Consumer pessimism creates vicious circle for retailers

The economic downturn is seeing people spending less, but retailers are trying to pep turnover with significant discounts and sales.

Moscow's glamorous boutiques are quiet these days – cause and effect of a 10% contraction in the national economy in the first half of this year. At least 6 million people are out of work in June – and the fountain of consumer credit has run dry.

It's a pattern repeated across the economy, according to Johnny Manglani, President of Uomo Collezioni.

“I believe that the sales of every company – it doesn't matter if it is retail, wholesale, trading, banks – everything is down an average of 25 to 40% in Russia.”

People on Moscow streets are not convinced the days of carefree-spending will return.

“In connection with the crisis, there are more sales. Because people need to buy things, and there's the understanding that they're looking for more sales.”

“You still don't understand why this is going on. It's a result of who's come to power. I've lived life, I know.”

“It's never going to get better – only worse.”

“I think I'm buying the same. I'm a government worker and because of that I don't buy a lot now. I live within my means.”

However, Pavel Teplukhin, Managing Director of Troika Dialog, suggests things will pick up – and soon.

“People try to save as much as they can, thus reducing their current consumption, this is what we observe. But the shock will be over with the next few months or so, and I expect that consumption will probably follow the previous pattern.”

Commodity prices are the key to the Russian economy. But the OECD says Moscow should not rely on oil to bail out the economy – and should do more to diversify.