21 Aug 2017
Recovering Russia Sees Opportunities in Dacha DIY and Garden Care
With the DIY sector the first to stabilise post-sanctions, Hong Kong companies should engage with the regional chains.
Russia's DIY market was among the first retail sectors to stabilise following the long period of uncertainty triggered by sanctions and counter-sanctions that first began to bite back in early 2014. Although the DIY sector – as with furniture, lighting and household goods in general – was technically outside the remit of the US/EU trade embargoes, it still suffered as part of the overall economic slowdown that ensued following the punitive measures taken against the country.
Today, the relative health of the DIY market, alongside similar developments in the automotive and real-estate sectors, is seen as a sign that wider economic stabilisation is now waiting in the wings. Indeed, the vibrancy of the retail trade in the DIY sector does seem to provide a number of reasons to be optimistic.
At present, Russia's DIY sector accommodates 300 sizable players. Between them, they operate 2,000 sales points, including 415 hypermarkets, 289 wholesale distribution centres, 583 supermarkets and 790 dedicated outlets. In total, across Russia, more than 4.3 million sq m of floor space is given over to the sale of DIY items through such chain operations.
Collectively, these outlets generate some RUR627 billion (US$11.5 billion) in sales revenue, representing about 55% of the value of Russia's DIY market. The remainder is accounted for by smaller independent retailers, many of which tend to source their stock from the retail giants in the sector, then re-sell items at a premium in their out-of-the-way locations.
Belatedly, there are also indications that e-commerce is starting to make inroads into the sector. Currently, 186 of the chain operations have their own online offering, with 100 of these having launched within the past three years.
It's one of the oddities of the sector that a number of the market leaders – including France's Leroy Merlin, Germany's OBI and the UK-owned Castorama – have seemed reluctant to commit themselves to having an online presence. With Petrovich, Russia's largest domestically owned chain, having enjoyed 34% growth in online sales last year, Leroy Martin, Russia's largest overall DIY player, has now launched its own e-commerce operation, currently offering about 38,000 items for sale online, about 85% of its overall range.
Many market analysts are now predicting a surge in e-commerce sales in Russia's DIY sector, particularly as bulky items, such as floor coverings and garden equipment, can be delivered to the point of use for free or at a very low additional cost. Despite this, many Russians still have a preference for viewing goods for themselves before committing to any purchase. In order to counter this, many online retailers in the sector are currently offering substantial discounts to buyers as a means of securing initial orders.
Given this combination of chain operations, independent retailers and specialist e-commerce players, there are few opportunities for newcomers in what is already a somewhat oversubscribed market. Many of the existing players, however, remain wary of the challenge from the multinationals, particularly their ability to directly import extended product ranges.
While the established players remain confident that they can compete on strictly price terms with the multinationals, especially as all parties tend to source from the same Chinese and Southeast Asian suppliers, there is a concern that they could be out-stocked in certain product sectors. In particular, it is felt that the multinationals have access to a far wider range of sanitary ware, water and home-heating systems, paints and chemicals.
Overall, anything related to gardening or the country-house life-style are seen as the most promising segments in Russia's DIY sector. In the latter case, this has been driven both by a greater inclination to invest in such properties and a desire to upgrade and modernise any inherited dachas. This has seen dilapidated greenhouses and ancient sheds done away with in favour of dedicated barbecue areas and decorative lawns.
For Hong Kong distributors and manufacturers looking to enter Russia's DIY sectors, the provincial and regional chains offer probably the best opportunities. Many of these, such as St Petersburg-based Maxidom, enjoy considerable customer loyalty, which frequently converts into a comparatively high level of spend, with customers willing to pay a premium for products they perceive as offering better quality than those stocked by the national operators.
Leonid Orlov, Moscow Consultant