Foreign companies, which want to boost their sales on the Russian market today, should make a detailed research of the situation and have a clear idea of who is who in Russian furniture distribution and retail.
Russian furniture sector, which has overcome consequences of 2009 economic crisis quite easily, was growing rapidly in the following years, opening big opportunities for business development for both local players and foreign companies. In just a couple of years leading players have reached pre-crisis 2008 sales volumes and continued to strengthen their positions.
Growing income of middle class stimulated consumption in the furniture sector and household goods. Consumer preferences and tastes for materials, decor, interior design in general were evolving. Traveling around the world, Russian consumers were adopting the tendencies of more mature markets. Online sales showed rapid growth.
Alongside internal furniture production, import volume has increased, which made Russia an attractive market for foreign manufacturers: furniture import from some countries has been significantly increasing in percentage correlation (sometimes doubling) each year.
Complicated political situation, international sanctions and devaluation of national currency in the end of 2014 put an end to these favorable tendencies. During 2015–2016 consumer markets were reacting to unrealistic prognosis and government’s decisions, dropping oil prices, currency rate fluctuation and decrease in Russians’ income.
According to Association of Furniture and Woodworking enterprises of Russia (AMEDORO) official statistics, Russian furniture market volume has decreased by 15% in 2015 and additional 10% in January-September 2016.
Volume of furniture sales in Russia in the first three quarters of 2016 is estimated at 240 billion roubles.
Production of Russian furniture (taking into account consumer price index), has decreased by 10,5% in 2015 and 5,4% in January-September 2016. Factual volume of production (excluding price index) according to Federal State Statistics Service, in January-September 2016 is estimated at 102,4 billion roubles. On the background of general decrease in a range of Russian regions in the first three quarters of 2016 there has been positive dynamics in furniture production: Krasnodar region (+30%), Penza and Nizhny Novgorod region (increase between 10–15%), Chelyabinsk, Moscow and Saratov region (increase from 5 to 10%).
Russian furniture market still can’t be called export-oriented. Volumes of sales of Russian furniture abroad in general were just US$ 210,5 million in 2015. At the same time this rate is increasing: Percentagewise dynamics of 2015 was +3,8% (thanks to increase of imports to far aboard countries), while in January-September 2016 export has increased by 5%.
Today, export share in the general volume of Russian production is reaching 10%, and manufacturers are voicing their ambitions towards foreign markets more and more often (this is evident in the Catalogue of Exporters of Russian furniture, presented in this digest). We are talking not only about exports to Kazakhstan, Baltic states, but also far-abroad countries and other countries of Eastern and Western Europe.
Import of furniture from far-abroad countries has decreased by 55% in 2015. Main victims of this situation were China, Malaysia, Indonesia, Turkey, Italy.
China experienced total drop of sales in absolutely all furniture categories: semi finished items, tables and chairs, home and medical furniture. Belarus has already taken advantage of this situation. Despite the fact that import from the country has dropped as well, Belarus has managed to replace suppliers from far-abroad countries in the segment of so-called “cheap” furniture (less than 1,8 euro/kg).
2015 was marked by changes in the structure of furniture import. For example, the share of “cheap” furniture in the general volume of foreign import has risen up to 31,4%. At the same time cumulative import of “cheap” furniture has decreased in comparison with last year by almost 30%. Import of “expensive” furniture has decreased even more significantly (more than 1,8 euro/kg): reduction of deliveries in this sector reached 50%.
Negative trend continued in 2016: in the first three quarters the volume of furniture import to Russia has decreased by 40%. The volume of import for January-September was around US$ 800 mill. At the same time import from China has decreased by 34%, while the share of Chinese furniture in the structure of import over the reporting period was 25,2%. Belarus is on second place in the rating of importing countries by the volume of import, it’s followed by Italy, Germany and Poland.
Trade companies, specializing in import, work in various price segments with different styles and products. Today one can single out five significant channels of foreign furniture sales.
Key sector players are big distributors, offering both dealer and own retail. “Anna Potapova”, “Antares-Union”, “Komfortno ru”, “Avanti”, “Galereya”, “Саmel Group”, “Tedor i Aleksandra”, “Shabolovka, 13”, “WWTS”, “Lube” are some of the most significant. Leading suppliers of tables and chairs, such as “Aero”, “Vista”, “Delfa Plus”, “Deep House”, “Mebel-Kit” can also be included.
Designer and boutique retail, selling designer furniture from well-known foreign brands, is a significant channel of import sales. There are “heavyweights” players in this sector, for example, St. Petersburg FTF Holding, Moscow Terradarus, Ekaterinburg DNK group, but the main part of this retail are small studios and architectural bureaus, which prefer to work with integral interior design projects.
Regional trade companies, offering multi-brand product range, is one more important trade channel. In the last couple of years they were expanding their product range, by including imported furniture, among other things. Such companies are operating almost in every city. Russian furniture producers have always been main suppliers for them, while import was additional. Some of the most remarkable regional trade companies are “Kalinka” (Astrakhan), Da Vinci (Stavropol), “Mebel-Martin” (Ekaterinburg), SBS (Krasnodar), “Romarti” (Tula), “Korona” (Ufa), “Kirgu” (Makhachkala) and many other.
In rare cases strategic partnerships with foreign producers were reported by retailers, specializing in sales of furniture of “economy” class. For example, “Mebelgrad” furniture chain from Far East was quite successful selling inexpensive China products. Kaliningrad local chain “Formula Uyuta” was importing cabinet furniture to Kaliningrad area from Europe on favorable terms.
Before the economic crisis, furniture and accessories from abroad (both European and Asian) were presented in online stores. However, as Euro and USD rate became higher against Russian rouble the situation has changed not in favor of importers.
As we can see, import retail market is quite complicated and far from being homogeneous. Unlike trade counteragents of Russian manufacturers, united by common interests and suppliers, foreign retail is less consolidated, which influences information quality and communications in the sector.
As the economic situation on the market is quite complicated, some foreign companies are quite actively using the downturn for winning strategic positions and preparing marketing breakthrough.
German brands are the most remarkable: Nobilia, Nolte Kuechen, Kare, Raumplus, Musterring. Italian producers, that secured their position during the decades of their work in Russia, manage to keep them now (for example, Scavolini).
According to some Russian retailers, importers retain potential, mainly, in narrow niches. Such as, in the first place, modern style design furniture (iconic international brands that don’t have equivalents produced in Russia), in both premium and mass segment.
Some importers also satisfy demand for high quality furniture in classic style (Polish, Romanian producers are offering such kind of products, inexpensive furniture from Italian manufacturers is also in demand right now).
Despite decrease of Chinese import sales, imported tables and chairs are still relevant (especially those made of glass (something that is not produced in Russia on a mass scale).
Solid wood furniture has big market potential: however surprising it may be, in a country with rich timber reserves, this niche is almost not covered.
Just a few years ago, when the Russian market was rapidly growing, foreign companies from Europe and Asia were contemplating the possibility of opening their own furniture factories, that is production, but not just trade representatives in Russia.
Complicated political and economic situation made it impossible to realize these ideas immediately. However, according to information of Russian factories, today they get visits from foreign delegations, making business plans for the nearest future and considering options of possible co-operation. These projects are likely to be realized in the near future.
Foreign companies, interested in Russian furniture market, should understand that purchasing power of Russians in the mass segment has definitely dropped.
Despite this fact, Russian consumer, living in big cities and having a cosmopolitan lifestyle, has demand for high-quality, modern beautiful furniture, which needs to be satisfied.
Russian furniture producers are doing their best to follow leading Western tendencies in interior design. But, as Russian furniture industry is quite young, foreign producers still have competitive advantages thanks to their clear product range strategy targeting specific customer.
It’s also important that Russian consumers in general are inclined to think that “Goods produced in Europe are better than those produced in Russia”. European national brands (Made in Italy, Made in Germany) are still powerful in Russia. Thanks to this peculiarity of Russian consumer culture, importers may retain their positions on the Russian market in the coming years, filling vacant product niches.