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Anglo-Involvement Steers Russia's Toy Giant in New Retail Directions

With Detksy Mir now 50% UK-owned, new formats, expansion plans and a fresh e-commerce focus have been unveiled.

Photo: detmir.ru: Detsky Mir’s new compact, O2O-friendly retail format.
detmir.ru: Detsky Mir's new compact, O2O-friendly retail format.
Photo: detmir.ru: Detsky Mir’s new compact, O2O-friendly retail format.
detmir.ru: Detsky Mir's new compact, O2O-friendly retail format.

With its successful secondary public offering (SPO) at the end of last year seeing British investors acquiring a 50%-plus stake in the business, changes are clearly afoot for Detsky Mir, Russia's largest and longest-established children's goods retailer. Indeed, with the change in partial ownership barely two months old, there is already talk of new retail formats, greater internationalisation and a fresh emphasis on e-commerce development.

All of this betokens something of a transformation for a business that is considered an institution within Russia and the Commonwealth of Independent States – the regional association of a number of post-Soviet republics. After initially opening its doors in 1957, the huge building that housed the first Detsky Mir department store – and, subsequently, the group's headquarters – was seen as adding a welcome degree of levity to Lubyanka Square, the central Moscow address it shares with the headquarters of the KGB. Throughout the course of its 60-year history, the company expanded to a point where it was operating 672 outlets across Russia and 33 in the CIS, as well as 48 franchised Early Learning Centre stores, 14 ABC book and stationery mega-stores and several Zoozaur pet shops.

It was thus seen as something of the end of an era when in November last year, AFK Sistema – a huge Moscow-headquartered conglomerate and long the company's principal shareholder – sold half of Detsky Mir's stock to a consortium of British investors. The subsequent expectation of a major overhaul of the business has now been borne out with the news that a raft of "super small" outlets are to be rolled out under an associated branding – detmir.ru – which also highlights the online aspect of the retailer's business.

It is envisaged that the detmir.ru stores will be between just 130 sq m and 170 sq m, considerably smaller than the majority of existing Detsky Mir outlets, which tend to extend across a minimum of 1,000 sq m. While the more capacious stores have largely been restricted to cities with a population in excess of 150,000, the more compact outlets will open in some 150 Russian towns / cities with an average population below 40,000. A further 40 stores will be established on sites in Belarus and Kazakhstan where the local population is only about 10,000.

Although such locales clearly lack the required population density to support a traditional Detsky Mir outlet, the move is seen as in accordance with the chain's strategy of enfranchising many of the newly affluent consumers in the smaller and more outlying urban spaces.

As well as pursuing off-the-shelf sales, these compact outlets will also extend the company's online-to-offline (O2O) offering, with each store also functioning as a pick-up point for e-commerce orders. At present, some 90% of Detsky Mir's online orders are collected in-store (as opposed to being home delivered), a proportion roughly equal to that reported by a number of other Russian retailers, including M-video, Eldorado, Auchan and Metro.

Overall, e-commerce has been accounting for an increasing share of Detsky Mir's revenue in recent years. As of last November, it represented 17.7% of the total, with that figure expected to rise to 30% by the middle of the current year. In line with that, it is envisaged that the inventory of the company's e-store offering will be expanded to more than 50,000 items.

For Hong Kong suppliers and distributors, the further loosening of the company's traditional ties to domestic manufacturers in line with its increased internationalisation offers a clear opportunity to provide additional lines to the retailer. At the same time, its increased prioritisation of e-commerce sales also opens up the possibility of piggybacking sales via its promotional and transactional platforms.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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