An article by CRN/RE about a situation on regional IT-retail market. Among speakers – Tatyana Skokova, distribution director of Wide-range division of MERLION company
When we talk about the situation in IT retail sales in regions and the presence of retailers being independent from the center, some say that they are not only alive but get along well in the market segments that are not occupied by large federal players. The others are sure that local IT retail is no longer alive. But one does not really want to believe the latter, moreover all the time someone is being buried on the IT market (with all apparent friendliness of players towards each other): either Russian manufacturers or their foreign colleagues, or distributors and their wholesale partners – sub-distributors. And an impending demise has been predicted (at least for its off-line segment) for many years. I remember this topic was discussed at one of the IT forums held by CRN/RE already in the early 2000s.
It is true that it has been a while since so many unpleasant messages about local companies closing down their business in this segment started coming from regional markets. So, one of the winners of our rating “25 best regional IT companies” completely closed down its retail chain at the end of the last year (whose business share was about 30 %). But as it is reported in the news this event has been an outcome from not only of market ordeals but from a hardboiled TV series script – with a divorce of former owners, separation of property, initiation of criminal proceedings and opening-up of new outlets at “hot” locations of previous sales outlets.
It would be possible to chalk this Santa Barbara up to IT players' desire to stir up the inactive market and draw attention (because any PR is good apart from obituary), yes the news that one of the quite big regional retail market players has also closed down its outlets, did not make us happy, let's have it straight.
That is why we decided to find out what is going in this IT market segment and asked our readers in FB to tell about the situation in their region. And their answers, alas, has not encouraged optimism.
“Stargazers-observers” debate
“Regional retail is practically dead, there are small companies operating flexibly but there is no regional IT retail for sure”.
“Local retain is almost dead in its pure form. More precisely eaten up. There are integrators, small-size universal companies, large players… I officially closed down my retail outlets five years ago and happy”.
“And what do you understand “by regional retail”? A selling space of a regional company with full store windows (full warehouse) containing different kinds of hardware for any request - then there is no such regional retail for sure or I am not aware of it. Small-size regional companies cannot afford themselves to freeze up these amounts of cash in goods and space rent for a 50/50 situation, ...sell/don’t sell”. Only federals can”.
“Now the corporate trend is a priority – we are expanding our participation in tenders and special supplies. Retail revenues keep going down - we were forced to close down several outlets due to their inefficiency. In our region all retail goes to household goods chains and internet orders of federal outlets – and we cannot compete with them in terms of prices and product line”.
However, after several clarifying questions it appears that it is still possible to find one-two and somewhere four and even five local stars in the regional sky. That is why in order to find out if there is life on Mars and who is alive on the regional IT retail market having followed our hero Sergey Filippov’s advice we decided to look at the situation with an “aided eye”.
And the first thing we drew our “aided” attention to was who (apart from sales outlets operated by federal retail players) customers go to for “IT goods”.
In opinion of our most respondents there are still local players in the regions, who sell IT products to individual persons. But alas, there is no pure IT retail anymore. Combined-type companies are engaged in IT retail sales: Either those who work with corporate clients and individual persons or outlets that showcase computer, household, cell phone equipment or other goods that people may look for and at the same time buy a “charging cord or something more serious”. And the most unexpected combination of “IT+ no IT” exemplified by our respondents was the outlets operated by one of the retail chains, who decided to put the boxes with contraceptives on the shelves along with laptops, tablets and smartphones.
As commented by Alexey Sakharitov, commercial director of Nizhny Novgorod IT On company (subdistributor specializing in wholesale IT sales to retail companies; over 850 active dealers): “Most of our partners are medium-size regional companies who cannot afford themselves to maintain large selling or storage space. And it means that they often lose out to federal retail chains in terms
of product offering. Bearing this in mind we have developed our online service Shop-in-shop that helps companies to virtually expand their product offering on the shelves of an offline outlet. And this service was in high demand by our clients. In fact, having logged into our website a partner can offer a buyer not only what is available but any product from our product line that will be delivered to the outlet in two-three days after placing an order. Besides the catalogue can be set up in such a manner so that a retail buyer can see retail prices immediately that will include a trade markup of this seller. And the most important thing, this is not an internet-based outlet where a buyer choosing a product in our warehouse specifies what shop it needs to be delivered to. This service has been delivered specifically for sellers to allow them, first of all, to expand the product offering of their trade outlet and to optimize logistics.
Another experiment was also interesting: two years ago we took, at the first glance, an abrupt decision: we concluded a direct contract with the manufacturer of bicycles. We simply noticed, that clients are searching for some occupation while computers are in little demand. Some of them started selling agricultural equipment, others – building implements, others – sports goods. We however, after analyzing the market, began to develop the product line, which has a margin. We could not let our clients fold their hands and wait until summer ends in case IT-market stops its activity. And next moment, a bicycle idea came to our minds – very interesting business from the point of view of regional retail trade, since the seller basically doesn’t bear any additional costs for its implementation within the scope of existing shops: it’s enough to make product presentation outside. And since we have multipurpose clients and many of them try to sell diverse product lines (from IT to gardening equipment), they accepted this matter enthusiastically. During one season we had a success in business – at the end of it two more factories suggested their cooperation.
By the way, in one of our answers to your question on FB the representative of other wholesale supplier pointed out that they included a new product – hoverboards – in product portfolio for retail shops. Thus, it turns out that in perspective IT-retail will merge not only with household retail trade (we have been watching this two-direction process for several years already), but with sports goods sale as well. However, we don’t see any wish from sports stores to place computer toys in their departments.
“Astronauts-explorers” assert
Of course, taking into account diverse opinions, we couldn’t but find out how the situation is seen by those distributers who were acknowledged in 2017 as the best distributers for retail by retail players.
We asked suppliers the following questions:
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Tatiana Skokova, distribution director of Wide-range division of MERLION company:
If we speak about retail shops in regions, regional retail consists of own and franchise shops of large federal chains, chain shops for a separate region and independent points of sale as well.
We work with all range of retail partners together with out own projects – electronic discounter “Citilink” and franchise chain “Positronica”. So, on the basis of Citilink the development of regional retail can be clearly demonstrated. In 2017 all regional subdivisions of the chain demonstrated an impressive growth of trade and client base. Top-5 of regions concerning growth rate in sales in 2017 are: “CITILINK-Ekaterinburg” – 73 %, “CITILINK-Voronezh” – 55,2 %, “CITILINK-Perm: – 52 %, “CITILINK-Tula” – 50,5 %, “CITILINK-Chelyabinsk” – 50 % (year-over-year in money). Top-5 of regions concerning growth rate of client base: “CITILINK-Pensa – 43 %, “CITILINK-Krasnoyarsk” – 42 %, “CITILINK-Voronezh” – 39 %, “CITILINK-Perm – 35 %, “CITILINK-Stavropol” – 34 %.
Independent retail shops (not included into any chain) can successfully work in limited number of regions and don’t demonstrate any marked increase in business activity. However the initiative of regional partners who are ready to join the large chain grows considerably. We can prove that the activity of such kind by the fact that the quantity of orders for opening of new stores “Positronica” in 2017 doubled. As a result, more than 50 stores of different size were opened (it’s worth specifying that not every order for opening of sales point is satisfied). Major part of the stores opened in last year, belong to approved existing chain partners, but there are those which belong to new franchise-partners.
If we speak about changes in regional retail format, the main tendency is product line extension. IT-retail extends towards household appliances, home products etc., and vice versa, companies, which traditionally didn’t sell computers, begin to deal with this new direction. There are many examples, from regional store of format “do-it-yourself”, which put up household appliances, computer and digital equipment for sale, to the point of sales, which historically specialized only on cells also included new product lines to their range.
One of the most important matters for offline-shops is availability of space for trade, i.e., those who have little shopping space slowly turn to pick-up points and service centers.
One more driver for regional retail is small business; it has become easier to start it since the shop in the modern sense is often not an offline point of sales, but a website. We provide everyone willing to start internet-business with a shippable platform within the project “Positronica” for online-trade.
In 2017 it was IT-production that became one of the most dynamic product segments: in chain “CITILINK”, year by year, the sales growth in product category “Computers and components” amounted to 61 % in money and 46 % in pieces; in category “Laptops, touch tablets and accessories” – 42 % in money and 40 % in pieces.
With that huge trading portfolio belonging to MERLION company it is difficult to tell about new product groups, if we mean products which were not present in the range of products. Speaking about an increase of appeal to regional retail we perform the following work: we develop a technical design assignment for producers (including those who have exclusive relations with us) for creation of the models which will correspond to price and functional inquiries for regional consumers with maximum accuracy.
Among new, to be precise, among services which grew popular in regions last year, it is probably possible to notice installment cards. It’s worth mentioning here that banks which make these services available for retail cooperate with large chains, and chains in their turn, like “Positronica” does, provide services to regional shops of franchise-partners.
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In conclusion I would like to share one feeling that appeared during conversation with our readers in FB. In spite of extremely competitive market and seeming dominance of federal chains on all regions, our respondents consider that there are still vacant niches at the market of regional retail, which could be filled by these regional players.
In their view, federal chains simply cannot reach every user. They fail to do this because of corporate standards and optimization which took place in these companies during last years. Now they have smaller shops and the number of consultants decreased; not every product is available in the shop. If the client needs something that is out of shelf, then the client needs to wait from 5 to 25 days. Besides it is practically impossible to get individual service from such seller (delay, delivery, adjustment etc.) in case of small purchase. These sales take client-oriented companies from federals.
According to the opinion of our respondent, the buyer who needs a consultation will also come to them, since the sellers in federal networks are no longer experts (due to different reasons).
In addition to it, the demand in neighborhood stores has recently appeared: there are many IT-products in the hands of the client: PC, laptops, printers, smartphones, tablets, which has come to a critical maintenance period. This equipment needs repair or replacement, or maintenance, or consumables and accessories. That’s why our respondents suppose that neighborhood stores will soon return to our life, to be honest, the format of these regional points of IT is sales is still unknown. Maybe it is for the better. It will be more interesting to study life on the Mars, when in some years somebody will decide again to bury regional retail.
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