X5 Sees Smaller Stores Closing

VedomostiKhasis, pictured, said X5 posted a 41 percent gain in fourth-quarter sales.
About one-quarter of the country's smaller food stores may go out of business because of the credit crunch, the head of X5 Retail Group said Tuesday after his company posted a 41 percent gain in fourth-quarter sales.

A shortage of bank credit means that some chains may be unable to pay suppliers and will be left with empty shelves, Lev Khasis, chief executive of Russia's largest food retailer, said in an interview. X5, which owns the Perekryostok supermarket and Pyatyorochka discounter brands, boosted sales after opening new stores and acquiring the Karusel chain.

"The problem of empty shelves is the problem of companies that will go bankrupt," Khasis said. "Up to 25 percent of stores that are not big chains probably will not survive this year."

He said X5 was not having difficulty obtaining credit as it "leads a list of retailers among strategic companies" that are eligible for government aid. Bigger chains should benefit from the collapse of smaller rivals, he said, adding that X5 would add more private-label goods as shoppers switch to fewer "value-added products."

X5 fell 6 cents, or 1 percent, to $6 on the London Stock Exchange. The shares have dropped 80 percent in the past 12 months, reducing the company's market value to $1.63 billion.

"X5 won't suffer" this year, said Natasha Zagvozdina, an analyst at Renaissance Capital. "Their more upscale Perekryostok chain has market share in big cities, while discount stores and superstores will be in favor this year."

The retailer probably will not need to raise capital this year, Khasis said. X5 has a $1.1 billion loan due in two years as well as "some short-term debts," he added, without elaborating.

Khasis maintained the company's forecast for sales growth of more than 25 percent this year and said X5's capital expenditure would total as much as 14 billion rubles ($420 million) in 2009. Sales at stores open at least a year will rise 15 percent to 17 percent in 2009, the retailer also forecast. X5 will consider acquisitions of franchise partners and smaller competitors this year, he said.