Boris Agatov, general director of Project line – one of the most famous companies that deals with designing, repairing and constructing shops for more than ten years, talked to us how the situation within the retail sphere is changing, when the shift in demand happened, and why now is such a good time for development.

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Boris Agatov “The crisis in Russianretail is likely coming to an end soon”
Boris Agatov, general director of Project line – one of the most famous companies
that deals with designing, repairing and constructing shops for more than ten years,
talked to us how the situation within the retail sphere is changing, when the shift in
demand happened, and why now is such a good time for development.
Boris, you work a lot with clients in retail: what, in your opinion, has been
happening in this sphere in Russia since the beginning of the year?
Retail has survived a hard time, it’s important to note its quick development. A lot
of stores opened in late 2014, which was then followed by a dramatic collapse of
sales in the beginning of the year, which led to a halt in the number of new shops
opening.
I said at the beginning of this year in an interview that, "the crisis is not infinite,
and that we must wait until the end of the year before we can see how the numbers
have fallen in regards to new shops opening ." Earlier this year, we almost
predicted the death of retail, but once the situation more or less stabilized, retailers
began to make up for lost revenue. As a result, we haven’t seen a huge decreasein
the number of store openings. By mid-summer, retail had stabilized and many of
the players, who started out the crisis in good form were able to continue
development. The development wasn’t to the scale that it was before the crisis, but
we shouldn’t write it off as being insignificant either.
Our business focuses on retail trade. We closely communicate with many players
in the market, many of whom have said that not only have sales stabilized but there
has actually been an increase in income of 10-20% in rubles. Of course, this is in
part connected with the rapid devaluation of the ruble and the increase in retail
prices but nevertheless, this has motivated retailers to expand and develop their
networks. There has been an increase in entrepreneurs who are opening their own
shops, which is another example that the crisis is going to end. These entrepreneurs
are willing to take risks and see a new opportunity in setting up shop in shopping
centers, where they were previously unable to find spaces, as well as negotiate
better conditions with suppliers. In turn, suppliers are more willing to be work with
these smaller retailers, among other nice “crisis” bonuses.

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First-time entrepreneurs are open to taking more risks, and we’ve seen a surge in
new businesses and brands.
Without a doubt, our company doesn’trepresent the whole market; and yet, at the
same time because of the large number of clients and projects that we handle we
are a in a good position to judge the state of the retail market.
We expected to see a decline in sales among our clients at the beginning of the
year as well as a decline in the number of orders for opening new shops (working
on concepts, retaining brands, issuing work documentation) and this turned out to
be the case. Since mid-summer, we’ve experienced a growth in the number of
projects, particularly in the number of shops opening.
I’d like to show you some numbers for clarity:
In 2014, we designed 154 shops, 35 of which were renovated and constructed.
Within the first three quarters of 2015 we have already designed 160 projects, 49
of which are through the repair and construction phases, i.e. “Turnkey shops”,
which shows the growth in orders. We expect to see growth around 10-15%, which
indicates that retail is capable and willing to develop, as well as open new trade
points.
When you say about 160 unfinished project in this year, are they just shops orthe
project in other sectors of economy as well?
They are just shops. We are not looking to move into other sectors, our clients
appreciate our focus on this sectorand the absence of “pantophagy”.
Can you explain the bustwhich took place in the second half of 2015?
In my opinion, there were many factors that played a role:
First, many retailers experienced an increase in revenue, connected with the
increase of prices, which was not seen last year or in the beginning of this year.
Second, despite the increase in prices, there wasn’t a significant increase in salaries
such as staff salaries, or even operating expenses.

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Third, during the peak of the crisis, developers and shopping center owners
levelled the lending prices, which cut sales losses by several times.
Fourth, for many foreign companies, the sharp fall for the ruble was a “fortunate
gift”, since the calculated expenses for opening shops were much lower in their
currencies (usually euros or dollars). This meant that foreign companies were able
to cut their expenses for opening shops by half. Their presence has greatly affected
the number of new openings.
Fifth, the majority of retailers make purchases in China, and the devaluation of the
Chinese Yuan over the course of the year has helped importers deal with the shock
on the rubles’ fall against the dollar.
Together, these factors have allowed for rapid growth within the retail sphere.
Does this mean that the economic situation in Russian has stabilized in general?
Is this type of growth in the retail sphere to be expected?
I wouldn’t necessarily say so and here’s why. Negative trends affect purchasing
power, which is reflected in the retail trade. If the economic situation starts to
deteriorate under the influence of factors; for example, the continued decrease in
oil prices, without a doubt, this will trickle down to retail.
For fashion-retail the beginning of the year was difficult, but thanks to
optimization and somerevival in the consumer demand sectordevelopment has
continued.
I would also like to note that the clothes retailers are looking into reducing the
currency risk by moving garment productioninto Russia and CIS countries.
Some companies get parts of their collections from European suppliers, the other
parts are produced in Russia, legally and with permission from the brand of course.
For the time being this isn’t a global trend but the more it becomes one, the less
risk there is that we deal with the risks of rapid currency fluctuation.
What prospects await retail in the future? Can you identify the main development
trends?

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Retail continues to develop in regions and cities, and in the regions where there is a
big influx of funds, there is an increase in purchasing power that follows.
A striking example of this would be the city of Kazan, which recently hosted a lot
of high level sports competitions. Based on feedback from our customers, Kazan is
the best place in terms of sales growth.
I’m not ruling out the role of activities related to hosting the World Cup in 2018 in
having a beneficial effect on the regions involved in hosting these, which is why
it’s worth paying attention to those cities.
Based on your experience, has the crisis ended?
Based on experience, the acute crisis phase can’t last for longer than half a year.
Nowadays, the crisis is lingering, but the acute phrase has passed. Assuming a
serious political or economic shockdoesn’thappen, we expect to fully recover and
exceed the pre-crisis number of shop openings in the coming year.
What would you advise be to retailers and entrepreneurs?
I would of course keep my fingers crossed that their sales continue to increase and
that more and more shops open. Our business depends on this directly, as I
mentioned before; shop openings are almost 100% of our customer base. In all
seriousness, without a doubt, I wish them strength in overcoming difficulties and in
finding new and creative solutions that will help them achieve new levels.
Our traditional question: what has been your main inside recently?
For many retailers, the international scale of the Russian market is one of the most
important ones in the world. If our foreign customers are looking at the market
positively, then we definitely need to look at it positively as well. I think this is the
main insight - an unexpected but very pleasant surprise.
Svetlana Zolotar.