Hello.
December already allows us to draw a line and consider the main events that took place on the Russian market. Today we will focus on the smartphone market, see how it has changed, who won in the current conditions and who lost. I’ll start with a statement that hasn’t changed in the last year: the Russian market is the largest in Europe. In 2021 the market size in unit terms amounted to 32.5 million smartphones, by the end of 2022 it will be 26.5 million units. The market fell by almost 20%, although we could have expected a completely different figure, negative expectations have accompanied us constantly throughout the year. We can say that this crisis for the Russian electronics market is going according to a relatively mild scenario, the fall has occurred, but it does not look catastrophic. The average price of a smartphone sold has risen to 22,000 rubles – a record for the Russian market.
The departure of a number of Western brands from Russia can be considered the main event of the year without any discounts. For example, in March, Apple stopped shipping, phased out its employees, and as a result, the office was physically closed. Samsung has not closed the office, moreover, they continue to hire people, but they do not supply the Russian market with goods, they have taken a wait-and-see attitude. With the permission of the Russian government, parallel imports were opened in the spring, as a result, those brands that do not officially supply their products were allowed to import. And it has completely changed the landscape of the market. The distribution model that had been built for many years has stopped working. Now anyone could become a supplier of Apple or Samsung products, which many companies have taken advantage of. The large distributors had to stand up to the small companies that behaved aggressively in the market.
The weakening of control, the lack of control led to the activation of the gray market, offers from the same iPhone or Samsung appeared at low prices, at least 25% lower than in official retail, in such conditions the choice of buyers has become obvious . The size of the gray market for brands not represented in Russia has become enormous – for example, for Apple products it is about half of all sales. The civilized market of previous years disappeared in a matter of months, dealers of gray devices reappeared, and there are a lot of them. Thanks to this, there has been an explosive growth of such a platform as Avito, which has become a key player in the sale of not only used, but also new devices.
The buyer has changed and become rational, and this is not due to lack of money, but rather to a different consumption paradigm. Now the device is being bought for a longer period, the life cycle of a smartphone in Russia is already 4.5 years and is still growing. The brand takes a back seat, it is important to choose the right quality/price ratio, to keep the risks away. Thus, Apple’s sales have decreased in unit terms by almost four times: the blocking of Apple Pay, the impossibility of sanctioning banking applications, the absence of paid applications in the App Store – all this creates the same risks for customers. Buying expensive smartphones, or rather, the most expensive smartphones turns into a lottery, and people don’t want to participate in it. This trend will continue in 2023, with the transition from iOS to Android gaining momentum. As older iPhones become obsolete, we see the transition to Android, and there is also a significant audience of those who have bought a second Android smartphone to get used to the system and customize it for themselves.
The global crisis is affecting flagship sales, the Russian situation is not very different from the world, so not only Apple sales, but also Samsung are affected. The company’s share fell to its lowest level in many years, and the undisputed leader of the last decade suddenly found itself in the lead. The reason is also to be found in the fact that Samsung’s sales have been largely built on collaboration with retail chains, on the attraction of financial instruments (loans and installments) and on marketing activity. When all this disappeared, sales began to decline. The company’s new flagships came out already without support, and suddenly it turned out that their direct competitors, which are officially replenished, are competing with them. The Huawei Mate Xs2 itself is officially sold in Russia and, despite its high cost (it is more expensive than the gray Fold4), it has excellent sales in MVideo: the match between audience and demand is perfect.
It is impossible to achieve successful sales in Russia without focusing on retail and distributors. As soon as we move to a parallel market or gray sales, it turns out that the product should sell itself. And with the external similarity of many characteristics, the consumer cannot choose, he focuses on those products that have a guarantee and support. The example of Apple and Samsung is good because strong brands with huge marketing budgets very quickly lost market share in Russia and found themselves out of work.
Chinese companies win, so Xiaomi immediately becomes number one. The reason is that the company has been in turmoil for many years, it has become a priority choice for many. Xiaomi has both budget smartphones and flagships, the latter do not sell very well, but the main thing is that they are. By the end of the year, Xiaomi’s share exceeds 40% in unit terms, and there is a certain shortage of goods, the company has reached the ceiling.
The newcomer who has adopted Xiaomi’s strategy in the past years has been realme, the company has aggressively increased sales in 2022, has not stopped deliveries like others and has expanded its product range. Eventually, this results in increased sales, but they are held back by the emergence of another player: Tecno. The newcomer is not so new, the company has been present in Russia for five years, but the most beautiful moment comes exactly in 2022. The strategy is exactly the same as realme – to offer the buyer good value for money. A price war begins between Chinese brands.
Tecno’s growth can be described as stunning, in six months the company completes a journey that for others takes many years. Unlike realme itself and Xiaomi, Tecno is betting not only on the product, but also on its aggressive promotion, which is paying off. Today it is the number three brand in Russia, in 2023 they will certainly take the second position in sales. The expansion of the line is due not only to models of the same price range, the company presents flagships that are unusual for such a manufacturer.
Tecno works with large-scale distribution chains and is committed to promoting the product on store shelves in a qualitative way. This is largely the result, but the team is quite small, growing on successful sales. The question is how much growth can be maintained, whether there will be a shortage of devices, and so on. So far, Tecno can be called the discovery of the year.
Huawei’s position turned out to be very restrained, the company was afraid to ship goods to Russia, fearing sanctions. Exactly the same was done in honor. As a result, both brands woke up only the moment they saw that their market had gone to direct competitors, since the end of August they have been actively trying to increase their share. But smartphones from Huawei and Honor are quite expensive, mid-range models are selling well, which are put on sale by federal networks together with advertising campaigns. The systematic approach of these companies is good, but the point here is in the perception of the product, the consumer is looking for interesting offers and finds them from other companies.
Make no mistake, the changes in consumer behavior are being dictated by the global crisis and its reflection in the Russian refraction. We see a direct dependence of sales on external factors, for example, when a partial mobilization is announced, the company experiences a trauma, sales freeze sharply for a couple of weeks and gradually return. Such shocks will occur frequently, they can be called negative seasonality and it is impossible to predict them. Seasonality itself has stepped aside, its influence is leveled by political events, people are spending money because they need to replace their smartphone, they are not waiting for big holidays for this.
In 2023, sales should remain at the same level – 26.5 million smartphones and a slight increase in the average cost (23-24 thousand rubles in retail sales). Strong changes in branding can only be expected in one case: if Samsung returns, the company will resume deliveries. Samsung’s marketing machine will be able to rapidly erode market share, regaining a 20-25% share in unit terms (from 12% today). Here we must understand that the low share today is also associated with the fears of large distributors that Samsung will come back, nobody wants to invest in a product that could prove toxic to the manufacturer itself in a short time. Hence the small and discreet deliveries.
At Xiaomi, we are witnessing a global crisis, the company is in a fever, but in Russia in 2023 this is unlikely to notice (I don’t take into account the model range). The quota will be kept at the maximum level. It is also worth noting that the gray market will remain elevated for a number of brands into 2023.
The bottom line is that the smartphone market in Russia is experiencing this crisis calmly, but the changes in brands and consumer behavior are very serious, they completely change the picture of this market.
In separate materials, we will consider what is happening in other segments, with retail chains, operators and so on.
