18 Dec 2015
OEM Opportunities Emerge in Russia's Toys and Kids' Market
Junior sector remains buoyant, but many retailers now looking to cut supplier and logistics costs.
Whatever the vagaries in the wider economy, Russia's market for toys, games and children's products has always remained buoyant, with this current downturn proving no exception. The sector has largely benefited from the desire of many Russian parents to prioritise their children, no matter what deprivations they themselves are facing.
While many of Russia's retail outlets have been hard hit as a result of the fluctuations in the rouble and the EU/US sanctions, the children's sector has been relatively unscathed. Up until now, none of the country's chain stores specialising in the junior market has faced serious financial difficulties. Indeed, Poland's SMYK, the largest overseas player in the sector, has weathered the economic storm without having to close a single outlet.
According to industry research, annual sales in the toys sector will reach RUR516 billion (US$9 billion) in 2015, a growth of 1.5% year-on-year. While many have taken some reassurance from the figures, the underlying trends in the market have changed significantly as a consequence of the current recession. Any downward momentum, though, is not as marked in this sector as in other areas of the Russian economy, notably with regard to such items as cars, real estate and white goods. All of these latter sectors have suffered from the curse of "delayed demand”, with consumers postponing purchases in the hope of better times to come.
The long-term outlook in the toys and children's product sector, though, has proved a cause for concern for many local manufacturers. This has been exacerbated by the plans of many retailers to squeeze margins, reduce order sizes and cut overall logistics costs.
This has seen widespread reports that a number of chains – notably Detsky Mir, Behemoth and Dochki-Synochki – are now placing their 2016 orders with OEM manufacturers in Russia and Belarus rather than buying local brands. Among the manufacturers likely to benefit are Ralf Ringer, Sky Lake, Midisa and the BTK Group, the four largest manufacturers in the Eurasian Customs Union of Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan.
In the past, retailers in the sector had aimed to carry stock that was at least 25% locally sourced, although in terms of garments and footwear some retailers – notably Dochki-Synochki – took 70% of their range from local manufacturers. This, though, has changed, with even Dochki-Synochki now sourcing from cheaper Asian suppliers across a range of product sectors, including clothing and footwear, as well as plastic and electronic toys and games.
Similarly, Gulliver & Co Trading House, Russia's largest and oldest toys and games wholesaler, now places few orders with local manufacturers, opting instead to deal with Southeast Asian suppliers. The company maintains it is the inability of local manufacturers to quickly adapt to changing market trends that has forced its hand here.
Suppliers and manufacturers in Southeast Asia who are interested in targetting the Russian market are advised to visit the websites of the retailers involved in the sector as they will provide a clear steer as to the country's most in-demand products. Overall, producing licensed toys would seem one of the most promising routes in an area where many local Russian manufacturers perform poorly.
With Russian children fully au fait with many of the latest Western cinema releases, including Star Wars and Madagascar, related products are often at a premium. It should be noted, though, that not every imported licensed product is a guaranteed hit in Russia, with Hello Kitty being a notable and costly misfire. Many other brands though, including the Smurfs and Chuggington Trains, have found a ready welcome among Russian children.
Leonid Orlov, Moscow Consultant