23 May 2016
Russian Footwear Sector Set to Polarise as Mid-market Misses Out
High-end brands set for online distribution, while lower end of market stays loyal to the High Street.
Despite contracting by 12% in volume terms, the value of Russia's footwear market actually grew by 11% in 2015, recording total sales of some US$11.6 billion. Overall, it was the more expensive designer brands that suffered, as consumers proved more demanding and more wary when shopping in the sector. As a sign of this, the number of impulse buys – traditionally around 15% in the pre-crisis period – dropped to a level that was virtually statistically non-existent.
Despite these changes in demand, the principal players in the sector remain largely unchanged – TsentroObuv (the company behind the Centro chain), Adidas, Kari and Ekonika. Nearly all of them, however, are currently contending with a number of significant challenges.
TsentroObuv, for instance, is struggling with claims of non-payment from several of its suppliers, with suggestions that it is facing cash-flow problems. Adidas, for its part, has announced a nationwide consolidation of its stores, a move that has seen it retrench solely into Russia's largest malls. Ekonika, meanwhile, has ditched its more upmarket collections in favour of more affordable offerings. It has also switched more of its emphasis to e-commerce, despite having only recently opened three substantial new Moscow outlets.
In the mid-range sector, a number of companies have opted for mergers as a way of riding out the downturn. Zanden, for instance, an established mid-market player, recently announced its merger with Thomas Munz, a German footwear chain. Previously, Thomas Munz had 26 stores in Russia to Zanden's 200. It is believed that the merger will see the combined group offering a wider range of footwear at a greater variety of price points.
Traditionally, it has been the mid-range footwear sector where retailers struggle the most. According to a number of industry analysts, Russian consumers tend to opt for either high fashion or low-cost practicality when it comes to footwear purchases, leaving the mid-market largely neglected. To date, only one company – Antelope, a specialist supplier of children's shoes – is seen has having found success in this middle ground.
Regardless of the fluctuations in the sector, many shopping malls and retail centres in Moscow and in other principal Russian cities are keen to keep footwear outlets on board, believing them to be effective anchor stores and vital for maintaining footfall. As a result, the rents offered to such outlets are said to have dropped by as much as 70% over recent years. Most malls aim to have at least five footwear chains as tenants, as well as a hypermarket, enabling them to charge high rents to smaller tenants, such as cafes and boutiques.
Despite these lower rents, conventional footwear retailers still face an uncertain future across Russia. Inevitably, e-commerce is starting to take a toll on the sector, with a number of online multi-brand distributors – notably LaModa and Wildberry – making deep inroads into the market share of bricks and mortar retailers.
With the trading model of digital companies becoming increasingly sophisticated – including same day delivery and the dispatch of multi-size options for consumers to try on – many believe the Russian footwear sector is set to polarise. This would see affordable and functional footwear still bought on the High Street, while high-end brands are primarily purchased online.
Leonid Orlov, Moscow Consultant