Six challenges in the Russian retail world

Six challenges in Russia – Jan te Riele, ICG Logitecc Ltd.
International experts predict that in addition to telecommunications, retail will be the motor driving the Russian economy. This promise will have to be fulfilled in the years to come.

The Russian retail market is catching up fast. It is being restructured in giant leaps, which manifests in new shopping malls opening on an almost weekly basis. Consumer disposable income is also growing steadily. Perhaps not adequately for everyone, but the middle class – until recently non-existent – is growing by the day. In turn, this stimulates the development of the retail sector.
Is it all a crescendo? No always, unfortunately; there are still inhibitory factors at work:
1. Many entrepreneurs in the retail market have a lot of money but little experience. They generally want to develop on their own, and believe they can do it without expert advice; hardly any funds or attention are directed towards market research or concept development.
2. There’s a structural lack of national retail chains. While initiatives in the field are growing, it’s still lagging far behind Western Europe. This also leads to problems finding so-called main tenants and crowd pleasers (anchor renters) for the development of new shopping malls.
3. The duration of contracts is far from inspiring trust. Contracts run for a maximum term of five years, less if possible. Try that in most Western European countries. Ten or more years is the standard these days.
4. Ownership rights are not yet regulated well in Russia. Obtaining the right locations requires a great deal care to make sure you actually get a site for the money you pay.
5. Pricing in, for example, rural regions is considerably higher than in comparable regions in Western Europe, which is also certainly true for clothing and furniture. A simple comparison of an Ikea catalogue in Amsterdam and in Moscow shows price differences of 20, even 60%. The Russian market is still developing, and lacks real competitive pressures.
6. The almost absolute lack of franchising is also a concern. It does exist, but on a very modest level. Some say that franchising does not suit the Russian personality. However, I think there’s an incredible growth potential here, and that franchising will become increasingly popular. Fortunately, banks are also looking at this development in a more positive way, and are willing to extend credit in a more pleasant manner than in the past.
In summary: Russian retail is growing and still faces some real challenges. In the future, it may become a benchmark for Western Europe. Come and see it!

Jan te Riele, General Director at LOGITECC, was director of several large super- and hypermarket chains in the Netherlands for over 30 years, including supermarket chain Laurus (Super de Boer).
LOGITECC Investment and Consulting Group is a Dutch-Russian company offering a wide range of business consulting services: investment consulting, strategic business planning, logistics, market research and a deep understanding of the Russian market.

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