In 2020, the main event affecting both individual sectors and economic regions was the COVID-19 pandemic. The consumer electronics (CE) market was no exception and underwent a major transformation during the year amid new conditions for doing business and, of course, changes in the customary way of life for most of the world’s population.
The pandemic accelerated numerous existing trends by several years and set the stage for new ones that will affect how the CE market develops in the near future and the medium term. One example of this is people working and studying from home, as numerous companies and employees became accustomed to the new normal of a completely remote or hybrid work format. As a result, the accelerated transition to an online lifestyle led to higher demand not only for equipment to create work and study spaces at home but also for products that people specifically need to be comfortable during their extended stay at home. As quarantine restrictions were imposed, people began to pay more attention to their living conditions and, as such, were more willing to invest in their own comfort, for example, by buying higher-quality durable equipment.
Consumers are increasingly shopping online, which boosted the share of online commerce in the CE segment to 40% of total market value in 2020. The effect of all these structural changes will persist for years to come and contribute to the further transformation of not only the CE market but also the entire retail sector.
Russia is one of the largest and fastest-growing consumer electronics markets in the world. GfK has estimated it at more than USD 25 billion, making it one of the 10 largest markets globally.
The market of consumer electronics and home appliances grew steadily in 2020. According to GfK, it expanded by 22% year-on-year in value terms and 1% year-on-year in volume terms. Over the past five years, its average annual growth rate in ruble-equivalent value terms was 10%.
All segments experienced double-digit growth. However, the pandemic and self-isolation measures altered shopping behavior and, consequently, the breakdown of consumer demand. While over the last few years the fastest-growing segment was telecom products, during self-isolation and the transition to remote working, demand also soared in major home electrical appliances (+29% in value terms), IT/office equipment (+28%) and small home appliances (+27%). Notably, premium goods primarily accounted for the greater demand for the main categories of consumer electronics.
Self-isolation and quarantine restrictions accelerated the transition of retailers to online shopping. According to GfK, during the first weeks of quarantine, online sales soared to 60%–70% of total CE market turnover and remained at 40% even after the main restrictions were lifted, well above pre-pandemic levels. This shows that the Russian CE market has made a structural leap in the transition to online shopping.
According to GfK, in recent years, telecom products have been the main driver of the CE market. However, as quarantine restrictions were imposed, shoppers shifted their focus to products needed for working from home.
Nevertheless, the segment continued to grow steadily in value terms, by 17% year-on-year, despite a 7% decline in commercial product units sold.
Within this segment, smartphones remain the top-selling product. However, they have now become fairly common in the Russian market, so most sales now are due to consumers replacing old models with new ones. While Apple and Samsung remain the market leaders, Chinese brands continue to expand into the market, offering devices that perform well at lower prices.
Following global trends, the IT and office equipment segment of the Russian market has shrunk in recent years due to market saturation and competition from telecom products. However, demand for laptops spiked in 2020, as employees self-isolated and transitioned to working from home. According to GfK, over the year, the segment expanded by 28% in value terms and 5% in volume terms.
Sales in the segment were bolstered primarily by the need to update or replace devices that have become unserviceable. In addition, the replacement of computers with smartphones, which are able to handle most of the average user’s needs, had a noticeable impact. Despite this, demand for laptops surged in 2020 (+53% year-on-year in value terms) as people began working remotely.
In 2020, demand for major home appliances soared as a result of people self-isolating amid quarantine restrictions. Over the year, the segment expanded by 29% in value terms and 20% in volume terms. Another reason for the greater demand was the ruble’s depreciation in early 2020, as consumers moved to make purchases before prices increased.
The Russian electronics market has a low degree of penetration—around 30%—the level of households and per capita spending, in the conventional categories of major and small home appliances, such as microwaves and dishwashers, as well as new products and solutions, such as built-in top ranges, air conditioners and dishwashers. As such, these products are expected to remain in stable demand in the foreseeable future, while their share of all major home appliances will increase.
The small home appliances segment saw the third highest growth in the market in 2020, as sales rose by 27% in value terms and 11% in volume terms. Driving the increase were new and innovative products such as handheld and robot vacuum cleaners, hot drink machines and dental care devices.
In the foreseeable future, the market is poised to see further growth in sales of products for personal hygiene, personal care and healthy lifestyles.
GfK has reported that, in 2020, the consumer electronics and photography equipment segment expanded by 14% in value terms and 11% in volume terms. Flat-screen TVs accounted for the overwhelming share of sales in this category, at almost 80%.
4K technology is gradually gaining in popularity, partly due to lower prices for devices with 4K functions. In addition, there has been increasing demand for virtual assistant technology, making smart speakers with voice assistant functions one of the fastest-growing product groups in the segment in 2020.
In 2020, the share of digital cameras in the value of sales continued the downward trend seen in recent years. For the year, digital cameras accounted for 3% of total consumer electronics / photography sales by value, mainly due to the high quality of photos taken on mobile phones.
Demand for game consoles remains stable: this product’s share of sales has been unchanged at 6% in value terms over the past three years.
The most obvious trend caused by the restrictions due to COVID-19 was growth in online sales. Within the first few days of isolation, numerous omnichannel market players managed to adapt to the new conditions and began focusing on online sales. Retailers that had devoted significant attention to this before the pandemic gained a competitive edge. As a result of the restrictions, GfK estimates that the share of online sales reached 60%–70% in the first weeks when people began self-isolating. More importantly, though, even after the strictest restrictions were lifted, the share of online sales remained around 40%, well above the 25%–30% seen in early 2020, before the pandemic.
This phenomenon can be attributed to cultural differences, the wide availability of traditional stores and consumer caution about credit card purchases. The Russian market ranks third (behind only the US and UK). GfK has reported that, in 2020, online sales amounted to 40% of overall market turnover in Russia.
The Russian market for CE products has significant potential for growth in both traditional subsegments and those offering innovative products. GfK has forecast average annual market growth for 2020–2025 of 5.6%, the second highest after Brazil.
Further growth in Russia’s CE market will continue to be driven by the low penetration of goods in household expenses as compared with peers.
Russia’s CE market has a high propensity for innovation and will largely continue to develop thanks to growth in new product categories. While categories such as gaming devices, drones and smart homes currently have a small market share, they are expanding rapidly and outpacing average market growth rates.
GfK has forecast the share of online sales in Russia at 60% by 2025. The global trend of further developing marketplaces will also be evident in the country. However, given the complexity of the consumer electronics categories and the need to view a product range before making a purchase, as well as receive additional expert advice and maintenance, the share of specialized chains that combine online and offline sales will also surge.