Retail sales begin to turn as buyers head for discounts

The improving economic outlook, and sentiment, plus a rebounding Rouble are putting a floor under consumer sales figures, but sales of luxury goods remain under pressure.

Shoppers are beginning to open their purses once again with the latest sales data showing a small increase in September. Peter Partma, Board Chairman at TSUM says anecdotal evidence backs the findings, with more people looking for upside going forward.

“It feels like we have stabilised and it’s not based on economic figures or other statistics. It’s more a general feeling when you are talking to people around – colleagues and customers that you have a feeling of some kind of confidence that we are now over the hurdle.”

But luxury goods sales are expected to be the last to recover. As with all economic downturns, demand for staple consumer goods remains. Like the 1998 downturn, 2009 has seen as much as three quarters of average disposable income going to ordinary household items. At the same time consumers have deserted upmarket brands and headed for discounted items according to Dale Clark, from PriceWaterhouseCoopers, Retail and Consumer Practice.

“The luxury segment has been the hardest hit. In fact, all branded products have been hit fairly badly by the financial crisis, and we’re seeing a move by customers away from branded products to lower-end or discounted products.”

Although improving quarterly and monthly data has economic analysts seeing a rebound from recession, or a floor to it, about 8.5% of the workforce – or 6 million people – remain unemployed. That’s 1.5 million more than a year ago.

Expectations too have been pared back. Just over a year ago, with inflation running at 13%, and crude spiralling beyond $130/bbl UBS predicted Russian retail sales would grow more than 20% annually through 2010. One year forward, with inflation running at 0% over the last 8 weeks, and oil back at just under $80/bbl – after having been as low as $35/bbl – and Dale Clark is looking at 5%.

“The days of 20 % growth are certainly gone, but hopefully it becomes a more sustainable growth rate – around 5% – with inflation coming down, consumers becoming more confident, and companies being able to plan their ongoing needs and growth around a 5% growth rate which is indicative of a more mature market.”

The upcoming holiday season – which can account for as much as half of annual sales – will be the crucial test of Russian consumers, and how far their confidence has been repaired. Even if they are only after bargains, the signs of an economic rebound offers hope that improving sentiment will ring retails tills into the new year.