available.
Still, the mood has lightened somewhat and retail turnover was growing for most of 2017, up 2% in December 2017, but while this is a positive development it is not enough to drive economic growth.
The outlook for 2018 is better. The macroeconomic recovery is expected to continue, however, Russians still prefer to save than spend and in an extremely worrying sign, increasingly they are borrowing simply to maintain their standard of living.
Borrowing from banks has doubled over the last eight years since the crisis began and two thirds of Russians say they have no savings at all, up from just over half in the last year.
Russians borrowed from banks RUB12 trillion ($210bn) in January-November 2017, up RUB1.2 trillion or 10% year-on-year, while their deposits, although more than twice as much at RUB25 trillion, were up just by RUB800bn, which corresponded to just a 3% increase.
Faster progress depends on the government putting in place deep structural reforms, but all policy work has been suspended ahead of the presidential elections slated for March 18. Analysts say both incomes and consumption will continue to grow in 2018, but they don't expect this to kick in until the second half of the year after the elections are over and a new prime minister is appointed (one of the possible changes that will follow the elections) or Dmitry Medvedev is reconfirmed in the job.
A second factor at play that is driving down retail turnover in traditional shopping venues is that e-commerce is now so big that it has begun to seriously impact traditional outlets.
While data on this process remains a bit thin, e-commerce turnover now accounts for about $8bn, which is about $2bn less than traditional retail. Add the two together and Russia’s retail business looks a lot healthier than the Watcom index suggests and is well ahead of the last few years.
At street level the leading malls are continuing to fight their corner by offering discounts, entertainment and special events to pull in the punters, often to good effect.
Olga Antonova, Crocus Group Real Estate Director said that during the last week before the new year footfall in the giant Vegas Kashirskoye shosse mall grew by 7% compared to 2016 like-for-like (LFL). As for Vegas Crocus City mall, the company’s biggest ball, growth in the same period amounted for 4%. As for the first week of 2018, footfall in VEGAS Kashirskoye shosse grew by 8% LFL, but in VEGAS Crocus City footfall decreased by 8%.
“Afimall, another big shopping centre in the Moscow City, broke the record in December: during the whole month 110,000 guests visited the shopping centre daily,” comments Maria Gaiter, Afimall Marketing Director. “During the last week of December footfall grew by 30% LFL compared to 2016. Conversion rate amounted for 70%. It can be explained by additional touristic traffic as Moscow City became one of the popular touristic places.”
Managing company Stolitsa Management general director Olga Letyutina, representing small format shopping centres, also noticed a strong increasing in traffic in December. “During the last week of 2017, footfall increased average by 7% in our shopping centres LFL compared to 2016. During the 1st week of 2018 we notice the increase by 14%. Average, during Holiday Seasons, traffic increased by 10%-12%.”
Watcom CEO Roman Skorokhodov commented: “During the last week of 2017 Shopping Index in big shopping centres increased by 9% which can be explained by a deferred demand and bigger assortment in shopping centres. In the first week of 2018 there was a decrease by 9% which is normal after NY celebration.”