Russians are still hooked on shopping habits that got them through the country’s worst recession this century as the economy lurches out of recovery and into stagnation.
Consumer demand, which represents over half the economy of the world’s biggest energy exporter, is increasingly a bellwether for what’s to come, remaining sluggish as steady improvements in wages do little to distract from a search for bargains.
Sberbank CIB’s latest survey of the typical shopper found that the share of “promo-addicted” Russians was at 60 percent last quarter, only slightly down from the previous three months.
“During the crisis, such promo actions seemed to be a simple bait,” said Marat Ibragimov, senior analyst at BCS Financial Group in Moscow.
“Consumers were keen to take advantage, and there are now categories of shoppers who actively keep an eye on discounts, ready to buy goods only if offered promos. Retailers have become victims of their own laziness.”
The consumer malaise has left businesses struggling to find a balance between preserving profits and wooing consumers with steep discounts.
Magnit, Russia’s second-biggest retailer, relies on promotions to sell 80% of household-cleaning products and almost as much to get people to spend on spirits such as tequila and whiskey. Rival chain Lenta says Russians remain “very sensitive to prices and very dependent on promotional activity.”
Frugality persists despite a year and a half of gains in wages and inflation plunging to a record low. A key reason is that real disposable incomes, or the money left after taxes, have continued to contract almost uninterrupted since late 2014. Only an accounting trick pushed them toward zero growth in January.
Almost two-thirds of Russians say their financial situation hasn’t changed in the past 12 months, and nearly a half expect little difference over the coming year, according to a poll conducted by inFOM in January on behalf of the central bank. What’s more, 34% of respondents think now is a bad time to buy big-ticket items such as furniture and home appliances.
With presidential elections less than a month away, the gloom among consumers is a worry for incumbent Vladimir Putin, who already decreed an increase in the minimum wage this year. Retail sales, while growing for 10 months, slowed in January, with annual increases mostly staying below 3% since expansion resumed.
Goods are being discounted so much that Russian retailers are experiencing what they call “shelf deflation,” with Lenta Chief Executive Officer Jan Dunning saying last month that such price declines have only started to ease since October.
That’s keeping the consumer industry less profitable that it was before an economic crisis erupted in Russia almost four years ago. The Ebitda margin declined to about 8% in 2017 at Magnit, compared with over 11% three years earlier. Estimates show it also remains below its 2014 level for X5 Retail Group, Russia’s biggest retailer.
The outlook may not get brighter any time soon. Consumer confidence, which has been improving each quarter since 2016, remained unchanged in the last three months of 2017.
“We are still observing only a recovery in growth of consumer confidence, which is making up for losses that started at the end of 2014,” analysts at the Higher School of Economics in Moscow said in a report this month. “It may take a significant time for the index to register high consumer activity.”