MOSCOW — As a thick blanket of smoke descended upon Moscow last week, the city turned into a ghost town. With fires creeping closer to the Russian capital, those who could fled in droves.
This story first appeared in the August 17, 2010 issue of WWD. Subscribe Today.
Already a difficult month for luxury retail, August will likely bring in low numbers for high-end Russian boutiques, analysts said.
A record-breaking heat wave has kept temperatures above 100 Fahrenheit for nearly two months. The heat has ignited wildfires on Moscow’s outskirts, blowing a rancid carbon-monoxide-filled smoke to settle over the city. While the fires and high temperatures have eased somewhat in recent days, the Russian weather service predicts they could return soon.
“August is always not the best month for retail, as most people are away for holidays,” said Alla Verber, vice president of Mercury Group, Russia’s leading distributor of retail goods and owner of the Tsum department store.
The heat and smoke have multiplied the city’s emptiness. As the smoke settled in on Aug. 8, the Russian aviation authority registered its largest traffic day ever, with 104,044 people fleeing Moscow. Foreigners and the well-to-do were the first to flee. Even the city’s mayor, Yury Luzhkov, remained on holiday days into the smoke, before being called back amidst a public outcry.
For those who have stayed behind, malls have provided hard-to-find relief from the heat outside. Air conditioning is a rare luxury in Russia — in a country long used to harsh winters, few apartments and restaurants are outfitted with it.
Figures have yet to show how much consumers are buying. Following a steep decline on the back of a particularly acute financial crisis, Russian retail began to recover this year, registering nearly 6 percent growth year-on-year in June. Analysts say the retail recovery has largely been driven by food purchases, however.
“On average, the situation with retail is that it is recovering — but very, very gradually,” said Mikhail Krasnopyorov, a retail analyst at Troika Dialog, a leading Russian investment bank. In the first three months of 2010, he noted, food purchases grew by four percent in real terms, while nonfood purchases actually fell by one percent.
The situation does not look much better going forward. The heat wave, and its attendant fires and drought, have destroyed up to a quarter of Russia’s wheat crop, prompting analysts to add 1 to 1.5 percentage points to an annual inflation rate that was expected to stretch above five percent before the crisis even began. For low-cost clothing retailers, that will likely mean less revenue, as Russians spend ever more money on necessities like food.
Yet, as ever, Moscow luxury retailers are trying to remain optimistic. “Everybody knows that shopping helps women survive hard times or any cataclysms,” Verber said.