CEM 2007. Overview of CE Market
Consumer electronics in Russia is expected to continue to grow throughout the forecast period, to reach US$4.7 billion in 2008, compared with US$2.9 billion in 2003. This amounts to a predicted value growth of 62.6% over the forecast period as a whole, and a CAGR of 10.2%. In volume terms, sales are expected to reach 23.8 million units in 2008, an increase of more than 48% over the forecast period as a whole. Sales of audio products will drive this growth as consumers opt to replace outdated technology, such as cassette decks.
Economic backdrop
The general economic situation in Russia over the review period has favoured the development of the market for consumer electronics. Economic growth and, more importantly, increased spending power are responsible for the trend towards growth. Between 2002 and 2003, growth in real earnings reached approximately 15%. This growth in income has changed the nature of the demand for consumer electronics. By 2003, Russian consumers had changed their preferences to purchasing more expensive and high-quality goods, having largely recovered from the economic crisis in 1998 when only the most basic models were affordable.
Another important factor over the last two years is the rise in consumer credit in Russia. Constant competition between banks has resulted in the steady decline of interest rates, and an increasing number of consumers are starting to take advantage of cheap credit when purchasing consumer electronic products.
Demographic situation
The improvement in living standards has also dramatically improved the market for consumer electronics products in Russia. Initial developments in the market were largely restricted to Moscow and St Petersburg, however, by 2003, rapid development of the market started to take place in more regional parts of Russia too. The range of products offered is growing rapidly, new distribution channels are becoming more commonplace and consumer preferences are evolving to become more sophisticated. The potential market capacity for consumer electronics in Russia is great. As spending power increases, sales of consumer electronics goods are expected to increase too.
More sophisticated choices
In 2003 consumer electronics products become more widespread. By 2003, price was not the only factor in purchasing decisions, but quality had gained in importance too. With the growth in incomes, consumers have started to become more selective in their choice of model, preferring the more advanced high-tech products. The arrival of basic products on the market took place in 1993–94. By 2003, however, the process of upgrading outdated products purchased at the beginning of the 1990s for more modern and digital products had begun in Russia.
The distribution environment is undergoing change
Another development in the market is that of distribution. New distribution channels and chained outlets, particularly hypermarkets / supermarkets, have emerged in Russia in recent years, offering consumers a higher level of service and a wider range of products than ever before. The influx of supermarket chains to the Russian market is dramatically changing the way in which consumer electronics are bought and sold in Russia.
Market Performance
Value sales of consumer electronics in Russia reached nearly US$2.9 billion in 2003. This equates to a growth rate of 93.9% over the review period as a whole. In 2003, the growth rate slowed down, due to saturation in some areas of consumer electronics. In 2003, video products reached value sales of nearly US$2.1 billion, accounting for 72.3% of total consumer electronics. Televisions accounted for the largest area of sales of video products in Russia (making up 66% both in terms of value and volume).
Sales of audio products approached US$800 million in 2003. Volume sales totalled 10.6 million units. Cassette decks and personal / portable radios still take a large volume share of audio products, in spite of the rapid development in Russia of new formats (such as MP3 players and minidisc players) in recent years.
Consumer electronics shows stable growth
Sales of consumer electronics in Russia showed stable growth rates over the review period, excluding fluctuations caused by the financial crisis in the country in 1998. Thus, over the review period as a whole, the value of the market grew by 93.9%, with a CAGR (compound annual growth rate) of 14.2%. However, by 2003, tendencies towards saturation had manifested themselves in some areas, leading to a reduction in the growth rate. That said, consumer electronics was considered one of the most dynamic and fastest growing markets in Russia in 2003.
An immature Russian market
Sales of consumer electronics only really took off in Russia in 1993–1994, when major foreign players entered the country, introducing a competitive environment that had been absent in the USSR. The service life of most products tends to be around six to seven years. However, this growth did not occur due to the financial crisis of 1998, which significantly affected the buying power of the population. Incomes were sharply reduced in 1998–1999 due to high inflation rates.
Sharp decreases in the standard of living in 1998–1999 affected consumer behaviour and resulted in consumer preferences to cheaper products in 1998–2000. Relative stabilisation of the economy only really returned in 2000, when the normalisation of incomes allowed people to purchase consumer electronics again. Therefore, mass updating of consumer electronics occurred in 2000–2001.
In 2003, consumer buying power improved and product replacement and upgrading became more widespread. The increase in income and spending power in the Russian population, as well as the increased market competition between 2001 and 2003, in turn increased demand. Consumers in 2003 opted for more upmarket products. By 2003, new modern models offering high quality were enjoying increased popularity in Russia. The premium end of the market is still small, but it is showing significant signs of growth in 2003.
Divergence between cities and rural areas
Sales in Moscow, St Petersburg and several other larger cities are characterised by high growth rates and a wide variety of products, as inhabitants tend to have higher incomes than the rest of the population and consequently prefer more expensive models of consumer electronics. Thus, Moscow’s value share of the total consumer electronics market in Russia makes approximately 17%. In regional parts of Russia the market for consumer electronics is much less developed. Competition between main players in Moscow and other larger cities is growing, having become especially marked in 2003. Specialist chains, supermarkets and hypermarkets are starting to enter the unknown regional areas, gradually narrowing the gap with the urban area. However, the regional areas still remain underdeveloped by comparison.
New audio formats
By 2003 the demand for new technology (MP3 players, minidisc players and digital cameras) evidently increased in Russia. Digital technology appeared relatively recently. The popularity of new digital formats continues to grow. By contrast, older technologies such as cassette decks and monochrome televisions, which have traditionally performed well in Russia, are beginning to show signs of decline, as more dynamic products will dominate in the future.
Buying on credit
Since 2001, the availability of consumer credit has seen a marked growth. In 2003, shops granting consumer credit services sold an average of 30% of their consumer electronics products on credit.
A considerable increase in competition in this market resulted in the reduction of interest rates. In 2003, consumers could buy consumer electronics on credit at a rate of 0% interest for two years. Consumer credit has grown by 378% over the review period. After the crisis of 1998, consumer credit saw a sharp growth, making products seem more affordable to Russians both in the urban and more rural regions of the country.
Shift in distribution favours supermarkets
Over the review period, Russia has witnessed a massive overhaul in the way that consumer electronics are distributed. In 1998–2000, about 50–60% of all sales went through open markets, however, this figure declined to around 27% in 2003. New formats have appeared, in the form of large retail chains, supermarkets and hypermarkets. These new formats are gaining more and more presence in the Russian market.