Stagflation batters home and garden retailers

The macroeconomic environment in Russia is extremely hostile at the moment. International sanctions arising from the Ukraine crisis and a steep decline in energy prices have combined to undermine the foreign-exchange value of the rouble, pushing up both inflation and interest rates. As recently as 2013, one American dollar was worth RUB32, but during 2015 as a whole, this figure is forecast to stand at RUB61.
With import costs soaring, the annual rate of inflation is forecast to reach 15 per cent in 2015. GDP is forecast to decline by 5 per cent, crunching consumers. According to the Federal State Statistics Service, retail sales plunged at an annual rate of 12 per cent during October 2015 - their fastest rate of decline since 1999.

The real value sales of home and garden specialist retailers in Russia are forecast to decline by 12 per cent during 2015, to USD25 bn. Affluent consumers have become much more value conscious, while some less affluent ones have gone into survival mode, cutting out discretionary expenditure.
The rate of decline in 2015 sales was exacerbated by the fact that extreme instability in the foreign-exchange value of the rouble during late 2014 sent some local consumers scurrying to Ikea and other home and garden specialist retailers in a wave of panic buying as they sought to turn their rapidly depreciating roubles into durable goods. This shifted some spending forward from 2015 into 2014, exaggerating the rate of decline in sales during the former year.
Retailers responded to this decline in demand with promotions and the offer of additional services, including free delivery and assembly. The weak rouble resulted in higher pricing for imported raw materials and finished products, leading some retailers to source more of their supply from domestic manufacturers.
One segment of the home and garden market has at least partially defied the downturn: real value gardening sales in Russia are forecast to decline by a mere 1 per cent during 2015, to USD2 billion. With food prices soaring, some local consumers have become more interested in growing their own fruit and vegetables. The fact that many urbanites own dachas (country cottages) has facilitated this.
Larger players reshaping a fragmented market
The Russian home and garden specialist retail market remains highly fragmented, but larger players, most notably Adeo Groupe's Leroy Merlin and Inter Ikea Systems BV are tightening their grip. Ikea has 11 outlets in…