Retail sales drop to a five-year low

Ukrainians are pondering how to survive without tightening their belts

Photo: Ivan Chernichkin

Ukrainians are cutting back on their purchases to the minimum. In January-October retail sales dropped 6.8% compared with the same period last year, the State Statistics Service reported yesterday. This is the largest decline in retail turnover since the crisis year of 2009.

Eastern motive

As was expected, retail sales sharply dropped in the Donetsk and Luhansk oblasts. The decline in turnover in these regions was 31.9% and 40.3% respectively over nine months. The residents of these two regions, including those living outside the ATO zone, have not been paid much over this period. In the beginning of the year, the total volume of wage arrears to the employees of enterprises in the Donbas was less than UAH 160 mn. Today, this figure has exceeded UAH 1 bn. In addition to that, people living in the region are forced to economize on the background of the future suspension social payouts on the territories seized by insurgents.

Meanwhile, the trade volume in other regions is also in decline. Only seven regions of 24 oblasts preserved or increased the level of trading compared to last year, while the remaining 14 regions and Kyiv registered a decline in retail sales, reported the State Statistics Service. The rise in prices due to the collapse of the hryvnia contributed to this situation. Since the start of the year, the consumer price index increased 19%, while average monthly wages grew by only 9.5% to UAH 3,481.

Purchasing power on the backburner

The decrease in consumer purchases based on the results of ten months was less than certain industry experts predicted. “I expected a sharper decline in retail sales not only due to inflation and devaluation of the hryvnia, but also because consumers are uncertain about their future,” says Executive Director of the Bleyzer International Fund Oleh Ustenko. According to his assessments, the decline should have been 10%. However, even with the current decline of trade businesses are forced to close shop. For example, according to AUTO-Consulting in conditions of the decline on the automotive market, which shrunk by 53%, traders are closing car dealerships. “Owners are facing a dilemma – to continue operating at a loss or close the dealership,” reads the statement of AUTO-Consulting.

Despite the long-winded decline in retail sales, the confidence of Ukrainian consumers in October slightly improved compared to September, said experts of GfK Ukraine. A survey for the monthly consumer confidence index registered that despite the decline of the index of the current financial status of consumers to the lowest level since 2009, the index of anticipated improvement increased. Meanwhile, the data was collected by the surveyors prior to the new wave of hryvnia devaluation in the first half of November. Since the start of the year the national currency devaluated by 100%.

Up until recently, the risks of retail sales fading into the grey market haven’t been justified. Otherwise, the decline would have been greater, adds Ustenko. “This, however, does not mean that these risks will not emerge by year’s end. Consumers will try to economize and sellers will offer goods on grey schemes, particularly when it comes to imported products,” says Ustenko. “In this case, the decline in retail sales will be much higher according to the official statistics.”