Translated material
Idle turnover
PricewaterhouseCoopers predicts zero growth in Russian trade for the year
The trade in goods and services sector in Russia has been seriously affected by the credit crisis and the general decline in citizens' willingness to consume. As a result, the international consulting company PricewaterhouseCoopers (PwC) predicts that in ruble terms the volume of retail trade turnover in 2009 will remain at the level of last year, and in terms of dollars it will decrease by 20%. This may seem paradoxical, but it is precisely the crisis that creates visible advantages for the development of large chain retail in Russia.The greatest losses due to the decline in consumer activity are suffered by trade in luxury goods. Russians consider recreation and leisure as the main items to reduce expenses. The results of a survey of 2 thousand people in 11 million-plus cities commissioned by PwC show that 38% of respondents plan to further reduce travel costs; 33% intend to spend less on entertainment outside the home - going to the cinema, theater, concerts and restaurants. About a quarter tend to save primarily on purchasing durable goods. More than half of consumers intend to maintain at the same level the costs of purchasing food (65%), cosmetics and perfumes (59%), as well as books, periodicals and CDs (57%).
But there are sectors that have every chance for dynamic development. 42% of respondents intend to increase spending on home improvement in the next 12 months, 39% on purchasing clothes and shoes, and 26% on food products.
The observed shift of consumers from stores selling expensive goods to the middle sector and to discounters, PwC partner Dale Clark explains by the fact that “consumers now expect an increase in the quality of goods and services while reducing their prices.” Modern types of retail trade, in particular chain retail, are most capable of satisfying these expectations. Therefore, it is not surprising that the process of consolidation of small chains and individual stores under the wing of large brands, although slowed down compared to pre-crisis times, continues quite intensively. Large chains, by creating their own logistics networks and centers, are able to reduce trade margins and provide consumers in different regions with approximately the same set of goods without the risk of accumulating excess inventory.
If we evaluate the attractiveness of the Russian market for foreign investors, competition from countries such as China, India, and Brazil is growing noticeably. To ensure competitiveness in comparison with the consumer markets of these countries, foreigners expect a profit from the capital invested in Russian retail at the level of 25-30%, despite the fact that they are ready to work in China or India even with a 20% profit, since retail markets there continue develop steadily despite the global crisis.
Nevertheless, according to Mr. Clark, “Russian retail remains attractive to foreign investors, who view it as a promising market for creating production facilities, including in cooperation with local companies.” The expert is confident that “large retail chains will find an opportunity to work harder in the new legislative and legal conditions” that may arise if the new law “On Trade”, currently being discussed in the State Duma, is adopted.
According to experts, foreigners in Russia face a “complicated tax environment.” According to PwC partner Alina Lavrentieva, the effective income tax rate in retail is usually 30-40%, but in some cases it can reach up to 80%. “The stakes are so high that the performance of the Russian divisions is reflected in the overall financial performance of the international parent companies,” Ms. Lavrentieva marvels. This is explained by a whole range of reasons. And above all, the very strict approach of the fiscal authorities to deductions from the tax base. It is difficult to achieve official reflection in tax reporting of losses due to loss of marketable qualities, expiration of the shelf life, damage, scrap, and petty thefts, which amount to approximately 1-2% of turnover.
A Russian specificity is that a company engaged in the construction of new retail space is charged with large-scale costs associated with the creation of transport and municipal infrastructure. “We even saw such an element as the improvement of the city cemetery as part of the investment project for the construction of a shopping center,” said Ms. Lavrentieva. - We are not the consumers of this infrastructure, which is transferred to the city authorities. What to do with these expenses - deduct, capitalize, what to do with VAT?
A lot of tax disputes in Russia are related to merchandising (the system of promoting goods). “Fiscal authorities are of the opinion that the retail outlet needs this, so they consider the corresponding costs of suppliers to be unreasonable, and companies are deprived of deductions,” explains the PwC partner. Recently, the topic of including franchise payments (for the right to trade under a foreign brand) in the customs value of imported goods has become especially relevant for non-food retail. “There are disputes, but judicial practice is still negative for trade,” admitted Alina Lavrentieva.
“As a result, while the official tax rates in Russia are reasonable and quite acceptable, the approaches of the tax authorities make the fiscal burden almost unbearable,” concludes the PwC partner.
One of the most dynamically developing markets is online commerce. As part of a study commissioned by PwC, it was found that in Russia, 80% of 45 million Internet users have already made purchases using the World Wide Web, and among respondents with an income of over 25 thousand rubles. per month, the share of people making online purchases is 90%. Among the advantages of online shopping, the majority of respondents cite saving time (74%), the convenience of delivering goods to your home (65%), the ability to avoid queues (61%), and 24-hour service (58%). And for consumers outside of Moscow, the main argument in favor of turning to online stores is the opportunity to purchase goods that are not available in their region.
The main problem hindering the development of online commerce in Russia is the uncertainty of 58% of those who used the services of chain stores and 72% of those who did not use them that they will receive quality goods.
The survey showed that only 18% of respondents pay attention to online advertising when choosing goods or services online. At the same time, the relative majority (42%) are most loyal to contextual advertising, and young people from 18 to 25 years old, as it turned out, are more loyal to spam in their email inbox.