Hello.
December already allows us to draw a line and consider the main events that have taken place on the Russian market. Today we will focus on the smartphone market, see how it has changed, who has won in the current conditions, and who has lost. I’ll start with a statement that hasn’t changed in any way over the past 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 a completely different figure might have been expected, negative expectations constantly accompanied us 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 happened, but it does not look catastrophic. The average price of a smartphone sold has grown to 22,000 rubles, which is 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 shipments, gradually removed its employees, and as a result, the office was physically closed. Samsung did not close the office, moreover, they continue to hire people, but they do not supply goods to the Russian market, they took a wait-and-see attitude. With the permission of the Russian government, parallel imports opened in the spring, as a result, those brands that do not officially supply their goods were allowed to be imported. And it completely changed the landscape of the market. The distribution model that had been built for many years stopped working. Now anyone might become a supplier of goods from Apple or Samsung, which many companies took advantage of. Large distributors had to resist small companies that aggressively behaved in the market.
The weakening of control, the lack of checks led to the activation of the gray market, offers of the same iPhone or Samsung appeared at low prices, at least 25% lower than the official retail, in such conditions, the choice of buyers became obvious. The size of the gray market for brands not represented in Russia has become huge, for example, for Apple products it is regarding half of all sales. The civilized market of previous years disappeared in a matter of months, dealers of gray devices reappeared, and there are many of them. Due to this, there was an explosive growth of such a platform as Avito, it 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 the lack of money, but rather to a different consumption paradigm. Now the device is purchased for a longer period, the life cycle of a smartphone in Russia is already 4.5 years and continues to grow. The brand fades into the background, it is important to choose the right price / quality ratio, remove your risks. Therefore, Apple’s sales fell in unit terms by almost four times: the blocking of Apple Pay, the inability to put bank applications under sanctions, the absence of paid applications in the App Store – all this creates the same risks for consumers. Buying expensive, or rather, the most expensive smartphones turns into a lottery, and people do not want to participate in it. This trend will continue into 2023, with the transition from iOS to Android gaining momentum. As old iPhones become obsolete, we see a switch to Android, and there is also a noticeable audience of those who have purchased a second Android smartphone in order to get used to the system and customize it for themselves.
The global crisis is hitting the sales of flagships, the Russian situation is not very different from the world, so not only Apple sales, but also Samsung suffer. 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 were largely built on working with retail chains, attracting financial instruments (loans and installments), and marketing activity. When all this disappeared, sales began to fall. The new flagships of the company came out already without support, and it suddenly turned out that their direct competitors, who are officially supplied, compete with them. The same Huawei Mate Xs2 is officially sold in Russia, and despite the high cost (it is more expensive than the gray Fold4), it has excellent sales in MVideo – the match between the 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 both 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 for many years the company has been on the buzz, it has become a priority choice for many. Xiaomi has both inexpensive 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 hit the ceiling.
The newcomer that adopted Xiaomi’s strategy in years past was realme, the company aggressively ramped up sales in 2022, didn’t stop deliveries like others, and expanded its product range. Ultimately, this turns into an increase in 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 finest hour comes exactly in 2022. The strategy is exactly the same as that of realme – to give the buyer a good price / quality ratio. A price war between Chinese brands begins.
The growth of Tecno can be called stunning, in half a year the company goes through a path that takes many years for others. Unlike the same realme and Xiaomi, Tecno is betting not only on the product, but also on its aggressive promotion, which is bearing fruit. Today it is the number three brand in Russia, in 2023 they will definitely take the second position in sales. The expansion of the line is not only due to models of the same price segment, the company presents flagships that are unusual for such a manufacturer.
Tecno works with retail chains and makes great efforts to promote the product on the store shelves in a quality manner. This is largely the result, but the team is quite small, it grows following the success in sales. The question is how much it will be possible to maintain growth, 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, as they feared sanctions. Exactly the same was done in Honor. As a result, both brands woke up only at the moment when they saw that their market had gone to direct competitors, since the end of August they have been trying to actively increase their share. But smartphones from Huawei and Honor are quite expensive, mid-segment models sell well, which are put on sale by federal networks along with campaigns. The systematic approach of these companies is good, but the question here is in the perception of the product, the consumer is looking for interesting offers and finds them from other companies.
Make no mistake, changes in consumer behavior are 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 society experiences a trauma, sales abruptly freeze 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 spend money as they need to replace their smartphone, they do not wait for big holidays for this.
In 2023, sales can be expected to 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 brands can only be expected in one case – if Samsung returns, the company will resume deliveries. Samsung’s marketing machine will be able to quickly eat away market share – regain a share of 20-25% in unit terms (from 12% today). Here you need to understand that the low share today is also associated with the fears of large distributors that Samsung will return, no one wants to invest in a product that may turn out to be toxic for the manufacturer itself in a short time. Hence the small, 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 be noticeable (I do not take into account the model range). The share will be kept at the maximum level. It is also worth noting that in 2023 the gray market will remain high for a number of brands.
The bottom line is that the smartphone market is experiencing this crisis in Russia quite 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.