Feb 3, 2015 11:05 AM
In Russia, creeping awareness that economic crisis will last
The Associated Press
MOSCOW (AP) Chairs, tables, designer chandeliers, and an enormous pink lamp in the shape of a bear's head: at The Red Fox and the Lazy Hound, an upscale restaurant that is one of many closing in Moscow this month, everything must go.
And surprisingly, Muscovites have come out in numbers to find cheap deals.
Garage sales have long been a rarity here, where a decade of boom times has turned Russians into some of the world's biggest gourmands and luxury shoppers. But frugality is making a comeback with no end in sight to Western sanctions or the painful drop in Russia's oil revenues, there is a creeping awareness that the tough times are here to stay.
Shopping prices have jumped higher, and are expected to keep rising for months. About a fifth of Moscow's restaurants are forecast to close this year and businesses in all sectors are planning layoffs.
Anna Serzhantov and her husband Sergei, who on Sunday were browsing the restaurant's fire-sale, had never bought used furniture before. By the time they had finished renovating their apartment this autumn, the value of the ruble which has fallen about 50 percent in a year had dropped so far that they couldn't buy half of what they wanted. The only affordable option, IKEA, hiked its prices up in December in response to the devaluation of the currency.
The Serzhantovs found the garage sale through a website that hooks up deal-hungry buyers with shuttered restaurants.
"We still have to buy things for our bedroom," Anna said, "But unfortunately I don't think we'll find that unless the hotels start closing, too."
Olga Ovcharova, a restaurant critic for Time Out who co-founded the garage sale website, says there are more businesses than ever shutting down and selling off their wares.
"People's salaries are going down while everything around them is getting more expensive," she said.
Igor Bukharov, president of the Russian Federation of Restaurateurs and Hoteliers, told the AP that he expects at least 20 percent of restaurants in Moscow to close this year due to sluggish demand and rising prices. According to 2GIS, a company that posts restaurant listings online, Moscow saw in the November-January period the first net decrease in venues in two years, with 46 closures.
As the ruble has dropped, the mood in Russia has darkened. According to a January poll by the independent Levada Center, 49 percent said economic turmoil was the greatest threat to Russia, up from 29 percent one year ago. That concern was outstripped only by that of rising prices, which 54 percent of respondents said was a threat.
While restaurants have been the first and hardest hit, the ruble's collapse and weakening demand is reverberating through other sectors of the economy, such as clothes retailers and even manufacturers.
OPORA, an NGO that advocates for small business, estimates that up to 30 percent of manufacturing businesses are planning layoffs to free up money they are not getting from loans, which have become scarce because the financial system is frozen.
Fashion retailers, meanwhile, are dealing with both the problem of less consumer spending and the fact that they buy designer collections in euros or dollars, which have doubled in value in the matter of months. "They're really being squeezed," said Robert Courtney, who leases out space in shopping centers to small retailers.
There is only so much Russian authorities can do to alleviate the crisis. The government has pledged 2.3 trillion rubles ($34 billion), but at least half of that will be spent supporting the banks.
The central bank, meanwhile, is having to choose between supporting the ruble or the economy. Higher interest rates can support a currency but hurt the economy by making borrowing more expensive. The central bank is bowing to pressure from the government and businesses to bring back down its key interest rate, which it had hiked sharply to 17 percent in December. Last week, it cut it to 15 percent, an indication it will accept the ruble's drop.
While so far retailers have attempted to keep costs low and not drive away customers too quickly, many acknowledge that a further rise in prices is inevitable.
"Importers have taken a big hit for a period of four months," said Satesh Melwani, a British citizen who owns a snack-importing business in Russia. "Now we're starting to raise prices to our retailers, and the retailers are going to start raising prices to the consumer. The reality is that there's a lag in real inflation as it hits the buyer's pocketbook."
Alexei Amyotov, co-founder of Look At Media, a digital media holding company, estimates Russians will really start to feel the impact of inflation this summer. His firm, which generates most of its revenue through online ads, has not seen a mass exodus of clients, but many advertisers are now refusing to make long-term commitments or invest in year-long campaigns.
"It's like in the movies, when the hero is wounded but he hasn't yet understood that he's dead and he keeps running," he said. "Everybody is just afraid of looking down and seeing how big that hole is."