Maxim Karbasnikoff, Head of Retail of ADG Group in Moscow. Credit: ADG Group

Switching to turnover-based rent

“As far as offline is concerned, we can expect consumers to be increasingly sensitive to emotions versus price, quality versus quantity as well as health and proximity.”

By Maxim Karbasnikoff

The Russian retail market was still in a recovery phase after the economic downturn of 2014 when the Covid-19 pandemic broke out. At the end of March, like in most countries, Russian retail outlets had to shut their doors–with the exception of grocery stores and pharmacies–leading most retailers to experience an estimated 60 to 90% drop in revenue. Even if Russia seems more prepared for the Covid crisis than other countries (its “savings” policy has created a $600 bln cushion), the collapsing price of oil, which still accounts for 7.2% of GDP, will create budget pressure, inflation risks, and limit the government’s ability to support the economy during the recovery phase. Even while the official number of infected individuals is relatively low compared to those countries worst hit, the initial economic stimulus (1.3% of GDP) seems comparatively shy against what has been done by other nations.  

Rising unemployment and falling purchasing power will obviously impact consumption and retail sales post-lockdown. But clearly, consumer behavior post-Covid will be reshaped as well. E-commerce development has been boosted by isolation and this trend will remain. As far as offline is concerned, we can expect consumers to be increasingly sensitive to emotions versus price, quality versus quantity as well as health and proximity. 

Fortunately,  what we are developing at the ADG group is a chain of neighborhood centers across Moscow, with an offer focused on services, edutainment as well as F&B. Proximity to our customers is our driver. When the Covid crisis hit, and we had to close most parts of Angara, our first mall. We shifted our popular events like master classes, lectures and music concerts to the online world to keep that connection with clients.  

Our clear priority now and in the days to come is to support our tenants. We have been the first developer to switch to turnover-based rent a few weeks prior to the official lockdown. And we are now implementing creative solutions to support them during the recovery period. One of which is to implement our own online marketplace which will increase sales of our brick-and-mortar tenants and offer our customers quick home delivery of their favorite products and services. We definitely see the current crisis as an accelerator of opportunities and we have the agility to benefit from that together with our tenants.

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