The government will restore dominance in retail

Retail chain trade has been developing rapidly in recent years, resulting in the state gradually losing its grip over the industry. In order to restore some control , the government has introduced amendments which aim to increase the state’s ability to influence retailers. As a result, investors’ interest in the retail market may reduce, the range of goods will narrow, and prices will go up.

On January 21^st, 2014 the Law ‘On state regulation of trade and catering in Belarus’ took effect.

In 2013, retail turnover in Belarus was USD 27.2 billion, and the share of state-owned enterprises was 9.4%. In some regions, commercial retail chains dominate. To overcome the antitrust law limitations, affiliated trade structures were created to demonstrate artificial competition. Some trading companies, including state-owned ones, are controlled by the private sector. Retailers either ignore or treat the existing trade regulations formally.

The new law introduces the obligation for any commercial enterprise to stock all products on the assortment list. Each store will have a required number of product types that must be constantly available. This will increase the number of products made in Belarus on the shelves. Violation of the assortment list envisages penalties. Retailers, including their affiliated trading partners, cannot have more than 20% of the market share.

As a result, small retail stores might face some problems in complying with the assortment lists, which may lead to problems for the entire industry since they are the most widespread. Derailed sales plans may result in cascading defaults and disruptions in the commodities supply by manufacturers and importers. Retail networks will only be able to expand in the largest cities, since regional penetration will be limited by not surpassing the 20% margin of regional turnover, and so will be unattractive in terms of financial results.

The law does not envisage liability for failures by suppliers of ‘socially-important products’, which may lead to additional penalties for retailers (regardless if they are to blame). Restrictions on retailers will also work against price-reductions on Belarusian goods.

The state plans to extract additional revenue through fines and tighter control over private commercial structures. In addition, the state plans to use this law to limit the expansion of Russian capital in order to prevent its interference in the 2015 election campaign. Consumers will suffer the most from these changes, as they will pay higher prices for the retailers’ additional costs.