<b>Russia 2008:</b> Crisis Hits Extremely Hard
MOSCOW, Russia – The bicycle market in Russia last year seems like the good old days from the perspective of 2009. This year’s market is a whole new ball game with no part left unchanged by the economic crisis.
MOSCOW, Russia – The bicycle market in Russia last year seems like ‘the good old days’ from the perspective of 2009. This year’s market is a whole new ball game with no part left unchanged by the economic crisis.
Development in the Russian bike market in 2008 was tactical rather than a dramatic change in sales numbers. Some vendors increased their share and others kept their position. The average purchase price rose a bit due to a good overall market situation. C
Casual vendors with low-cost bicycles and no service support were pushed out of the market. Quality bike importers felt very optimistic about future sales while local manufacturers developed new higher level bicycles to widen their model lines. All in all an estimated 7 to 10% increase in the volume of bike sales took place, along with an even higher increase in the average sales price. Sources estimate total sales of well over four million bicycles, including kids models.
Taste for quality products
It was interesting to watch the change in the life-cycle of a bike over the last 3-5 years. Of course the majority of the 30-40 million bicycles used in Russia are used for as a means of transport during the spring to autumn period. There are very few people riding bikes in winter. But those who use bikes predominantly for fitness purposes in big cities have developed a taste for quality products.
A common pattern is to buy a basic mountain bike in a supermarket or a chain-store, ride it for a season, then replace it with a much better model purchased from a specialty bike-shop either one in the street or online. The latter method has exploded in significance because of the reach of the Internet in Russia’s regions. Partially this could be the result of an ambitious government program to connect every single school to the web.
The main reason is the rapid rise of personal incomes in the smaller towns throughtout Russia. It made a PC affordable to many, in even the poorest regions. The new challenge is the low IT-literacy of older Russians.
One doesn’t have to be Cassandra to see the outline of the coming season in 2009. It’s going to be dreadful, with a harsh plunge of the market, shrinking local production and imports, job cuts and customers postponing their purchases until times get better.
To understand the depth of the crisis in Russia let’s take a look at some figures. Russia’s major exports are mineral oil and gas. The Russian budget for 2009 is based on an oil price of $91 per barrel. It is being revised now, but it’s already clear that it is going to be cut severely. That all leads to a Gross Domestic Product (GDP) decrease. In January 2009 GDP already dropped 8.8% over January 2008.
As estimated 6 million out of a total workforce of about 76 million are actively looking for a job. More than 500 major local enterprises announced imminent job cuts. At the same time, wages are being cut in lots of companies. To add to this gruesome picture the national currency – the rouble – has lost more than a third of its value in a controlled devaluation that started last November and finished in February. A third of peoples’ savings has melted away.
What does it mean for the bike market? Last year bike price increases multiplied due to the rouble devaluation effect. Moreover, the consumer is reluctant to spend money – this will result in stores crammed with unsold bikes as well as a flourishing second-hand market.
One of the big Moscow vendors said frankly that the main goal for the season is to survive and not everyone is going to cope. Importers lost lots of money last autumn, when they signed rouble contracts with Russian vendors, while they paid themselves for the goods in dollars, losing a third of the invested money. The credit crisis is severe – it’s next to impossible for a small trading company with a solid credit history to reach agreement with the bank about a new loan.
20% decrease in sales
Company managers agreed to talk to us mostly on condition of anonymity. Bigger and more financially stable firms expect a 20% decrease in sales, while smaller vendors are afraid of 50 to 65% drops. Distributors prefer to have solid orders from dealers or shops before ordering goods. The range of bikes and accessories will be pretty narrow this year and it could be hard to buy anything other than the basic Russian bicycle.
It may help the spare parts market, because instead of buying a new bike customers will prefer to repair an old one. One of the interviewed executives said: “Nobody here cares about 2009 anymore, everyone is looking forward to the 2010 season.” And one may bet that they will search for the ultimate cost effective strategy for the next year. At least those who survive.