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Realignment of Russia's Electronics Retailers Spurs OEM Opportunities

With Russia's three largest electronics retailers now under common ownership, Southeast Asian suppliers need to reappraise this changed landscape and consider the opportunities for OEM/ODM manufacturers in this marketplace.

Photo: M.Video: Russia’s longest-established and largest consumer-electronics retail chain.
M.Video: Russia's longest-established and largest consumer-electronics retail chain.
Photo: M.Video: Russia’s longest-established and largest consumer-electronics retail chain.
M.Video: Russia's longest-established and largest consumer-electronics retail chain.

Russia's consumer-electronics retailers are facing unprecedented changes. Of late, speculation has been rife that the landscape is about to be rewritten by a series of acquisitions and mergers. This has largely been inspired by news that Samfar, the Russian financial and investments group, had acquired two of the country's leading electronics retailers – M.Video and Eldorado.

The Samfar Group is owned by Mikhail Gutseriyev, the Russian oil tycoon, and his family. As well as its banking, oil and real estate interests, the group also has a controlling stake in TechnoSila, Russia's third largest consumer electronics chain.

With the country's three leading electronics retail chains now owned by the same investment group, there has naturally been an expectation that rationalisations, rebrandings and mergers are on the cards. With M.Video the country's largest and most well-established electronics chain, there have been suggestions that the two rival operations will be re-badged under its familiar red-and-white branding.

Such suggestions, however, may have failed to take into account the success of the Eldorado operation under Samfar's ownership. In 2016, its sales grew by some 11%, taking its turnover to about US$2 billion. Part of this was down to the substantial growth of its online sales channel, which saw traffic grow by 24% and sales increase by 38%. Overall, e-commerce now accounts for 18% of the chain's turnover.

In light of this, it is entirely possible that Samfar may maintain Eldorado as a distinct brand rather than merging it with its other interests in the electronics sector. In fact, it is expected that M.Video and Eldorado will be positioned as competing brands, targetting different demographics and offering separate product ranges.

Despite this, the Samfar Group is expected to make some savings by streamlining purchasing and logistics across all of its electronics retailing interests. The ultimate aim will be to consolidate its position as Eastern Europe's and Central Asia's prime consumer-electronics retail business. In terms of high-street sales, this will seeing it going head-to-head with Germany's MediaMarkt, while China's JD.com and AliExpress will be its main competitors in the e-commerce sector.

Overall, Russia's consumer-electronics market – valued at some US$20 billion in 2016 – remains an appealing prospect for investors and manufacturers. In total, Samfar's assets have a 27.5% market share, with its growing dominance playing a key role in the decline of many of the regional consumer-electronics chains. Such chains have also suffered at the hands of the hypermarket operators, with both France's Auchan and Germany's Metro Group carrying an extensive range of consumer-electronics products.

One of the likely upshots of this realignment in the sector is an expansion in the range of own-label products. While all three of the Samfar chains have dabbled with own-label ranges in the past, none of them met with huge success. More recently, however, on account of the EU and US sanctions and the declining value of the rouble, domestically manufactured/own-label products have found far greater favour among Russian consumers. This has resulted in increased demand for local electronics brands, most notably Zvezda, Kosmos and Neo.

Photo: Eldorado: Leading challenger brand to Russia’s retail electronics crown.
Eldorado: Leading challenger brand to Russia's retail electronics crown.
Photo: Eldorado: Leading challenger brand to Russia’s retail electronics crown.
Eldorado: Leading challenger brand to Russia's retail electronics crown.

For distributors and manufacturers in Southeast Asia, the growing acceptance of own-label consumer-electronics products represents a clear opportunity. Interested OEM/ODM manufacturers and suppliers would be well advised to reappraise the changing shape of Russia's electronics retail sector and tailor their products and approach accordingly.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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