K-Rauta in Russia: creativity out of crisis
Pavel Lokshin, CEO of the K-Rauta DIY chain mainly active in St. Petersburg and northern Russia, talks to WorldBuild365 about the trends of Russia’s DIY market and how his company is meeting the challenges of the current market.
Mr Lokshin, how has the current tough situation in Russia affected the DIY market? How is K-Rauta responding?
In general, the Russian consumer has become more selective and more pragmatic across all product groups.
Russia’s DIY market is one of the largest in the world, but until now there have been very few large international companies present there. This means that even when the market contracts sharply during an economic slowdown, international companies like K-Rauta will have plenty of opportunities to grow. Being part of the Kesko international corporation gives K-Rauta a competitive advantage over local companies, who may not be able to rely on longstanding international expertise.
It’s worth mentioning that even when the rouble is fluctuating, it is important for us as part of an international concern to balance the budget to achieve the planned financial results. To ensure this, we are working in four main areas:
i. Developing a team of professionals – we are continuing to invest in training and skill development of our key employees
ii. Working with clients – adapting our product range policy to the new market realities
iii. Strengthening our cooperation with our key suppliers – planning stronger promotional and marketing activity together, and building long-term partnerships with large importers and producers
iv. Minimising costs to increase productivity by changing business processes. For example, we redistributed staff between retail centre departments, resulting in a 10% increase in sales staff on the shop floor and a 14% increase in the overall productivity of sales staff.
What are the general trends in the Russian DIY market?
In an unstable economic situation where revenues and consumer spending power are both down, the trends in DIY are the same as many other sectors – the consumer is more selective, and also more receptive to discounts and special offers. There has also been a noticeable shift in demand towards the lower price categories.
What can the market expect over the next five years?
We expect the current market trends to continue. The K-Rauta team has shown its ability to achieve good results even in a time of market instability, so we are ready for this. We are therefore expecting to grow our market share.
Has K-Rauta made any adjustments to what it offers to customers?
The Russian DIY consumer always highly values the Finnish quality of our range and service, and this is what we will continue to offer. During a downturn, the consumer is more sensitive to prices and special offers, so we have strengthened our pricing position and acted more aggressively and creatively regarding offers.
For example, we organised several ‘Duty Free’ offers. As Russians haven’t been able to afford to travel and go duty-free shopping at the airport, we gave them an 18% discount (the level of VAT in Russia) without having to leave the country.
Which DIY products are most in demand in Russia?
The Russian consumer’s increased selectiveness when buying applies to all product groups, including building and finishing materials. They are shopping more pragmatically and with more of a focus on making the right choice and closely studying the quality-price balance. There are some product groups that sold better last year than usual – for example, interior items and products for dachas – but in general, the trend has been a shift in demand towards lower pricing categories.
How has the rise of e-commerce in Russia impacted K-Rauta’s business?
We are currently starting to launch the Rautakesko e-commerce platform in Russia, as e-commerce is a key area of development. We have been a significant increase in visitors to our site, and we plan to implement a full e-commerce model in the near future.
Where does K-Rauta source most of its foreign-made products to sell in Russia?
A large share of our product range is sourced from Russian suppliers, and international suppliers alongside them as well. For example, in our interiors range, we sell imported products from Italy (ceramic tiles), Germany (wallpaper and laminate flooring), Italy (wallpaper) and Poland (parquet flooring).
You are speaking at the MosBuild exhibition this year, on the subject of how building materials suppliers and DIY chains can work together. What does K-Rauta look for in a supplier, generally speaking?
We are and wish to remain reliable partners for our suppliers. Kesko, K-Rauta’s parent company, has worked with certain suppliers for many years, for example in Finland. The Russian market is young and developing, and we consider it important to support local companies and be a partner they can rely on. We work specifically on introducing their products into Rautakesko’s global range, which helps Russian producers begin supplying European markets.
An example of a company we have supported in this regard is R-Klimat, a producer of heating and household equipment (heat guns, convectors, etc) from Izhevsk in central Russia.
From our suppliers, we look for more new and creative ideas of how to sell their products to our suppliers.
Pavel Lokshin will speak at the MosBuild DIY forum on 6 April. For your complimentary visitor pass, visit the MosBuild website.
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