Адрес:
6 Presnenskaya Emb., 123112 Moscow Russia
Главная \ Thinking way \ Why DIY shops are closing when the construction market is growing?

Why DIY shops are closing when the construction market is growing?

The DIY & Household goods market reflects general retail development trends.

In 2018, the market returned to its pre-crisis level and growth due to pent-up consumer demand and record real estate sales amid a growing number of mortgage loans.

In 2018, the retail DIY market in Russia (including furniture and household goods) grew by 7.5%, to 2 trillion rubles. Although in previous years, starting from 2014, the number of DIY stores annually closed more than opened new ones. Due to rising prices for imported goods and falling purchasing power, the DIY market has shrunk over the years. In 2014, the market volume decreased by 17%, in 2015 - by 8%, and in 2016 the market by 9.5%, to 90 billion rubles. Since 2017, there has been a slight revival of this market while simultaneously changing the market structure. Despite the crisis, leading market operators intensified investments and opened stores. For example, the top 40 DIY-retailers in 2016 increased the growth of retail space by 20%, to 321,000 sqm (net increase was 191,000 sqm). Already in 2016, the share of Leroy Merlin accounted for 60% of the DIY market retail space.

In 2018, consumers changed the model of behaviour from savings to lean; they saved less and spent more than in 2015-2017. However, the purchases were planned more efficiently, prices were often compared, and more attention was paid to discounts and promotions. The pursuit of rational consumption has become a priority, not only for 20% of Russian citizens who live below the poverty line but also for representatives of other income groups. In the second half of 2018, there was a recovery in consumption of non-food products, in particular, durable goods, in anticipation of a 20% increase in VAT, a devaluation of the ruble and a subsequent rise in prices. Some purchases were made using consumer loans.

At the end of 2018, we can conclude that DIY-networks slowed down the organic growth rate and limited the opening of new facilities, while they actively began to invest in upgrading existing facilities, providing customers with options for ready-made interior solutions and developing an online channel and omnichannel model, experimenting with formats.

At the same time, following the results of 2018, the French Leroy Merlin retailer remains the market leader, its share has grown from 19% in 2017 to more than 21% of the market. And this retailer increases price competition, which even large international retailers do not withstand. In early 2018, the K-Rauta retailer (part of the Finnish Kesko Corporation) left the Russian market, selling its business to Leroy Merlin for 12 billion rubles. For the French retailer, the purchase of K-Rauta stores was the first takeover transaction in Russia – before that, Leroy Merlin expanded organically. This allowed the network to strengthen its position in the Russian market. But in addition to acquiring objects of former competitors, the company is actively developing new sales channels and introducing innovative customer service techniques. By 2024, Leroy Merlin plans to increase the network in Russia almost threefold: from the current 78 to more than 200 stores, and also to double the share of e-commerce from the current 0.75%, including by increasing the number of items on the site by about 10 times. In addition, in June, the network opened a marketplace on its website – an online platform with goods from third-party sellers. Market participants rated it as a grand event in the Russian DIY market.

At the end of 2018, Castorama announced its resignation, which plans to close all hypermarkets by the end of 2019.

What makes foreign retailers leave the Russian market? First of all, the lack of flexibility in trading formats, the transition to a digital trading network. In 2018, basically, all large retailers in the market actively developed omnichannel trade. As a result, for example, online sales of building and finishing materials, household goods, garden furniture and home furniture increased by 32% and amounted to 185 billion rubles. This is almost 9% of the total capacity of the markets of building and finishing materials, household goods and furniture. Such a dynamic growth of online sales is associated primarily with the active development of online-channel retailers.

In 2018, about 300 of the largest DIY universal retail chains carried out online sales. In the household segment, there are more than 130 online stores.

Today, 16% of orders in online stores are made using mobile applications. And today, all the largest DIY retailers have mobile applications – Leroy Merlin, OBI, STD Petrovich, IKEA, Hoff, Vseinstrumenty.ru, 220 Volts, etc. year up to 7% of turnover.

Retailers are really experimenting with new formats, reinforcing trends with professional buyers (b2b-channel) and increasing the share of their own brands.

Despite the fact that Castorama and K-Rauta have successful results in other markets, the lack of competitive advantages compared to local retailers reduces all chances of success to zero. Castorama in Russia did not have competitive advantages compared with OBI and Leroy Merlin and was far behind its competitors in the development of the online channel.

News
The international rating agency S&P has approved a long-term rating of Russia for liabilities in foreign currency at BBB- with a stable outlook.
The unemployment rate in Russian regions at the end of Q2 2020 increased by an average of 30% compared to the same period last year, writes Kommersant, citing Rosstat.
The share of unprofitable organizations in the Russian Federation in January-May 2020 increased by 3.8 pp compared to the same period last year and amounted to 36%, Rosstat reports.
Inflation in Russia in the period from June 30 to July 6 jumped to 0.3% after zero value reached a week earlier, according to Rosstat data.
Rosstat published the full structure of all consumer income and expenses for Q2 2020.
MARKET INDICATORS
THE RUSSIAN TOURIST MARKET
THE RUSSIAN TOURIST MARKET
Review of the Russian Coffee Market
Review of the Russian Coffee Market
Review of the Russian Meat Market
Review of the Russian Meat Market
Review of the Russian Fruit and Vegetables Market
Review of the Russian Fruit and Vegetables Market
Контакты
6 Presnenskaya Emb., 123112 Moscow Russia
Get in touch