Rus Articles Journal

Why distribution networks fall?

This article are interview with one of founders of the oldest company in the market of electronics of Russia.

- This year at once electronic engineers declared two networks bankruptcy. How you can comment on it?

- Actually, I would add one more veteran here - RSI distribution company.

- So in what the reason that these companies left right now?

- I will not be original: the main reason - absence of will to live at the companies … There is such term in materials science “fatigue of metal“, at the companies it is the process of gradual accumulation of mistakes leading to irreversible consequences. If it is short, then pioneers of business fused, without having brought up themselves worthy change. Owners of the companies could not release a steering wheel in time and preferred to drown together with business.

- You speak about shortage of qualified personnel?

- Human resources departments of distribution companies for months rummage in salvage, choosing from two evils “deeply the visitor, or steals a little“, receiving as a result in a set both qualities for smaller money. But it is easier “to sink“ with such collective, due to the developed “feeling of comradeship“. The organizations sometimes, however, are lucky and there are really valuable acquisitions, but except a headache they bring nothing because “nobody pours in some young wine in bellows shabby“.

- From all electronic networks which were created in 1992 - 1993 there were only M - Video. What is it caused by?

- The distributor`s warehouses hammered with illiquid asset, low profitability and inefficient logistics business gradually kills. Microdynes, Seld, the Bonus, Complex Systems, Oton and many others who are remembered only by professionals finished to 1995, were the first largest suppliers of electronics to Russia. They were closed without having passed tests time.

DIAL, the Electric World stopped the activity in 1998

the WORLD and SV - in 2010 from - for high the competition and inefficient technology of sales.

The technology of sales was always the weak place of the Russian retail.

- Crisis financial was imposed on crisis of technology of sales?

- Yes, it is also connected, first of all with popularity and availability of the Internet as information platform, it became almost impossible to sell expensively.

- You mean that the Internet selects a share to the market at the retail companies?

-! Many former distributors began to work in retail, through the online stores created at the warehouses. The Internet of platforms is the main objective of these preservation of a turnover of the parent company due to dumping direct sales for the purpose of receiving a bonus from the producer.

Ya I think that leaving in “zero“ the large companies, first of all, is connected with the fact that these companies could not answer adequately time call, could not reconstruct system of sales

- Why?

- If to estimate costs of carrying out changes, then it is always cheaper to support system in the existing state, than to change. And as costs of change demand a single and essential investment of the capitals, changes should begin to be prepared before when the market changed. The matter is that on the Internet it is possible to acquire goods with essential economy. In the house-keeper - a segment this price distinction is not so noticeable, but on average, and especially in top, the difference actually is evident - it is possible to save 20 - 30% without any bonus and discount cards on one box, so darlings in large retail networks.

- Whether it means, as other large networks, such as M - Video and El Dorado, are doomed?

- No, not necessarily. If they manage to change, “evolve“ - they will have a chance. But here goes a factor which I would call “a damnation of 10%“ into action.

- What for “damnation“?

- The Internet - sales have on average a margin of 10%, usual retails - 25%. Therefore the main issue which faces the large companies: how to fight about the Internet - the dumping is put by shops which not just dump and in their prices. Buyers, are ready to overpay only for service, even wealthy people will prefer to check the price on the Internet before purchase.

But on the other hand, and the Internet - sales cannot quickly develop from - for it “a damnation of 10%“ - they just lack money for development, and at increase in a margin by 3 - 5%, at them the revenue sharply falls.

- What exit from this situation?

- I think, and it is already noticeable that we will witness convergence. Large electronic networks opened the platform Internet for a long time, but so far they work in the “facultative“ mode and do not compete even among themselves. The Internet business - is not similar to sale through the shelf of shop, it is just another.

- More difficult?

- I would tell more interestingly. The result is visible much quicker and loss from online for a week, guarantees loss from business for a year.

- I.e. the most interesting events still ahead?

- In the field of distribution there will be more significant events. We are present at a decline of distribution of electronics at Russia.

- What you mean?

- This process took place in 90 - e in the USA and now this microrevolution will be made at us. The matter is that distribution is characteristic of emerging markets when “the representative office of producer“ carries out only nominal functions in this country, and actually everything, from delivery of goods before distribution - function of the distributor. And now came it is time to exclude the distributor from a chain of sales production - representation - the distributor - the dealer. The representation itself delivers goods, dealers in regions, by means of transport companies, take away it and control sales in regions - distributors are simply not necessary. In general, I see in it positive sides - the consumer in the territory of all country will receive approximately identical prices behind a difference in logistics.

- And how about destiny of other companies (Mediamarkt, M - Video, El Dorado)? What prospects at them?

- If to look at their business as on activity for the purpose of generation of profit, then I consider that they have no long prospect.

In - the first, in Russia constantly increase costs for conducting retail business. Over the last 10 years the cost of rent of trade rooms grew by 3 times, a salary of sellers - by 7 times. At the same time the margin and the average check practically did not change.

In - the second, trade in electronics in all sector of a retail has the lowest value added. Actually, all this business represents distribution of the brought goods now. If earlier, in 90 - e years, shops of electronics carried out at least expert functions, then qualification of present personnel makes it impossible. Try to receive the answer at any seller in these shops on the question which is not lit on a label, and you are convinced of it.

- I.e. networks are doomed?

- If business was exclusive in business, then - yes. But I think that soon producers will understand a problem and will work with networks directly, but not through the distributor. Where they will advertize the goods, to advance novelties, eventually, to compete with each other? Most likely, the profit of networks will consist of ribeyt from vendors and a payment for regiments, i.e. producers will buy, actually, advertizing of the goods by payment of places of trade as now occurs in grocery retail.

- And unless now it not so?

- Now it happens to certain goods near cash desks, and after a while all exposed goods will be paid.

- How you think at which of networks chances to survive are higher?

- All three networks have one general property - low credit debt. El Dorado and Mediamarkt have the western owners and, as a result, have cheap money. And M - video came to IPO not so long ago and did not manage to spend all money. For the rest these networks are very similar - use identical technologies of sales.

- I.e., perhaps, there will be all three networks?

- In 10 years we will see one, at most two national networks of electronics, and in addition to them several networks of the hypermarkets too having the elementary “box“ electronics in the assortment (for example: Auchan, WALLMART, etc.). And essentially the survival of networks will depend on whether they will be able to sell any services in addition to sales of goods, increasing a value added.

- The most interesting in the electronic market waits for us soon?

- Quite right! Evolution passed into a closing stage, all cataclysms already passed also the Old man with the Nimbus over the head, is ready to press “Ctrl - Alt - Delete“.