27 Feb 2020
Demand for Kids' Goods Makes Russia Target for Hong Kong Suppliers
With sales in the children's sector soaring, Russia's online and offline retailers obliged to step up sourcing.
While sales of adult-targeted goods have been decreasing across Russia, purchases in the children's sector have continued to rise. Wildberries, Russia's largest e-tailer, for one, reported growth of 81% in its junior consumer categories for last year. Less spectacularly, although still significant, Detsky Mir, Russia's leading toys and children's goods retail chain, recorded sales growth of 16% for the same period. In absolute cash terms, these upticks equated to some US$600 million for the e-tailer and about $2.2 billion for the high-street operator.
Within the sector, the most substantial growth stemmed from baby products, toys, school necessities and private-label products. In the case of Detsky Mir, the expansion of its retail network across the country is seen as having made a major contribution to its bottom line. Similarly, Wildberries' increase in its related product range – a sign of its ambitions to scale up in line with the hugely successful Amazon model – is seen as having played a considerable role in its enhanced profitability.
Drilling a little deeper into Wildberries' related order base, its children's car-seat sales soared by a massive 700%, while pram purchases were up by a more than respectable 650%. In the case of the former, the spike in sales was at least partly triggered by an official prohibition on the use of so-called "booster seats" across Russia last year. More prosaically, it is thought that online pram sales solely increased in line with the more competitive pricing on offer.
Turning to toys, this was a sector where Wildberries reported impressive growth of 122%. As might be expected, the established Big Three – Lego, Hasbro and Mattel – continued to dominate, jointly accounting for one third of all related sales, a figure that almost exactly matches their proportion of high street toy sales. Less predictably, however, sales of Russian-made and Russian-branded toys took 20% of the overall market share. More remarkably still, wooden toys sales were up 25% and accounted for 2% of the domestic market. This growth has largely been ascribed to increasing environmental awareness among Russian parents.
This uptick, however, was not solely limited to Wildberries and Detsky Mir, with LaModa – a Moscow-headquartered online vendor selling children's clothing, footwear and accessories – also reporting increased demand. In particular, the company indicated that its sales of children's backpacks were up by 250%, while orders for kids' dresses and shirts climbed 90% and 45%, respectively.
Overall, it also appears there is a continuing underlying trend for consolidation in the children's goods sector, a pattern that is also evident in a number of Russia's other retail sectors. In line with this, Detsky Mir's launch of 101 new stores across Russia last year led to a number of small, local independent retailers going to the wall, as well as several larger ones. Indeed, the liquidation of Behemoth – one of Russia's oldest toys chains – was largely attributed to Detsky's expansion.
Nevertheless, this particular market segment certainly merits the attention of Hong Kong-based manufacturers and distributors. Indeed, impetus has been added to the market by moves on the part of the Russian Federal Government to boost the country's flagging birth rate. As of 1 January this year, families have been entitled to a state subsidy of $7,600 upon the birth of their first child, and $10,000 for the second. Inevitably, this will see demand in the children's goods sector continue to grow and will oblige retailers – of both the on- and offline variety – to source additional suppliers.
Leonid Orlov, Moscow Consultant