World Cup's expected influence on Russian retail and economy
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Two weeks away, the FIFA World Cup, held in Russia, incurred a staggering 13.3 billion dollars of costs to prepare, making it the most expensive championship ever to be hosted by any nation. This follows the trend: each World Cup to take place has been more expensive than the previous one. For instance, the Republic of South Africa spent nearly 6 billion dollars on the World Cup that took place in 2010, the following year Brazil spent 11 billion dollars on its World Cup.
Estimates of the World Cup’s influence on the Russian economy:
from 2013, when it was first selected to host the event, to 2018, when the event will take place in two weeks.
- 857 billion Rubles (around 15 billion dollars) added to the GDP, which amounts to 150-210 billion Rubles per year. In 2018, another 2.5 billion. are expected to arrive in the country resulting from sales during the event.
- 220,000 job positions have been generated in the service, transport and trade sectors
- An additional 150 billion Rubles have been collected from taxes since 2013 that have been allocated to the budget for the preparation of the tournament.
How will this World Cup influence the Russian retail industry?
Previous World Cups have shown that the main source of income comes from services and products in the consumers’ market. These products include fast-food restaurants, alcoholic and non-alcoholic beverages, food products, high-definition television sets, smartphones, along with souvenirs; especially apparel featuring the World Cup logo.
A survey conducted in Brazil for the 2014 edition of the World Cup showed that more than 80 percent of the respondents were interested in acquiring licensed products, with t-shirts, stuffed toys (for example. World Cup’s official mascot), hats and keychains being the most popular. FashionUnited estimates that around one million pieces will be sold this year in Russia, with 50 percent of these belonging to the apparel/textile industry.
Due to spectators and tourists traveling to Russia, it is inevitable that World Cup merchandise demand will experience a boost during the tournament. 2.5 million tickets have been sold to date; 45 percent allocated to the Russian population and 54 percent among the international community.
Moreover, the World Cup will not only have an impact on those who will attend the games, but also on the tourists travelling to the country for reasons other than the World Cup, and on local residents who live in the host cities. The June and July period is when the inbound touristic stream reaches its peak each year: approximately 4.3 million travelers arrive in Russia during this season.
This year, due to the World Cup, tourists’ consuming behavior will change. This is a phenomena called ‘consumption enthusiasm’, which arises as the sensation of belonging to a particular event. The unique excitement and lively atmosphere that the World Cup incites in the country – especially in those cities where the matches will occur – generates a positive feeling among both citizens, who are more ready to spend money as a consequence of pride for the nation, and casual tourists who are influenced by the overall festive environment. According to VISA payments registry from previous World Cups, tourist expenditure increase around 15-20 percent during this period.
This year, the tournament will take place in eleven Russian cities: Moscow, Saint Petersburg, Nizhny Novgorod, Kazan, Kaliningrad, Samara, Saransk, Ekaterinburg, Volgograd, Rostov-On-Don, and Sochi. The most active city will be Moscow, as approximately 700,000 to 800,000 tourist are estimated to be present, in addition to those who commonly travel during this period.
This international tourist flow will bring significant amounts of money to the retail market which may slightly increase prices as a result. However, the effect will be temporary and will not impact the average inflation rate, which is currently estimated at 4 percent. Based on the experience from previous championships, these short periods of price growth have never resulted in a long-term footprint on the local market’s consumer prices.
How many visitors are expected during the event?
According to the information provided the Ministry of Digital Development, Communications and Mass Media of the Russian Federation, 717,000 Fan IDs – the identification required to enter the stadiums – have been assigned, with roughly half of them for international fans. It is considered that this amount will increase another 15-20 percent by the beginning of the tournament. By adding the number of international Fan ID holders is to the amount of non-FAN ID holders (those accompanying, but not necessarily visiting Russia to watch the World Cup), a total of 500,000 World Cup’s international visitors are expected to arrive in June and July.
Three categories visitors during the World Cup:
- The first category includes visitors whose main reason for visiting Russia is the World Cup and actually who go watch games at the stadiums. This group of enthusiasts are usually accompanied by their families and/or friends and will show interest in the local culture, attractions, restaurants and shops. These represent around 25 percent of all supporters. For example, the city of Kazan is preparing to host this particular group of visitors when the fans from Iran arrive in the metropolis for the Spain-Iran match on June 20th Almost all hotels - especially large rooms for entire families- have been booked up starting June 17th.
- The second category involves individuals who combine personal affairs with entertainment, for whom the World Cup is not merely the main reason to visit Russia, but will still contribute to the influx in tourism. This category represents about 20 percent of all supporters (in comparison to Germany, which had 25 percent of this kind of travelers).
- The third category – and also the largest – is represented by the passionate football lovers and sports enthusiasts who tend to follow their national team to every World Cup. These constitute the greatest percent of fans found in the tribunes, and these are also the mass of Russian supporters who are willing to buy the official, World Cup merchandise. England, for example, will offer fans special charter flights to Nizhny Novgorod to watch the England-Panama game. They plan to land in Russia that morning, go bar-hopping in the city, go to the game, and finally return to England, in a late-flight that very same day.
Forecasting the effect of the World Cup on spending: amount spent per visitor
World Cup’s international visitors are estimated to spend around 5,000 to 8,000 dollars on average, which is more or less equal to pay-and-go packages offered by travel agents in different countries, including transport costs and match tickets. They will spend on average 12 days in the country, when in general “non-World Cup context” tourists spend 4 to 5 days. Living costs and other expenditure within the region – such as food, souvenirs, and so on – will set them back around 2,000 to 4,000 dollars. Considering that more than 500,000 fans will come to Russia, an estimated of 1.5 billion dollars will be added to the economy as a result of these visitors.
Extra purchases made by regular tourists during the World Cup will boost this number during the period (according to VISA payments the effect of “consumption enthusiasm” brings an additional 20 percent to the average level of non-residents consumption). Which brings the total amount of extra capital flowing into the economy to 2 to 2.5 billion dollars.
How are cities preparing? How much has been invested to ready Russia for this world event? What will this WC leave to the Russians? Do you expect any lasting impact?
While 4.1 billion dollars (30 percent of the total budget) for the World Cup has been allocated for the construction of sporting facilities, 6.8 billion (50 percent) has been invested in transportation improvement and the remaining money, 2.1 billion dollars, has been spent in support activities. As a result, most of the expenditure for the World Cups went towards improving transportation systems rather than enhancing sports infrastructures.
All the infrastructures built for this event will have a positive impact in the long run; advancement in transportation systems will provide the nation with benefits. Roads, routes, airports and different technologies built or purchased for the championship will not only improve the general quality of life for the local population, but it will also ameliorate traffic jams and transportation delays.
Equally as important is the development of sporting facilities, stadiums and training centers, provided that these will continue being used once the World Cup is over. Another valuable element to promote tourism is the fact that there is a well built venue and capable staff for future large events.
Along with a venue, the World Cup is important for independent hospitality professionals like tour guides, and travel agencies. In Moscow alone there have been 1450 tour guides/translators – speaking 28 different languages – and 810 Russian-speaking hired in preparation for expected World Cup driven tourism influx in the city.
It is estimated that the influence of the World Cup on the country’s economy will last for other five years. The creation of infrastructure should provide Russia with 150 to 210 billion Rubles (2.4 to 3.4 billion dollars) per year to its GDP (40 to 70 billion Rubles due to investment – 110 to 140 billion Rubles due to tourism).
By Anna Lebsak-Kleimans, CEO Fashion Consulting Group Russia. Fashion Consulting Group – the leading industry consulting agency in Russia. Provides services in development, support and reorganization of businesses in fashion industry, conducts fashion market studies and organizes personnel training.
Photos: FIFA Webpage