The holiday shopping season gave Moscow’s leading malls a boost as 2018 came to an end but that had as much to do with retailers extending “Black Friday” to “Black December” in an effort to give their end of year numbers a bump, as it did with a revival in mall shopping traffic. Overall 2018 was the worst year the Watcom Shopping Index has recorded since it was founded in 2014.
During the last week of 2018 (December 24-30) the Shopping Index increased by 3.3% over the week before, while in St Petersburg it was down by 5.9%.
Overall the Watcom Shopping Index in 2018 was down by 5.2% compared to 2017. As for the first week in 2019, the Shopping Index decreased by 3.92% compared to 2018 in like-for-like (LFL) sales.
Part of the bump at the end of the year came from the “Black Friday” shopping discount tradition that Russia has taken over from the US that this year was prolonged to become a “Black Month” by retailers looking to boost revenue and traffic.
The index has trailed behind all three of the previous years this year partly because of the stagnant real incomes and partly because traditional retail is facing growing and irresistible competition from the booming e-commerce.
In order to keep their stores full, managers have become increasingly adept at organising enticement to bring people into the malls – including entertainment, but also cutting prices.
Shoppers responded well as punters went bargain hunting, looking for discounts and deals on goods that were actively advertised on TV during this period.
Watcom CEO Roman Skorokhodov said: “Traditionally in the beginning of the year sales go down as people prefer to stay home or they are abroad on holidays. In Petersburg the decrease accounted for 1.54% due to the fact that many big shopping centres are in the centre of the city, and tourists visit them.”
In related news a survey by Romir found that Russians spent the largest amount in the last four years in December in nominal terms, but taking into account the level of accumulated inflation, their expenses were the least for the same period in real terms.
In December, the total daily expenses of Russians increased by 13.2% compared to November and by 1.6% compared with December 2017 — the highest in the last four years. However, taking into account 4.3% of accumulated inflation over the year cancelled out the increase and results in a fall in spending in real terms — the lowest in the last four years .
Residents of the northwest of the country, where expenditure increased by 11.9% in the last month of the year, proved to be the most modest in their spending. The most profligate were residents of the south and Siberia, where expenses in December increased by 15.7%. In the Central District, consumer spending increased by 14.4% over the month, in the Volga Region by 13.3%, and in the Urals by 12.8%.
Incomes stagnant in 2018
Russia’s real disposable incomes decreased by 0.1% in the first 11 months of 2018 compared to the same period a year earlier, according to data from Rosstat. However, due to the payment of annual bonuses in December, by the end of 2018 income will show very weak positive growth for the full year, according to analysts.
Real disposable incomes have fallen for five consecutive years, so even a mild increase will represent a milestone.
Retail sales were more or less flat over 2018, but received a small bump in the last months of the year.
Retail sales rose a notable 3% y/y in November, up from 2% y/y growth in October (and up 2.6% y/y in 11M18). Food retail sales climbed 1.6% y/y (versus a 0.4% y/y increase in October) despite rising inflation during the month (including higher food inflation). Non-food sales rose even faster, adding 4.3% y/y compared with 3.4% y/y growth in October. This could be due to rising household demand, as people may have been buying certain durable goods ahead of the VAT hike in January. However, this effect will evaporate soon.
But pessimism is weighing on retail. A study by Deloitte in December found that the number of Russians who believe the economy is in recession has risen significantly over the past year, from 51% to 61%. The number of Russians who expect their purchasing power to fall in the coming year has risen from 22% to 30%.
Nominal wages were RUB42,750 in November, or $637 in dollar terms. Nominal wages were rising all year at around 7-8%, well above inflation, but hidden costs and the cutting of tax subsidies and exemptions reduced the impact of the nominal rises.
Real wage gains were also in the black for most of the year but slowed in the last quarter to -2.9% in November from a 0.3% gain in September. Real disposable incomes (after inflation, food and utilities are subtracted) also were negative in November after making positive gains in 2018.
Going forward no dramatic improvement in incomes is expected in 2019-2020 and incomes will remain stagnate in real terms.
Income growth in 2018 was mainly due to a 7.4% increase in nominal wages in January-November, well ahead of inflation. But the growth rates slowed by the end of the year following an increase of 9.5% in the first quarter. Nominal wage increases were also hit by hidden charges and tax increases.