9 April 2019
Moscow Kids Show Casts Light on Very Singular Russian Toy Market
Alongside a number of very un-global preferences, the Russian toys and games sector is facing several particular e-commerce and grey-market challenges, according to attendees at this year's Kids Russia, the country's largest toy show.
Alongside the international, must-visit toy trade shows held in Hong Kong, Nuremberg and New York, many localised toy-trade events continue to survive and thrive. Inevitably, these are laser-focused on a particular territory, offering exhibitors and visitors a specific opportunity to get to grips with an individual market in a cost and time-effective way. A prime example of this phenomenon is the Moscow-held Kids Russia.
Now in its 13th year, the event attracts several hundred exhibitors and some 10,000 visitors. In terms of organisation, it is a joint venture between the Moscow-headquartered Russian National Toy Association (RNTA) and Spielwarenmesse eG, the company behind the Nuremberg Toy Fair.
In terms of focus, the event's remit extends across the toy, nursery, gift, party and licensing sectors (with the latter covered off via the co-located Licensing World Russia). As a result, its content can seem a little eclectic – this year, for instance, one stand had dried deer and bear meat on offer, while another was showcasing a worryingly realistic-looking wooden machine gun, neither of which tend to be staples of any the more international toy expos.
The anomalies, however, don't stop there. While Russia is a vast territory, the bulk of its population is concentrated in specific geographical areas, leaving huge swathes of the country virtually unpopulated. In total, Russia boasts 12 major cities, with Moscow far and away the largest, the most heavily-populated and the richest.
Described by many in the Russian business community as "a country within a country", Moscow-based stores can account for as much as 40% of the turnover of many Russian companies. It is important, though, not to make the common mistake of assuming that all Russia is like Moscow.
The simple truth, however, is that much of the country's wealth is concentrated in Moscow, with a large percentage of those Russians residing outside the capital relatively impecunious by comparison. This is worth bearing in mind when reviewing the prices on offer in many of Moscow's leading toy retailers, the likes of Detsky Mir, Hamleys and The Early Learning Centre.
While, initially, the prices may have seemed quite reasonable to western eyes, that perception swiftly dissipates once the amount the average Russian earns is factored in. Indeed, as many of the shelf tickets featured significant price markdowns, this is perhaps evidence that a lack of disposable income is an issue even in Moscow.
In terms of the show itself, the 2019 attendance level was said to be significantly down on previous events, a development largely ascribed to the somewhat parlous state of the Russian economy. Until 2014, apparently, the show had maintained steady growth each year. Subsequently, though, a combination of steep inflation and wage stagnation – a result of "the oil money drying up" according to some – triggered a fundamental shift in the Russian economy, one that, in turn, had a significant negative impact on the country's toy market.
Acknowledging the truth of this, one established Russian toy distributor conceded that the local market had struggled in recent years. Of late, though, she maintained that the market had regained some of its dynamism, with sales now moving online "unexpectedly rapidly". Looking at the event overall, it was clear that the pace at which online sales have been increasing has had a huge impact on Russian toy companies and distributors, with several admitting they have had to drastically adapt their business models to accommodate changing consumer habits.
Essentially, the advantages to the Russian consumer when it comes to purchasing online are the same as anywhere else – prices are generally lower, there is far greater convenience and, as the distributor admitted, "kids live on the internet". Her expectation was that consumers will continue to migrate online, providing a huge challenge to bricks-and-mortar retailers in general and those in the toy sector in particular.
In terms of the make-up of Russia's domestic e-commerce sector, the country's primary online players tend not to be specialists, but rather operations that offer a wide range of consumer goods, with Ozon and Wildberries identified as two of the key players. In addition, smaller sellers offer more focused, premium-quality ranges, frequently outsourcing their logistics operations to ensure continuing viability.
Fierce online competition, however, has seen prices tumble and, while suppliers are convinced this race to the bottom cannot continue indefinitely, many are grappling with just how to balance the numbers in this new world. To say that it is something of an unstable situation would be putting it mildly.
Another significant change is the growing popularity of the marketplace concept, a development that has led a number of established operators – notably Ozon and Wildberries – to shift in that direction. The interesting thing here, though, lies in the particular logistical challenge posed by Russia.
As mentioned earlier, this is a vast country, but one where huge areas are sparsely populated in the extreme, inevitably resulting in many regional outlets being, at best, somewhat basic. It more than makes sense, then, that a would-be toy purchaser in the Urals, who lacks access to Moscow-level retailers, would be inclined to order online. But how can an e-tailer send a toy costing some 2,000 roubles (US$30) to a customer 1,000 miles away and not either impose a huge mark-up or make a huge loss?
While many of the larger e-commerce operator are said to be hastily constructing substantial regional distribution centres on a par with their existing Moscow facilities, given the sheer size of Russia, the variable transport infrastructure and the unequal population density, there remains a clear question over the viability of such endeavours.
Apart from the logistical challenges of e-commerce, the other issue for the Russian retail sector is the growth of the country's grey market – the sale of items illicitly imported via unofficial channels, largely to duck import duty or compliance with statutory safety standards, with the latter a particular issue within the toy sector.
Tellingly, this is not just a problem in terms of online sales, but also among conventional retailers. Indeed, in the more remote areas, up to 60% of the on-shelf items are said to be grey-market derived. This, however, is much less of a problem in Moscow, where trading standards are far more rigorously enforced.
While the growth of online retail and the increased penetration of grey-market goods are global problems, Russia also has a number of distinctly local peccadilloes, making it a very individual market for the toy trade. While its preferences are closer to those of its European neighbours than to those in the US, for instance, its people and their lifestyles are still quite distinct.
In particular, they are very focused on their traditions and heritage. The images that adorn the children's books in Detsky Mir – Russia's leading chain of kids' retailers – are more likely to be pre-Soviet era classic fairy tale illustrations than the latest Western TV / movie properties. Rather like Germany, they also favour classic toys that have value and educational benefits, while US novelties are frequently dismissed as "toys for a day".
Nor is the market as sensitive to TV and licensed characters as the UK or the US, apart from with regard to a number of home-grown properties – must notably, Masha and the Bear. The time it takes to get a product to market is also longer, partly because there is no mass retail infrastructure – no Russian equivalent to Walmart or Target. As a result, a lot of product is sold via a web of distributors and sub-distributors, adding considerably to the complexity and the ultimate cost.
The 2019 edition of Kids Russia took place from 12-14 March at Moscow's IEC Crocus Expo.
John Baulch is the Publisher of Toy World,
the UK's leading toys and games trade publication