A new report by retail analysts Verdict Research has found that retailers such as Carrefour and H&M are making the right decision by breaking into the lucrative Russian retail market.
Despite the damaging impact of the global financial crisis, the long-term growth potential of the country remains huge. Russia’s retail market has grown at a tremendous pace, by almost 500 per cent over the last decade, reaching US$451 billion in 2008 and Verdict Research forecasts that by 2012 the Russian retail market will be approaching US$800 billion.
“Retailers ignore Russia at their own peril,” claims Simon Chinn, analyst at Verdict Research and author of the report.
“Sure, at present the short-term outlook for the country is extremely bleak, but if we cast aside the current crisis for a second, the long-term growth potential of the market remains very strong.”
Though retail growth has slowed in the wake of the global financial crisis, annual retail sales growth in 2008 remained in double digits.
Despite the recessionary environment many foreign retailers are looking to establish a foothold in the Russian market.
IKEA plans to intensify its regional expansion in Russia opening big box stores in smaller cities with 500,000 inhabitants. The general robustness of the grocery sector and its strong growth potential even in a downturn makes the market particularly attractive to foreign entrants. France’s Carrefour will open its first hypermarkets in the country in 2009 and US giant Wal-Mart is also exploring opportunities in the Russian market.
Meanwhile, Russia’s clothing market continues to attract new entrants including New Look, Debenhams and H&M, the latter opening its first store in Moscow in March 2009. Furniture retailer Habitat will also enter the market in 2009 opening stores in St. Petersburg and Moscow.
Undoubtedly Russia remains a risky market but the long-term gins from successful market entry could be abundant.
“We believe that in the wake of the global recession the market will return to buoyant growth much like it did in the aftermath of the crisis in 1998,” said Chin.
The strong prospect for future growth has already attracted some of Europe’s largest retailers to the market such as Kingfisher, Auchan and Metro. More are likely to follow suit in the future.