Russian IT retail: life after death

At the very beginning of 2019, commenting on the acquisition of Kay’s retail business, Dmitry Alekseev, DNS Director General, declared: "Such a business format as net computer retail has ceased to exist in Russia. And his decline began long ago".

Indeed, is it worth talking about the "prospects for computer retail sales" today, when the word "computer" itself is gradually becoming an anachronism simply because "brains" are starting to appear in almost all devices and tools? And Federal chains displace conventional stores to specific niches. Nevertheless, IT companies maintaining retail direction continue operating on the market. For example, among the top 25 regional companies (according to CRN), at least a quarter of the leaders have retail in their structure.

How is the IT retail today?

In the opinion of vendors and distributors, everything looks good. However, they have in mind the retail direction as a whole, without clear reference to the format.

Svyatogor Gavrilenko, Retail and E-commerce Partner Director of Schneider Electric's IT Division, believes that computer retail has not died but only has changed the format: "If earlier the focus was exclusively on the b2c segment, now most players hold to a multi-channel model."

"Indeed, we can note some tendency for expanding the range of products (the addition of new categories) in computer stores, but this does not mean that computer retail is dying," Ilya Khokhlov, Consumer Product Manager of the Epson Representative Office in Moscow, says.

"Obviously, the retail direction makes a profit if it is properly developed", Alexey Gribovsky, General Manager of the Federal Chain of Electronics Stores POSITRONICA, adds. "Another thing is that it can no longer be called "computer retail sales". As such, there have been no computer retail sales on the market for almost ten years — sellers have expanded the range with household appliances and mobile devices. Finally, the single retail market of electronics and household appliances without a clear division into "domestic" and "computer" stores, which we can see today, was formed. Net IT has been maintained by system integrators, some wholesalers, and also in the form of mono-brand stores of some vendors (with an option for buying smartphones)."

Representatives of regional companies still involving in computer retail sales, for their part, are still confident that this format has no great prospects.

"In its pure form the "computer retail" has long been gone, now this direction can rather be called "retail electronics". Moreover, in the future, this reference to the word "electronics" will apparently disappear," Maxim Afonasyev, the founder of Aksus Group of Companies (Samara), says.

Tatiana Orlova, Head of Marketing and Advertising Department at the Chain of Computer Stores Vlados, generally agrees with a colleague: "In our region, almost all retail sales are maintained by Federal chains. Local companies mainly focus on the corporate market."

But according to the estimates of the Commercial Director at Intant Group of Companies Sergey Pak, the trend towards the consolidation of retail players in recent years has been clearly visible not only in computer retail: "In my opinion, the phrase "Computer retail is dead!" is similar to "There will be only television in the future", "Robots will leave people without work"... What is happening is a consequence of the market adaptation to the current economic situation, the development of the network retail and, above all, the decrease in marginality. In addition, the computer segment, as expected, has become part of the electronics segment, where the consolidation of players occurred earlier. Undoubtedly, Federal chains dominate the retail market, and this is a threat to traditional two-tier distribution, but this does not mean its death. As for us, we develop corporate sales, project business and e-commerce, traditional retail exists but mostly by necessity. The total share of retail sales has decreased slightly due to the growth of online sales. I think our competitors are in the same situation."

Transformation

As already mentioned, the "killers" of net computer retail are, on the one hand, large Federal chains captured almost all markets, and, on the other hand, the changing and extending the meaning of "computer". As a result, computer retail sales have been transformed into a single Market of Household Appliances and Electronics.

"Shops have become more cross-functional and offer the consumer the widest range of equipment, Alexey Gribovsky says. At POSITRONICA stores you can easily select everything: from laptop memory to a fridge, from an iron to an electric scooter".

According to Dmitry Kleshnin, OCS Distribution Vice-President, the main result of the transformation is a range changing: "Now it's more like electronics stores having IT departments with varying degrees of strength."

"The classic IT company with computer retail expands the horizons and functionality in 2019," Svyatogor Gavrilenko notes. — As a rule, such a company has a store for "physicists", corporate and tender departments and an online store. We call this format omni-channel."

Ilya Khokhlov points out that there is another way of classic computer retail drifting – online sales: "The trend towards the consolidation and merger of retail players is evident, the regional retail is absorbed by Federal chains (the last case is the merger of Kay by DNS). In addition, retail partners are increasingly paying attention to online sales, for example, M. Video-Eldorado has created its own marketplace Goods.ru. Besides, the product range of stores is being expanded: it may include not only computer equipment but also household appliances and other types of electronics."

Maksim Afonasyev has mentioned about the movement towards online sales: "The main change in electronics retail is the increasing influence of the Internet and online sales on it, and this is the reason of increasing differences between operation in a large city and small regional towns. In large cities, the dynamics of growth in online sales is significantly higher than in small towns, where the classic offline trading "from the shelf" still prevails. There have been qualitative changes in logistics which allow developing processes with greater efficiency than before. Digitalization of all processes is the key task of the company to stay on the market."

According to Maksim Afonasyev, the main problem of developing this direction is that distributors change their methods of work very slowly: "Very few companies have fully automated interface (API) of the product catalog. This strongly, in my opinion, hinders the development of regional players and the market as a whole, since the process of synchronizing the product catalog is quite difficult at the moment. The market as a whole is becoming increasingly competitive. Nevertheless, it is huge with regards to the amount of money, and the one who will be able to build a business model that best suits the changing interests of the client will benefit, opportunities for this are still open."

The "feds" and "district police officers"

During the discussion of the future of computer retail, one interesting point has been revealed. On the one hand, almost everyone (although to a greater extent the representatives of regional companies) considers the onset of Federal retail chains to be one of the reasons for disappearing the IT retail. On the other hand, distributors and vendors respond positively to the question if they play on different market fields.

"Large Federal retail chains, in my opinion, are more focused on the sale of "white goods", that is, large and small household appliances, personal electronics," Svyatogor Gavrilenko says. "Тo buy a system unit or video card, the customer is likely to go to a specialized computer store. Therefore, we can conclude that the interests of competing formats are not 100% identical."

Dmitry Kleshnin also believes that the markets of Federal chain and computer retail have some differences.

According to Alexey Gribovsky, these players certainly play on different markets: "Probably, there is no sense in comparing large Federal players with local points. The latter survive due to their competences and good reputation, service development and a deeper understanding of individual needs of the buyer. The feds are more focused on the mass market."

Survivors

Anyway, the net IT retail is clearly losing ground. So how do independent regional retailers survive in different regions of our country?

"In fairness, it should be noted that not everyone can survive," Svyatogor Gavrilenko says. "The consolidation process is now in an intense phase: large Federal chains are actively merging local companies and each other. A great many regional IT players have been involved into this process: the recent expansion of DNS to the northern capital with the mergence of famous retailers Kay and Kompyuterny Mir or the consolidation of such "heavyweights" as Eldorado and M.Video can be mentioned here. However, there are "hard nuts" that feel quite good. They win the hearts of customers with fast delivery, historical loyalty and territorial availability."

According to Alexey Gribovsky, regional companies in the computer retail industry survive mainly due to the knowledge of the local market and their customers, individual approach and additional service. "This allows them to stay in their niche and compete with Federal players. Many representatives of the regional retail came to the market in the 90-ies, so during this time they have already developed their pool of loyal customers", Alexey Gribovsky points out.

Ilya Khokhlov also believes that the main advantage of regional retail is "a trusting attitude on the part of buyers who prefer to buy electronics in the "store familiar to them from childhood". In addition, regional retail, according to Ilya Khokhlov, can survive due to the stores located in small towns, where regional chains haven't yet appeared.

"Any independent business is able to survive at the expense of a wider (at the expense of goods of other segments) or, on the contrary, niche, relatively unique (expert evaluation is very important here), range of goods and services, due to a more attentive attitude to customers," Dmitry Kleshnin says.

However, the regional companies themselves are not so optimistic about the prospects for the classic retail direction.

Maxim Afonasiev considers that regional players have no chances in the classic retail model. "Actually, we also almost completely stopped working in this format, but there are chances in the model of e-commerce, where the market is shifting more and more intensely. In addition, I think it will be quite difficult for major players to implement changes in the existing business model," he explains.

"Our company is gradually moving away from the retail direction because only Federal chains, which can maintain the availability of the product range and low prices, are relevant here," Tatiana Orlova says. The share of our retail sales has decreased to 5-8% of the turnover, we are gradually closing stores in the region. Federal networks are increasing their presence (the number of stores is growing), regional companies in this segment have simply disappeared. Online retail remains in the same positions — there are buyers who know exactly what they need and choose the lowest prices. If we talk about our advantages, the main thing is that the company has long been known and often chosen because of our reliability (warranty and service obligations)."

However, not everyone adheres to this position. According to Sergey Pak, his company considers it appropriate to maintain the offline retail for three reasons: "Firstly, diversification. Of course, with the rapid growth it is better to concentrate, but in the current situation, it seems to us more reasonable not to keep everything in one basket. Besides, it helps us to smooth seasonal differences. Secondly, synergy. Retail sales help to develop or maintain the operation of other units: for example, the exhibition and warehouse "work" not only for retail, retail generates a flow of new customers, monitors the competitive level of prices, as, in contrast to deals, retail pricing is focused on the market as a whole, provides brand awareness and trust in the company. Thirdly, operational advantages. The retail direction smoothes cash gaps, strengthens the company positions in negotiations on financial and marketing topics, accelerates goods turnover".

So is there any prospects for "pure computer retail sales"?

"I do not know any retail brand that would represent pure IT retail," Alexey Gribovsky declares. "All players on the market expanded the product range long ago and now have a wider choice than just computer equipment."

However, other speakers were not so categorical.

According to Dmitry Kleshnin, "under certain conditions, not only stores specializing in a wide IT range but also more highly specialized ones, such as those selling only laptops, only gaming accessories or even only smartphone covers, feel good."

"Computer retail may have future," Svyatogor Gavrilenko says. "But the process of evolution involves survival of the strongest players and adaptation. An obvious recent trend – a marketplace – can be a great helper for IT companies. Cooperation with the new format for Russia (but very popular in the West) will give computer retailers (and, of course, E-commerce companies) a chance not only to survive but also to prosper."

"It is difficult to say whether regional computer retail companies have future, or not," Ilya Khokhlov says. "Most likely, some of them will be merged by Federal chains, but some companies will expand the product range to attract more customers, in any case in the near future they will not cease to exist."

But Sergey Pak believes that as long as there is a computer market, there will be offline retail: "The desire to "feel" the goods before buying is unlikely to disappear. Another thing is that the share of remote sales is growing. What concerns our company, it will be determined by economic feasibility whether to replace offline retail by online trading or not. At the moment a retail store does work."

So there's probably life after death. It's just different.