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Terrorists blew up Russian furniture market

Terrorists blew up Russian furniture market

05.04.2010 — Analysis

Russian furniture making sector is in a protracted deep crisis. Experts predict a positive dynamic in the market no sooner than in 2012. Officials are advising the producers to change product range and adopt western technologies. The RusBusinessNews observer established, however, that consumers have no certainty in what tomorrow will bring and therefore hold on to the money. The growth of political and economic threats in Russia is putting off the recovery of the furniture market for an indefinite time. 

The Urals Furniture Makers Association announced the opening of yet another furniture supermarket occupying 2,000 square metres in Ekaterinburg. New branded furniture shops are going to come in the nearest future too. Having taken the sales of good in their own hands the producers are planning to reduce the prices by almost a quarter. Using this simple measure furniture makers are trying to overcome the negative trends in the marketplace.

According to the data provided by Yulia Reshetnyak, the Executive Director of the Urals Furniture Makers Association, the drop in sales of the elite class furniture has amounted to 60-70% during the crisis. Sales of economy class furniture have been 12-15% lower which, incidentally, has caused manufacturers considerable pain as the profit margin is minimal in this segment. The biggest drop in sales happened to soft furniture and amounted to 45-50% in all segments.

The expert believes that the market has been affected by the mass layoffs of staff at the Urals enterprises and the universal neurosis. Banks have stopped issuing targeted loans to private individuals; the market had been growing thanks to this kind of loans for the previous ten years. As soon as these loans have gone the sales crashed too. The negative trend cannot be overcome even by the resumed issuing of these loans - demand for elite class furniture is recovering very slowly as people's demands have decreased.

The Russian Association of Enterprises of Furniture Making and Timber Processing Sector blames not so much the banks but the conservative pricing policies of manufacturers: the furniture price index, crisis notwithstanding, is growing by 7-8% per year. This lack of flexibility of furniture makers has led to the situation where the rouble devaluing has not helped them with competing against imports and they even have lost some of it to the competition: the share of foreign furniture in the Russian market in 2009 has increased by 3.3%.

Serghey Trubinov, the Sales Department Manager at Kvinta Furniture Factory Ltd., reckons that it is all the fault of the Chinese and Belarusians who make furniture very cheap. For instance, the difference in the medium price segment between a Russian and a Byelorussian cabinet is 20% taking the customs duties into account. According to Kvinta's representative the difference exists due to cheap labour and timber in Belarus, for instance. Due to this fact Russians see the growth in sales only together with the development of the construction market.

Ekaterinburg's Deputy Mayor Victor Konteyev has not said anything encouraging to the domestic furniture makers, according to him, the amount of commissioned housing is reducing for the second year running. In 2010 the fall in the amount of housing commissioned in the Urals Federal District regions will amount to at least 100 thousand square metres. The official reckons, correspondingly, that the hopes for the growth in sales should be tied in the furniture makers' minds with the second-hand housing market, expanding the product range and perfecting the promotion techniques. According to Mr Konteyev they have to carry out a competent advertising campaign and go to export markets.

Aleksandr Masurskiy, a representative of the Gomeldrev furniture factory, confirms that the Ekaterinburg official is right; according to him Belarusian manufacturers are managing to export not due to low wages but thanks to the promotion of their goods. The Belarusian Government has divided foreign markets into zones and the members of the cabinet are personally responsible each for a particular region. This practice, according to Mr Masurskiy, results in personal interest of officials in the promotion of Belarusian products in export markets.

Yulia Reshetnyak points out that Belarus has a less tough customs regime which enables manufacturers to import not only fittings, fabric, and foam, but also the front parts of furniture. The Chinese, the expert claims, simply copy Italian and German models and sell them cheaper. The Urals manufacturers cannot use either of these ways due to being situated far from borders and lacking high quality basis and well trained specialists. Consumer surveys demonstrate that they are not happy with the design of furniture made domestically; furniture makers just replicate the uniform models. The attempts to attract Ekaterinburg designers into the sector have not changed the situation - the originality and price of new designs so far do not match each other very well. The "fine tuning" will take at least 10-15 years, according to the expert. 

In the nearest future nothing much will change in the furniture making sector. In 2010, according to forecasts by the experts of the Russian Association of Enterprises of Furniture Making and Timber Processing Sector, the furniture market will drop by another 10%. Starting in 2010 it will begin a slow recovery, most of all through the deferred demand; people in Russia have about 2.5 times less furniture than people in the developed countries.

Equipment suppliers to the furniture making sector hope for a small growth starting this year. According to Yuri Sobin, the Director General of KAMI-Ural Ltd., leasing and credit organisations have started to actively offer their programmes and this is reflected in equipment sales. The expert, however, refused to name the percent of the growth compared to 2009, pointing out that the company will reach the 2008 levels only in 2012. Research Techart analysts make a forecast which is even more cautious: the market will return to the levels of 2008, when 160 billion roubles worth of furniture had been sold, no sooner than in 2014.

Mikhail Trofimov, the Senior Manager of the Shipment and Wholesale Department at the Miass Furniture Trade House Ltd., does not dare predict when the market recovers the sale volumes of 2007 and early 2008. During the crisis the Miass company has broadened the products range, diversify the colouring and the quality of upholstery but all this has had very little effect on demand. "I do not know when we will reach the pre-crisis level," stressed Mr Trofimov, "Everything depends on the political situation and oil prices." Events in the country and in the world, terrorist attacks for instance, do very much affect sales. Our consumers, the middle classes, feel uncertain about the future and thus prefer not to spend the money on consumer goods.

Vladimir Terletski

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