All in the same boat
How Russian suppliers of furniture components and hardware see themselves in the new reality.
14/03/2016
Latest sociological research of the Russian consumer market shows an abrupt and almost universal adoption of a new buying strategy. The price has become the decisive criterion for people in choosing goods once again. However, few people are ready to forego quality either: the habit of buying good things, that has been formed over the years of material prosperity, has not gone anywhere.
It is clear that new buying strategies also dictate the new commercial ones — all along the chain, from raw materials to goods on the shelf. In the furniture market, the first in this chain are the suppliers of the furniture components and hardware. How do they understand the situation? What are they going to do, what are they counting on? After interviewing representatives of wellknown companies in the sector, we received the following responses.
Oleg Lagernikov
Head of development department of MAKMART company
Today, very few industry experts can afford to make relevant forecasts. In order to plan a strategy responsibly, we must start out from the explicit data. Now one can only speak in general terms: the economy is still in a difficult situation.
At the moment, both furniture manufacturers and companies who distribute furniture components are taking a different approach to the products selection, to the ways of supplying it to the final customer, and so we can speak of adaptation to the market in modern conditions. Undoubtedly, hardware suppliers and furniture makers must enter into a lively dialogue with the consumer. We all need to focus on the needs of the final customer.
The alignment of forces on the market is changing: weak companies are closing or change their specialization, reducing purchases, while strong ones are strengthening, increasing their influence. It’s the time when you need to act and make the most of your advantages, so as not to stop in development. We raise our service level, create a contemporary logistics system, open new branches in the regions. We sign agreements on cooperation with new dealers, we open new representative offices. We become stronger in the regions, we do a lot to strengthen the relation with our dealers.
Unlike companies that have decided to reduce the assortment to a minimum and that, as a result, lose their permanent partners, we, on the contrary, try to expand the range of products with an alternative product lines and, what is very important, all the items indicated in our catalogues are available at our warehouse, we maintain permanent stocks, offering more favorable terms for each product. This is what we mean by the individual approach of the company to each client. Of course, we do our best to prevent unjustified price increases. However, there is a limit to profitability: we can’t reduce the price at a loss.
Therefore, the only way to restrain factory prices is to look for alternative groups of goods that are not inferior in quality to the hardware and components familiar to our customers. Fortunately, the assortment of MAK-MART partners is so that we can have in the offer more affordable products, including those designed by our order. At the same time, there is no loss of quality. Each new product is tested in accordance with MAKMART standards as it was before. Making products of the lower quality to attract new customers is an unacceptable measure for us.
Elena Vinogradova
Marketing director in BOYARD
New “records” in the oil and currency markets, in the economics in general, and in the furniture industry in particular, cause no panic or shock nowadays. Those who managed to readjust at the right time, feel confident. We understand that the market will never be the same. We just need to take it into account and continue working in the existing conditions, which provide enough opportunities. The main thing is to see them and use effectively. In my opinion, the company BOYARD managed to do it.
Despite any external circumstances, we remained faithful to the basic principles of BOYARD, namely: well-balanced pricing policy, consistently high quality of the actual functional and decorative hardware and the uninterrupted supplies to the warehouses of Russia, Belarus, Armenia and Kazakhstan.
The rearrangement of the market has occurred and is likely to continue. Most of the companies that existed on borrowed funds and were not able to readjust, are now closed or have suspended their activities. This vacated niche was occupied by bigger and more sustainable players.
We managed to strengthen our positions thanks to the wellcoordinated, effective work of all structures. For example, we have been actively developing a sales network, launched our own online store, and that made BOYARD products even more accessible to all potential buyers, regardless of their location.
Continuous work is also conducted on assortment management. An important factor was fair pricing. BOYARD company manufactures its products at the factories in Italy and China. The main advantage of this policy is the opportunity to create the best product at the best price. In the very beginning, when the company was founded, we clearly defined for ourselves the market segment and the target audience. We work for furniture manufacturers in the economy and medium price segments. And our goal is to provide customers with a high-quality, functional, modern European product at affordable prices. This is a perfect strategy in the current situation.
Andrey Novosyolov
Director General of Fiera
The current recession definitely differs from the previous one — it still doesn’t promise to end soon. If someone told us: wait a year or two, then it will be better — it would somehow defuse the situation. But there are no such signals.
Of course, all the major players hope that the market will be cleaned out, but there are no sales of businesses yet, and minor players don’t rush to leave the market. Certainly, major players have to optimize their costs, which makes them stronger. Let’s hope that this situation will make us stronger, too.
What are the positive sides? Now it is possible to choose the best places for offices. We rent premises in 19 cities. If we are not satisfied with the rental rates, we can easily find something cheaper. In places where there were only modest offices, we can organize something more impressive.
The second positive moment: in those locations, where we open new offices, it is much easier to find the right staff. It took a year before, and now it takes 1–2 months.
We import all products from Europe. Therefore, prices depend on the euro exchange rate. Since 2009, we had been having a fixed rate for every half a year for price calculation. But in 2015, due to unpredictable changes in the ruble exchange rate, we had to cancel this practice. Now we change prices depending on the rate of the Central Bank. At first, it had a distressing effect on the buyers, but they got used to it in a year. In the 90’s, everyone worked in such conditions, so this is nothing new.
Unfortunately, there is no possibility to sustain the prices. By and large, our foreign suppliers do not offer us any special exemptions. However, as for the most important products, which we mentioned particularly, both the Germans and the Austrians did us a favour and provided additional discounts.
There is an outflow of consumers from the high-priced segment to the cheaper one, minor, though. At the same time, the rearrangement of the consumers’ preferences does not necessarily end with a change of suppliers, it can also happen within the range of goods offered by the same manufacturer. For example, earlier on, Russian customers were convinced that the elements of the sliding baskets must necessarily be chrome plated. Now, due to the price difference, many people buy colored, but of the same brand.
We are not looking for alternative suppliers. We are satisfied with our partner companies. Together with them, we develop more economical product lines.
Elena Gorodovikova
Deputy Director General of ARLY Company
Small companies producing kitchen furniture are gradually disappearing from the market. This is particularly noticeable because of the vacated areas in specialized shopping centers in the regions.
Among other goods, our company supplies decorative paperbased laminates to the German company Resopal®, which is a part of the Wilsonart® International Holdings. Since the beginning of 2014, our supplies from Europe have grown thanks to the orders coming from the owners of fast food restaurants, which are actively winning the market from the competitors with more exquisite menus and higher prices.
Under the conditions of declining demand for furniture, many Russian manufacturers turned to cheaper materials and components in the first quarter of 2015. Far-sighted importers began to look for economical alternatives to their usual assortment. Foreign suppliers reacted slower, but they had to sacrifice a part of their profits. They agreed on discounts, hoping to save their market share.
Furniture and components manufacturers in Russia are constantly searching and finding new suppliers of materials. However, with the stagnating market and falling personal income, Russian manufacturers of furniture materials have found themselves in a contradictory situation: on the one hand, due to more reasonable prices, the demand for their goods has slightly increased, and on the other hand they depend on the imported raw materials, which are difficult or impossible to substitute by the domestic ones. Competing with importers, our suppliers of materials and components have made a significant progress in the modernization of old and the creation of completely new productions. For example, using imported equipment and technologies, Russian manufacturers of decorative high and low-pressure paper-based laminates have come very close to the best Indian and Chinese counterparts in terms of quality and range of their products. Now they are ready to scale the heights of European standards. I hope that the drawn-out recession, the decline in demand for furniture and the desire to retain a market share at any cost will not force domestic enterprises to reduce the requirements for quality and range of produced goods.
Dmitry Shklyaruk
Commercial Director of CentroCompleсt
In our opinion, the gradual growth of exchange rates with periodic panic leaps is no longer a real problem. It is rather a psychological factor. But the continuing decline in purchasing power is a real problem.
Undoubtedly, any crisis intensifies the redistribution of the market. Only it happens not between minor and major players, but rather between those who have a strategy (any strategy, even if it’s the worst one!) and the desire to change something, and those who simply blames the recession for all their failures.
We certainly try to be among the first. We attract new customers, introduce new products. In other words, we work almost the same way as before, only several times faster, more persistently, more effectively.
The only thing that we are definitely not going to do is to enter the B2C market. The decision of entering B2C market seems to be obvious because there we can earn more. However, there we would have to compete with our own customers: under no circumstances we would destroy the partnership relations that we have been developing for years.
There are available ways to influence the final cost of the products, like cutting company’s own costs (by the way, many furniture makers have great potential in this), a gradual reduction of customs duties on particular goods and lowering of purchase prices in negotiations with suppliers. It is important to understand that distributors do not have super big markups, and therefore, these opportunities are determined by a few percent.
All suppliers behave differently. Crisis is a litmus test for partners. Those who think of Russia as a really important market, would find any means to help their distributors.
We did not include the production of Russian manufacturers in our program and we are not going to do it yet. We have been known for 20 years as suppliers of high-quality European fittings — that’s what customers come to us for. We are not expected to sell products made in Russia, China or Turkey. Those who need fittings and furniture components from these countries, go to other companies. We will need to found a new company with new employees for such changes. Well, you can’t sell both Mercedes and Zhiguli in one showroom! It’s always two different showrooms. They can stand side by side and belong to one owner, but it’s two different things.
We have Poland in a low-price segment, it is quite enough for us, especially since successful work with Polish suppliers is historically one of our core competencies.
