Russia retail loses global shine, leads Europe-study

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Thu Jul 8, 2010 1:41pm BST

* Less popular entry market than 2009 - A.T. Kearney

* Slower GDP, sales growth rates to blame

* Still number one entry point in Europe

* Long-term outlook still attractive

By Maria Kiselyova

MOSCOW, July 8 (Reuters) - Global retailers are finding Russia a less attractive investment destination this year due to sluggish consumer spending, although it remains the top entry point into Europe, a report by consulting firm A.T. Kearney said.

Russia, emerging from its worst recession in 15 years, has dropped eight spots in A.T. Kearney's 2010 Global Retail Development Index and is currently ranked tenth in terms of the urgency for foreign retailers to enter the market.

"Slower GDP and retail growth rates and increasing market saturation contributed to the decline, yet the retail environment in Russia has not changed dramatically," A.T. Kearney said in a report.

For those with a longer term outlook, however, the opportunities to offset low growth rates in mature markets are massive, with rising disposable incomes and a growing middle class seen as key drivers of a future boom, the report said.

The only major international retailer to expand in Russia this year is Japanese clothing retailer Uniqlo, a unit of Fast Retailing (9983.T). [ID:nLDE631067]

A number of other foreign companies are considering a move, including Wal-Mart (WMT.N), Limited Brands (LTD.N), Hamleys and Jeronimo Martins (JMT.LS). [ID:nLDE6310BC]

For a Factbox on the Russian retail sector: [ID:nLDE6310BC]

ENDURANCE CAN PAY OFF

The Russian economy has this year returned to growth, but recovery has been slow, and while consumer confidence data published on Wednesday hit a 21-month high, it remained below its pre-crisis level. [ID:nLDE6660LQ]

According to A.T. Kearney, Russia still remains Eastern Europe's highest-ranked country despite the drop, outpacing Albania, Bulgaria, Macedonia, Romania and Bosnia and Herzegovina in the top-30 rankings.

"Russia remains Europe's largest consumer market, with rising disposable incomes and an expanding middle class, and it offers massive growth opportunities for retailers with a long-term approach."

The market's potential was questioned after Carrefour (CARR.PA), the world's No.2 retailer after Wal-Mart, said last October it had decided to pull out of Russia after only four months. [ID:nLF662106]

Carrefour blamed low growth and acquisition prospects in the country where it previously aimed to be the third biggest player in the long term. But Wal-Mart reiterated in June it continues to search for the best way to enter. [ID:nN03234955]

"Organic expansion in Russia .. is difficult and slow... But, as Auchan has shown with its 40 Russian hypermarkets, endurance can pay off," while attractive retail M&A targets are limited, A.T. Kearney said.

Globally, Russia is lagging behind other BRIC states - China, India and Brazil -- ranked first, third and fifth respectively -- and has ceded the No.2 place to Kuwait -- a new entry on the list.

(Reporting by Maria Kiselyova; editing by John Bowker and Simon Jessop)

((maria.kiselyova@reuters.com, +7 495 775 12 42, Reuters Messaging: maria.kiselyova.reuters.com@reuters.net)) Keywords: RETAIL RUSSIA/

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