Defaults, bankruptcies and change of ownership mark the end of the booming retail market
MOSCOW, 11 March 2010 ― Dwindling consumer demand amidst higher credit rates and the unwillingness of banks to somehow loosen their credit policies predetermined the performance of retail companies during the financial and economic downturn, says the Ernst & Young Retail Industry Survey 2009. The survey was based on interviews conducted with domestic and foreign retail companies operating in Russia.
Hardest hit by the crisis were companies having invested in the development or purchase of real estate, as well as minor chains failing to adapt themselves to the new environment. However, the survey showed that the survivors do not just stay afloat but improve such financials as sales and earnings. Over 60% of our respondents reported growth in ruble revenue, while 29% managed to increase profitability along with sales. The crunch prompted companies to focus on the operational efficiency issues which they regarded as not so urgent while the market continuously grew. The key steps taken by companies included reduction of rental costs (ranked first in terms of popularity and effectiveness) and personnel-related costs (placed second). The companies assessed other measures as less effective.
The market outlook remains very cloudy. Still, the majority of interviewees (87%) hold that the situation is unlikely to deteriorate significantly. At the same time, merely 38% of the respondents believe that the crisis has already hit bottom, while 14% of those representing non-food chains expect the situation in the industry to aggravate considerably.
The new economic environment made many companies shelve their investment plans and revise their development strategy, with most companies opting for organic growth.
A comparison of the 2007 and 2009 results shows that companies have revised their regional development strategies. In 2007, the bulk of the companies were going to expand into the regions, reasonably assuming that the market in Moscow and other major cities was fairly saturated and rapid growth could be achieved only through regional development. By contrast, in 2009, the majority of respondents intend to focus on expanding chains in Moscow and other major cities.
"Although strategic investors are currently tackling issues on the major markets, the crisis gives those who start elaborating their long-term strategy as early as today a chance to gain leading positions on the Russian market in the future," said Vitaly Pyltsov, Ernst & Young partner and Chief Operating Officer, CIS.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax and legal, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,400 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan and Minsk.
For more information, please refer to www.ey.com.