OREANDA-NEWS. March 28, 2008. PricewaterhouseCoopers has conducted its first survey of the Russian retail market: “Shopping for the Future”. The report’s main goal was to examine the most important issues and problems facing retailers today for business development.

Chris Skirrow, partner and leader of the Retail & Consumer group at PricewaterhouseCoopers, said:

“Sustainable economic growth and the rapid expansion spread of modern retail formats in the last five years have created exceptionally advantageous market conditions for retailers, however this growth is coupled with problems, and the responses of the survey participants reflect certain strategic solutions to these problems.”

One of the biggest issues facing the retail market currently is consolidation. The retail market is extremely fragmented: the five leading retail companies control about 5–6% of the market (as compared with the UK, where the top four retailers control about 85%). Companies need special strategies to deal with the effect of market consolidation.

Survey participants noted that recently, the Russian retail sector has demonstrated rapid growth — from discount goods to luxury items — the driving factor of which was the growing purchasing power of Russian consumers. In light of the dynamics of retail sector development, respondents expect this trend to continue in the near future.

Managers who took part in “Shopping for the Future” confirm that companies need effective strategies to develop and expand their business. The respondents noted that the most preferred expansion strategy was a greenfield model, based on renting (91%) and construction (69%), as well as buying space (50%).

Survey participants mentioned debt financing (84%) and using company profits (79%) as the best ways to finance business development. Some players are considering strategic investments and IPOs (16% each).

Despite the fact that an M&A strategy provides the possibility of fast growth, only a certain number of survey participants were interested in pursuing an M&A expansion policy (44%). This is attributable to overvalued prices of targets (mentioned by 89% of managers), post-deal integration issues and a lack of resources for implementing acquisitions (47% each), as well as a lack of suitable targets on the market (42%).

While today’s potential for growth and the possibility of occupying retail format and brand niches are enormous, experts indicate a number of problems that companies run into in Russia.

Respondents name the following barriers as negatively influencing the Russian retail market: administrative barriers (77%), increased competition (55%) and infrastructure issues (45%). Other problems named were the fight to increase operational efficiency and lower costs, a lack of retail and warehouse space, logistics and supply chain management, a lack of specialists in the field and the impact of entering the WTO.

Most managers noted cost optimisation, resource management, process efficiency and IT development as ways of raising profitability and improving competitive position. While half of the participants consider that their existing IT systems meet their current needs, a large portion are planning to modernise their systems in 2008 and 2009.

All market players note a lack of top (100%) and middle (30%) managers and high staff turnover rates in stores as being significant factors.

Most companies (72%) recognise the importance of corporate social responsibility reports and their positive influence on the business. Some 67% of those surveyed publish a yearly report; 56% said they had an environmental policy, and a much smaller percent extended these policies to their supply chain to monitor health, safety and workplace conditions of suppliers.