Russia crisis is ‘the new normal’

The disposable income crunch in Russia driven by the country’s geopolitical crisis and low oil prices should be considered “the new normal”, a leading business executive in the region has said.

A Russian business executive says the current crisis in Russia should be treated as a new normal

While the consumption patterns of high net worth individuals remains largely unaffected by the crisis, middle- and high-income earners have seen a significant loss in disposable income throughout 2015 and 2016.

Average monthly salaries fell 25% in 2015 to €427, leading Denis Shundrovsky, general manager Russia and CIS at leathergoods firm Furla, to declare that the economic situation is “not a crisis anymore, it is a new normal”.

Shundrovsky was speaking at the Market Watch: Russia seminar at the TFWA Word Exhibition & Conference, which closes in Cannes, France, today (7 October).

Also speaking at the workshop, Irina Kulikova, Bain & Company manager and co-author of the paper How History, Culture and Demography Drive Luxury Consumption in Russia said she does not expect the economic forecast in Russia to change while oil prices remain beneath US$60 per barrel.

While she does forecst inflation to stabilise at 6-7% from 2017-2020, she said she does not expect real incomes to significantly grow.

The seminar largely focused on travel retail spend, however Kulikova cited data from bank Sberbank CIB Ivanov which showed the majority of consumers plan to spend less in most sectors including eating and drinking out, and on overall holiday spend.

Two key trend have emerged, she said: tourist flows are redistributing with a greater focus on domestic travel; and consumers are now more interested in Russian brands.

While the total number of trips taken has declined 20% in 2014-15 driven by a weaker rouble and lower incomes, destinations such as Sochi and some former CIS countries have seen an uptick in passenger numbers.

The squeeze on personal incomes mean that consumers are now making more conscious decisions on what they will buy – with Russian brands benefiting.

Last month, John Kennedy, Diageo president for Europe, Russia and Turkey, said his company faces “challenges and uncertain growth prospects in the near term” in the Russian market.