Dynamics of Consumer Activity at Retail Centers in Russia

The index tracks the attendance trends in the retail marketplace (see the graph above). It not only indicates the specific number of visitors at any particular time, but also shows the dynamics of consumer activity at various “points”. The calculation of index values is based on the attendance information gathered from retail objects and about the leased areas they occupy. Currently the index is just a pilot project, and during this phase the graph and historical data may very well change.

Obvious Trends:

1. Before the end of February 2009, the index was significantly higher than in 2008 – by 11%;

2. In March and in the 2nd quarter, this same index was higher by an average of 5%;

3. Throughout the 3rd quarter, and at present, the index stood 2% lower then the previous year;

4. The largest decline this year occurred during the last week of July and after September 1 – in both cases it amounted to -7% compared with the same period in 2008.

5. On the average since the beginning of this year, the index is higher than it was in 2008 by 4%, and higher that it was in 2007 by 20%.

Comments:

• Trends in 2008 and throughout 2009 have been quite similar;

• At the beginning of the year (up to the end of February) a high level of activity was most likely a result of the devaluation of the ruble and discounts being offered by retailers – people were making “fastproperty track” purchases in an effort to save money and invest in more tangible assets, then the recession came - the influence of the above stated factors faded. Nevertheless, the second quarter was almost the “same” as the previous year's, the trend was similar;

• In July, the index dropped below the previous year's level and remained so for several weeks - the traditional seasonal decline was greater than the previous year's, but not by much;

• In the last week of August, the traditional burst of activity associated with preparations for September 1, was more gradual than in the previous years – consumer activity started gaining momentum gradually, starting on August 10 (not August 25 as is usual), and therefore the last week before the holiday burst of activity was slower than usual;

• At the moment the index curve remains similar to the one seen last year, with some minor variations, and it is likely that this trend will hold firm until the pre-Christmas period.

Consumer Activity in St. Petersburg

In contrast to the Moscow market, the St. Petersburg market did not register an increase in consumer activity in JanuaryFebruary 2009, in comparison to the same period in 2008,. Almost from the first days of January most retail objects saw a significant decrease in customer traffic.

1. Retail objects with rentable floor space of 10-30 thousand sqm: The first three quarters of 2009 have seen a decrease in consumer traffic in comparison with the same period in 2008, by an average of 7-10%.

2. Retail objects with rentable floor space of 30-50 thousand sqm: The first three quarters of 2009 have seen a decrease in consumer traffic in comparison with the same period in 2008, by an average of 3-6%.

Regional Trends

At the moment, not all major regional cities have the so-called high-quality shopping centers. In these circumstances, the opening of such “iconic” projects as the Mega and Planeta shopping centers is always accompanied by an increase in consumer activity. However, due to the fact that the retail fastproperty markets in the regions are still in their initial stages of development, in comparison to Moscow and St. Petersburg, the retail centers market remains strong there. The decisive role here is played by the lower income levels of the vast majority of people living in the regions of Russia – and as a result the purchasing power of the population has not changed as significantly as it has in major centers. A rift here occurs when quality retail space, of a significant size, becomes available – then consumer traffic switches from the lower quality objects, abandoning them forever. Absolute traffic flow numbers depends on the total rentable area of the retail object – the greater its area the greater becomes the number of quality tenants attracted to the shopping center, the larger anchor tenants move in, and this leads to an expansion in the service areas of the object. We have recorded the average consumer activity levels at three categories of retail objects (15-30 thousand sqm; 30-40 thousand sqm, and over 60 thousand sqm) for regional cities of more than 500,000 people. Retail objects with rentable floor space of 15-30 thousand sqm: the typical consumer traffic in 2007-2008 was 65-80 thousand people per week – and in the pre-Christmas holiday periods this increased to 100-130 thousand people per week. In 2009, consumer traffic at such facilities declined by 5-15%, in comparison to 2008 .

In 2007-2008 the average weekly consumer traffic at regional shopping centers with rentable areas of 30-40 thousand sqm was 90-110 thousand people a week, which during the holiday season boom would jump to 160-180 thousand people per week. In 2009, consumer traffic, except for the January-February burst of activity in a few cities, a decline of 10-20% was observed – 75-90 thousand people per week during the year and 130-150 thousand per week in the holiday seasons.

In the super-regional malls (rentable areas of 60 thousand sqm and more), whose catchment area covers almost the entire city, consumer traffic has remained stable with an average of 220-260 thousand people per week, and 330-360 thousand per week during the holiday booms.