19 Nov 2019
4% Set to Be New Annual Growth Normal for Russia's Electronics Market
Russia's sale of consumer-electronic goods seen as finally entering more stable phase after years of fluctuations.
Growth in Russia's consumer-electronics market slowed to 4% in the third quarter following its 7% expansion in the first six months of the year, according to figures recently released by the Moscow office of Gfk, Germany's largest market-research company. Despite the apparent downturn, market analysts maintain the recent figure more accurately reflects the reality of the sector overall, with the earlier statistics skewed by the depreciation of the ruble late last year.
Other factors in the year-on-year deceleration are believed to be the events of August 2018, one of the most traumatic months in the history of the country's retail-electronics sector. Within the space of a few weeks, two of the largest players in the sector – M-Video and Eldorado – merged, while Germany's MediaMarkt, another substantial vendor, quit the Russian market entirely after 10 years. The consequent closing-down sale, as well as the many special offers promoting the combined M-Video-Eldorado operation, saw sales in the sector surge, creating a blip that would be impossible to match 12 months on.
With this spike now, once again, receding into retail history, many in the sector believe that 4-5% annual growth will be the new normal. This will see the restoration of the traditional cycle, with obsolescent or faulty electrical devices replaced on a rolling basis. Along the way, it is expected to be bolstered by the completion of a number of national affordable housing initiatives, which, together with the generally low mortgage rates, will see many new homeowners invest in household electrical items.
Indeed, over the past 12 months, the arrival of a considerable selection of residential complexes on the market, together with the completion of work on a substantial number of new hotels, proved to be quite a fillip for the sale of TV sets. There were also two one-off boosts that saw increased demand for upgraded television sets – Russia's hosting of the football World Cup and the final turn-off of the country's analogue broadcasting service.
Beyond TV sets, however, other market segments have also proved to be impressively buoyant, according to Gfk's findings. While smartphones and wearable electronics have undoubtedly put in admirable performances, smartwatches and trackers have become best-sellers – with sales sustaining growth of 8% in the first nine months of the year – while their value has only been further enhanced by a similar surge in the purchase of related services and accessories. Slightly behind, at 7%, are brown goods, as well as personal care and home care appliances, while sales of white goods and TV sets stayed in the more modest 3-4% growth range.
Despite household incomes remaining generally flat, sales of dishwashers and dryers have been steady. This is seen as partly down to delayed gratification on the part of consumers, following years of parsimony, and partly because such items – still seen as luxuries by many – are currently relatively affordable. Pretty much the same sentiment has also seen smart vacuum cleaners, water purification systems, waste disposal systems and humidifiers sell continually, if not spectacularly.
The general expectation now is that the market will plateau at the 3-4% growth level over the next 12 months. Overall, a number of factors are seen as likely to constrain any more rapid increase, including the 1 January rise in VAT from 18% to 20%, the relatively high existing market saturation and the broad acceptance that disposable income levels are unlikely to climb any time soon.
From the point of view of Hong Kong-based manufacturers and distributors, this is not necessarily the best news. In fact, the situation looks even less positive when Russia's increased domestic production of white goods is also factored into the equation.
Despite this, there does remain significant opportunities. The latest digital devices and many light consumer electronics goods are far more rarely manufactured domestically, for instance, with many such items still enjoying favourable market access terms. Any Hong Kong company looking to up its trade with Russia would be well-advised to familiarise itself with the inventories of the country's largest e-commerce players – notably WildBerries.ru, Ozon.ru and M-video.ru – as a means of both conducting comparative prices analyses and of getting a broader understanding of local consumer preferences.
Leonid Orlov, Moscow Consultant