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17 Oct, 2008 10:51

Russian retailers brace for impact of credit crunch

The liquidity crisis is spreading to Russia's retailers, forcing them to cut back on expansion and possibly a wave of consolidation. Just like the banks, retail players may also get support from the government – with First Deputy Prime Ministe

As the current financial crisis spurs banks to hoard cash, Russian retail chains, weighed down by significant debt burdens, face tough times.  Most large retailers are reluctant to discuss their difficulties, but Vladimir Sadovin, General Director of Azbuka Vkusa Retail Chain which focuses on mid and high end clients admits the company is revising development plans and putting regional projects on hold.

“It's very difficult right now to attract money from the financial markets, or even if we manage to do it, the price has doubled within the last two weeks.”

Retailers are also becoming increasingly concerned about their suppliers' financial health – some of them have already asked for price increases because of liquidity issues.  However, this could offer opportunities for producers, says Vadim Dymov, Chairman of the Board of Directors at Dymov, who manages sausage production.

“We're the real sector of the economy, and we expect investors now to pay attention to it, and money to flow in it, unlike speculative sectors like development and retail, that will experience outflow of capital.”

Funding problems are already resulting in job cuts, and most retailers expect further problems, like falling consumption – but not until after the New Year holidays, according to Sadovin.

“The New Year period for food retailers is always a very high period for sales and nobody is raising prices right now.  But we think the prices will go up maybe in February or the beginning of next spring. So inflation will go up – it's for sure.”

And many think the ongoing crisis will change the whole sector, which has enjoyed unprecedented growth in the last few years.  Defaults and bankruptcies may spur consolidation. And it's a good moment for retailers to boost efficiency by increasing productivity according to Leslie Mueller Fletcher, retail Analyst at ATKearney.
“You don't need to raise external capital for that, and those would be areas like labour optimisation, pricing optimisation, SKU rationalisation, for their products on the shelves, and you can do these types of initiatives with nothing more than a few smart analysts, an excel spreadsheet, some store data – basically human capital.”

A few years after this crisis finally subsides, Russia's retail market might well look very different, with only the strongest surviving.