31 May 2017
Shoots of Growth Appear in Russia's Long-ailing Houseware Sector
Moderate expansion and new entrants to the market mark a change of fortunes after five tough years in the doldrums.
The long decline of Russia's houseware sector may finally be over. This year, it is anticipated that the first signs of recovery will appear, with some regions even expected to experience growth of about 2-5%.
The sector has been in free-fall since late 2012, with sales declining in line with the shrinking disposable income of many Russians. It hit rock bottom in 2016, when sales fell by a further 5%, a development that resulted in the liquidation of Uyuterra, at the time the largest national houseware and home-decoration chain. Unlike a number of the other principal players in the sector, such as OBI, Castorama, Leroy Merlin and Metrika, it was not insulated against the shrinkage of the houseware sector by additionally carrying DIY goods, a sector seen as far more recession-proof.
This year, though, much of the previously gloomy industry outlook seems to have been dispelled. Indeed, a number of new projects have been unveiled in the sector, with many operators seemingly confident they can capitalise on renewed consumer confidence, while accepting that spending levels will not match those seen in the pre-crisis boom years.
For their part, many of the surviving players seem content with moderate expansion, while also retaining the range of goods and promotional strategies that have seen them through the lean years. Many, though, are also keeping a watchful eye on the larger supermarket chains, wary of them looking to grow their non-food range by expanding into the houseware sector.
In the post-Uyuterra era, Fix Price seems to have emerged as the market leader, with a national operation of some 2,000 stores, including 150 in Moscow. The retailer started life about 10 years ago as a “one-dollar store”, offering its whole range at one uniform low price.
It has since evolved into a multi-price discounter specialising in houseware goods, while also offering a number of food/drink products, including biscuits, canned goods, confectionery, cereal, soft drinks and beer – essentially any product with a relatively long shelf life that doesn't require refrigeration. At heart, its format and range is similar to that of the Action chain stores, a familiar sight on the high streets of Eastern Europe and the Baltic Republics.
Typically, a Russian chain store houseware outlet occupies about 200 square metres of space, usually either in standalone premises or within a small to medium-sized shopping mall. In Moscow and its immediate environs, the monthly rent on such a store varies between US$5,000-20,000, depending on the exact location and the likely footfall.
Such premises are easy to find at present, largely on account of recent shifts in consumer purchasing preferences. As a result, many such sites have been vacated by booksellers, as more people are either buying reading material online or are favouring eBooks. Similarly, the sale of automobile parts and accessories has now largely migrated online, freeing yet more conventional retail space.
Looking to capitalise on such developments, one particular group has now announced plans to move into the houseware sector. The former owners of Starik Hottabych, Russia's largest floor-covering and carpets chain back in the late 1990s, are behind Mody, a new houseware chain store set to open its first Moscow outlet in October this year. Finance for the project has been diverted from a proposed joint venture with OBI, the German DIY giant, which faltered earlier this year.
The new chain will focus on 16 product categories, including houseware, kitchenware, stationery, personal-care items, non-perishable packed food, media and toys, with each outlet carrying 2,000 products. The concept has been compared to that of the Tiger stores, the Danish chain that has proven to be a huge success in Western Europe.
It is anticipated that by 2018, 150 Mody stores will be trading in Moscow and the Greater Moscow area, followed by 350 additional outlets to be launched across Russia. Initially, this expansion plan will focus on Yekaterinburg and Rostov-on-Don, while side-stepping St Petersburg on account of both the robust local competition and the retail opportunities on offer in neighboring Finland and Estonia.
As well as Mody and Fix Price, Hong Kong-based houseware suppliers are also advised to look at the opportunities on offer from other Russian retailers including Moskhoztorg, Metrika, M2 and Maxidom. In addition to traditional items, such outlets are also in the market for gardening and picnicking equipment, car accessories, outdoor lighting, country-house fittings and fixtures, pet accessories and toys.
Leonid Orlov, Moscow Consultant