How do the pandemic and customers' behavior affect the sector of home appliances and electronics? Read about changes in the special project of the Commercial Property edition and the Retailers Association of Ukraine.
The number of the hardware and electronics stores has been growing in shopping centers and TECs over the past several years. However, online stores' growth has changed customers' approach, and locations have started turning into show-rooms. Home appliances and electronics retailers' role in shopping centers' structure won't change. There will be no chains' reduction or commercial spaces diminution either.
With the advent of the pandemic, retailers have focused on several main tasks. It is about the process optimization, preserving jobs, negotiations with lessors, e-commerce development, stores optimization for ordering online goods, and interaction with customers. For example, Foxtrot has expanded delivery points up to 28,000 localities through the enhancement of logistic partners' pool. The company has also implemented the same-day delivery at a time of customers' choosing and deliveries to Nova Poshta's post boxes. In turn, Comfy has launched non-contact shipping and telephone application for a loan. Besides, the ALLO network continues to develop a seamless approach, putting services like Expert Online (video counseling) into practice. The company has also launched the ALLO Express delivery service.
In addition, th operators faced the necessity to pay the rent. However, according to CEO of Retail & Development Advisor (RDA) Taisia Lytovchnko, most systematic retailers have managed to find common ground with lessors during the pandemic. They have got discounts or rent exemption for the period of lockdown and TEC's closing. In this way, operators get a chance to save their businesses, and developers could keep their tenants until quarantine restrictions' ending.
Generally, the pandemic has not become the reason for operators to reduce their physical presence. The most significant players focused on upgrades, reformatting, and relocation of their outlets to optimize their work.
For instance, ALLO didn't close a shop because of the pandemic. In turn, Eldorado saved all objects except for those relocated because of marketplaces' increase in a new area. In addition, one object was closed according to lease terminations. Foxtrot has closed 5 stores this year to open them in a new format and more convenient locations.
In 2020-2021, Comfy closed 10 small stores in localities with the population fewer than 100,00 inhabitants. However, the pandemic is not the reason. “Of course, COVID-19 reduced the turnover in currently closed outlets. However, we have always closed non-efficient locations and opened new stores in prospective spots. Only a small turnover generated within our omnical model of commerce can be the reason to close the store,” CEO in Comfy, Ihor Hyzhnyak, explains.
Networks expansion has been noted against this background. For example, according to the leading expert of Colliers International (Ukraine), Ihor Zabolotskyi, Blockbuster Mall and Respublika Park have signed rental agreements with home appliances operators to open large-scale stores during the pandemic. It is about contracts with Foxtrot (960 sq. m), Eldorado (1,034 sq. m), and Comfy (1,027 sq. m) in the first case, and Foxtrot (1,848 sq. m), Comfy (1,796 sq. m), and Citrus (645 sq. m) in the second one.
Retail-operators shared their data. For instance, Comfy has opened two stores in metropolises since early 2020. In turn, Eldorado has launched 16 new stores and renovated 17 active facilities since summers 2020. Epicenter K turned eight home appliances departments into Tse Te stores and opened three more of the same format within its shopping network last year.
Foxtrot has opened 30 stores since mid-2020. One-third of them are new facilities within TEC's structure. The capital TEC Blockbuster Mall, RayON, HIT Mall, Odesa FontanSky Center, Kharkiv Nikolsky, and Karavan.
Budhouse Group's (TEC Nikolsky in Kharkiv, Forum Lviv in Lviv, Fabrika in Zaporizhzhya, and Lubava in Cherkasy) active objects the total area of home appliances and electronics stores is 13,500 sq. m, meaning 8% of its rent area. Tenants and squares haven't been reduced during the pandemic. On the contrary, a new large Eldorado store opened in TEC Fabrika last September. Generally, the company's objects consist of key market players: Comfy, Foxtrot, Eldorado, Citrus, ALLO, and others.
The largest home appliances and electronics operators in the market are represented in Kyiv TEC Blockbuster Mall. They occupy nearly 3% of the object's second line's leasable area (100,124 sq. m, while TEC's total area will reach 148,657 sq. m after the third line's opening). In addition, multi-brands like Citrus (750 sq. m), MOYO (140 sq. m), and other mid-range retailers specialized in electronics operate in Blockbuster Mall. Besides, mono-brands like Miele, Bosch-Siemens, Neff, Samsung, and others are represented there, occupying nearly 5% of total area. This year, TEC plans to open the third line occupied by Epicenter K with its shop-in-shop stores, including Tse Te (1,400 sq. m).
The Dragon Capital Property Management company's TEC the amount of spaces for electronics stores, home appliances, and accessories has been increasing during the last three years. How much is it in numbers? Well, in 2020, such tenants' areas have grown as follows:
• TEC Aladdin (Kyiv) – 19%
• TEC Piramida (Kyiv) – 91%
• Smart Plaza Obolon mall (Kyiv) – 600%
• TEC Sky Park (Vinnytsa) –14%
• TEC Victoria Gardens – 13%
Eldorado stores with an area of 1,000 sq. m each were opened in TEC Piramida and the Smart Plaza Obolon mall. Flagship Citrus started working in TEC Victoria Gardens. So, the company features the following stats:
• Electronics, home appliances, and accessories stores occupy nearly 670 sq. m in TEC Aladdin (5.39% of the object's leasable area).
• TEC Piramida – 2,900 sq. m (18%).
• Smart Plaza Obolon mall – 1, 040 sq. m (10.64%)
• TEC Sky Park – 1,150 sq. m (7.45%).
• TEC Victoria Gardens – 3,630 sq. M (7.1%).
Home appliances and electronics stores have started turning into show-rooms in recent years. So, customers often choose goods in the store and then look for the best offer on the Internet. Alternatively, they choose goods online beforehand and go to the store to test them, consult the shop-assistant, and decide on the purchase.
Considering such changes in customers' behavior, the question arises: will home appliances and electronics stores save their role in TECs' structure? Experts believe that such operators are an important part of tenant-mix. As Budhouse Group's Chief Operations Officer, Maxym Havriushyn, notes, such tenants generate good rental income, demonstrating decent turnovers. The point is that the demand for categories like electronics has been growing for the last several years because of people's passion about gadgets. “Gadgets and electronics have become an integral part of our lives. So, their presence in TECs is as necessary as fashion stores' work.
Shopping Centers and TEC vs. Street Retail
Now, home appliances and electronics stores depend on quarantine's conditions and locations (whether the store is in TEC or have a street-retail format). Operators note that street-retail has worked better during the pandemic under restrictions. As an Executive Director of the ALLO network, Olexandr Paschenko, told, dispersed locations with small areas were more efficient since restrictions had not significantly affected their operation. “Traffic is crucial for stores. It impacts the turnover and lease terms, resulting in cost-effectiveness. Traffic in TECs was between -40% and -70% year-to-year during the pandemic,” Oleksandr adds.
Eldorado street-retail and small shopping centers (collaboration between supermarkets and home appliances and electronics stores) have demonstrated themselves to their best. However, sales returned to norm, and TEC started dominating again after a full-fledged launch.
“Street-retail was more efficient during the quarantine because of its better accessibility and less vulnerability to ever-changing circumstances,” Oleksyi Zozulya, an Executive Director of Foxtrot, says. Comfy also points that out. The retailer noted that street-retail was a more flexible format and could easily convert into the point of release of the goods in a state of total lockdown and adaptive quarantine's tight restrictions. At the same time, Ihor Hyzhnyak notes that stores within TECs are also efficient without severe restrictions at the country or regional level.
Demand and Sales
Operators recorded declining sales in the first weeks of quarantine 2020. Taisia Lytovchenko notes that operators recorded drop in sales by 50%-70% last March-April. According to her, e-commerce was least affected, as well as retailers focused on an omnichannel approach, developing their online platforms alongside physical stores. In this way, they could save sales. Besides, many orders followed the recession and partially compensated for losses. Market players reveal several categories of goods with growing demand during the quarantine:
• Electronics for in-house education and work: laptops, tablets, monitors, and accessories (amps, headsets, headphones, etc.)
• Entertainment like TVs and gaming consoles.
• Kitchen appliances: blenders, food processors, grills, multicookers, breadmakers, etc.
• Cleaning and hygiene equipment, meaning robotic vacuums, stylers, and electrical toothbrushes.
According to retailers, home appliances and electronics stores showed an increase in sales by 20% last year. 2021 is also optimistic. Thus, according to Epicenter K, the market demonstrates growth by 20% within eight months. In comparison, the growth was only 7% in same the same period in 2020.
Apart from increased sales, sector's players note other trends. For example, quarantine restrictions have affected land-based stores' conversion: buyers go there on purpose rather than just to look at the range of goods.
It is expected that the forth quarter of this year will show a significant income since home appliances and electronics retailers have marked seasonality. At the same time, a director for the Epicenter K company's home appliances, Oleksandr Velychko, draws attention to the fact that new waves of the pandemic and new quarantine restrictions may make their own adjustments.
Besides, retailers note that the increased demand for specific goods leads to their deficit and the rise of average selling price. In addition, the increased costs for logistics are obvious, shipping from Asia, in particular. This factor affects prices and the dates for delivery, complicates planning of the procurement volume, and makes retailers refocus the assortment on European and local production.
Online & Offline
Online sales have predictably declined after easing restrictions and stores' return to their normal work schedule. However, this channel's share is bigger than before the pandemic. For example, online sales have increased by 50%-55% in Comfy during the quarantine. Specific categories of goods even reached the increase by 60%-70%.
Foxtrot features the same stats: 60%-70% of all sales were through the Internet in specific periods of lockdown. The network's share of home appliances and electronics e-commerce has doubled, growing from 10.2% to 25% within several months in 2020. The ALLO network online sales were 69% during severe quarantine. Still, its average share was 30%-34%. In comparison, its online sales' percentage was 20% in 2018.
In the Eldorado chain note that Pick Up sales (online ordering and getting the order in the delivery point) have increased by 100% in total trade turnover.
Epicenter K has a smaller share of the Internet-channel compared to other players: it reached 12% in the home appliances sector in 2021. However, the operator notes that online-sales have doubled in this category every year for the past three years.
Of course, the growth of online sales makes retailers pay more attention to omnichannel strategies and delivery services. For example, Eldorado has already provided the same day delivery, and most stores feature stable online order releases to reduce the buyer's way, accelerate verification, payment, and getting the goods. The Epicenter K company opened a new automated fulfillment-center Kalynivka to serve clients. Once more warehouse to provide supply of goods across the Kyiv region is working.
However, neither online sales nor the pandemic made companies reduce their stores' spaces. Rather, on the contrary. For instance, an average commercial space has been increased in Eldorado, having an area of 800 sq. m now. In the current year, the company has already opened two large stores in TEC. Besides, it will hold a large-scale reconstruction of the store in Kyiv TEC Ocean Plaza and several locations in street-retail.
In turn, Comfy plans to open over ten stores of various formats in Kyiv, Kharkiv, Kryvyi Rih, and Bucha (Kyiv region) for several months. ALLO is also developing. The company increases its presence in metropolises, regional centers, and small towns.
The topic of spaces' reduction has never been on Foxtrot's agenda. On the contrary, the company moves according to its development strategy, as Oleksiy Zozulia notes. Stores openings in TEC across the country are its priorities. For example, launches in Respublika Park in Kyiv, TEC Planeta Mall in Kharkiv, and others are in short-range plans. At the same time, the synergy of online and offline channels is crucial for operator. “We’ve all found out that businesses are stronger when they have equal online and offline presences. Thats' why, we increase digital commerce and don't stop developing offline retail,” Oleksiy Zozulia comments.