The fashion and footwear market in Russia is forecast to fall by around 5% this year as clothing sales slump amid the financial crisis.
However, a new report by research and consulting firm PMR says the difficult economic situation is also being seen by some clothing, footwear and accessories (CFA) retailers as an opportunity to expand their portfolios.
CFA is the second-largest retail sector after food in Russia, and is forecast to be worth RUB1,380bn in 2009.
According to PMR estimates, the Russian CFA market was worth RUB1,452.3bn ($58bn) in 2008.
The industry's growth is hampered by shoppers' falling purchasing power after the rouble depreciated rapidly at the end of 2008 following a dramatic fall in commodity prices as well as a substantial outflow of capital.
Distribution trends, however, have not been hit by the financial crisis in Russia.
The share of open-air markets and independent CFA stores continues to shrink, while mixed-assortment stores (such as department stores and hypermarkets) and specialty chains are strengthening their market position.
While the Russian CFA market remains highly fragmented (there are no clothing retailers with a visible market share of over 5-8% in any price segment), the aggregated share of CFA retail chains accounted for 33% of the market in 2008, and are expected to increase to nearly 40% by 2011.
Struggling companies
As it becomes harder for retailers to get loans to support their businesses, the growth of modern formats has significantly slowed down.
Some foreign CFA brands have even been forced to pull out of the Russian market - such as Diesel, Stella McCartney and Alexander McQueen.
Retailers try are also trying to combat the devaluation of the Russian currency by reducing the share of CFA items produced abroad.
The Gloria Jean's company transferred part of its production from the Far East (China, Bangladesh) to Russia. And the Zimaletto retail chain decided to reduce orders from abroad to 40% (compared to 75% before the financial crisis).
Opportunities on the horizon
Some CFA retailers see the crisis as an opportunity to diversify their portfolios.
In October 2008, Melon Fashion Group acquired the Taxi clothing retail chain consisting of 14 stores and launched a new retail project under the Love Republic banner.
Earlier this year, Sun Investment Partners bought a 33% stake in the CentrObuv footwear retail chain, and maternity wear specialist Budu Mamoi said it expects to double its store count this year.
Despite the country's unstable economic situation, foreign CFA retailers tend to continue their expansion and increase the level of market penetration.
H&M, which entered the country in March 2009 with two stores in Moscow, plans to open its stores beyond the capital city.
The Japan-based Uniqlo and the US firm GAP are also said to be considering expansion into the Russian market.