Like the hybrid business model that combines online and offline shopping experiences, the Group’s strategy is based on customers’ needs and aims to increase market share and create competitive advantages by meeting the changing needs of consumers at all stages of interaction: we help consumers to discover, select, purchase and choose their preferred fulfilment option.
We intend to scale up these advantages and maximize the efficiency of OneRetail technologies at each stage of the customer journey, as we move toward three key overarching objectives, each of which has its own strategic initiatives.
As part of our goal of doubling the size of the business, we are harnessing the Group’s key competitive advantages: advanced technology, effective logistics, famous brands and engaged people.
We are committed to creating an environment for our customers that fulfills any requirement for household appliances and electronics. This means providing access to the widest range of technology and innovative products, as well as offering quality consultation support and the ability to choose an optimal solution. In doing so, we increase customer loyalty, reduce the risk of losing customers to competitors and strengthen the perception of our brands as the touchpoint for meeting any consumer electronics needs.
The Group’s key goal in this regard is to more than triple the product range from 75,000 SKUs at the end of 2020 to around 250,000 SKUs in the medium term. We plan to achieve this by developing our endless shelf (selling goods from warehouses of accredited suppliers through the Group and on its terms and conditions), as well as our own marketplace specializing in CE (see “Further development of partnerships with suppliers”).
As technology expands further into people’s lives, innovative and premium products, such as smart home devices and solutions, speakers with virtual assistants, healthcare wearables and home robotic appliances, are becoming an increasingly important driver of our market. In 2020, in the midst of the pandemic, demand increased sevenfold in volume terms for smart home products and fourfold for smart speakers. We are aiming to increase the share of premium and innovative products in our assortment from 21% in 2020 to 27% in the medium term. Since innovative products are increasingly complex, one of the Group’s key competitive advantages is our extensive ability to provide expert support to customers through consultations, both online and in stores.
The ability to quickly navigate a wide range of information, appliances and technology is becoming an increasingly difficult task, even for the most sophisticated customers. We are developing our mobile platform to make the OneRetail journey as efficient and valuable as possible for everyone. For us, the core elements of the customer experience are the customer mobile app and the sales consultant app, which can replace or supplement the customer app for store visitors ( see “Unique customer experience through seamless integration of online and offline channels” ). Our strategic goal is to expand the reach of the sales consultant app to the Group’s entire retail network in the medium term , rolling it out at both new M.video stores and all existing and new Eldorado stores. Simultaneously, in response to new customer needs, we are continuing to improve the functionality of both applications, enhancing personalization of the service, increasing the speed and accuracy of product searches and expanding the ability to use smartphones in stores.
Support from sales consultants enables customers to make better decisions more quickly. Customers also appreciate being able to choose an item with an expert, which increases their psychological comfort when making expensive purchases. As a result, the average ticket and number of items per order for purchases made with the help of a consultant significantly exceed the corresponding indicators for individual purchases. The Group is aiming to increase the number of purchases made annually with the help of consultations to 16 million in the medium term, up from 8.7 million in 2020. To this end, we are developing digital customer support services, such as digitally assisted consultations, a web chat, telephone consultations and in-person store consultations, all of which we launched successfully in 2020. We are also launching new user-friendly services, including smart chatbots.
We believe the mobile platform is our most flexible and powerful tool for creating the best shopping experience. To this end, the Group will seek to encourage more customers to use the customer and sales consultant mobile apps at all points of purchase. Working towards this overarching goal will help us to continue increasing customer loyalty while maintaining sales efficiency.
AI-powered tools will become the foundation of the Group’s personalized marketing and assortment management. Machine learning and data analysis algorithms enable us to create tailored offers for OneRetail customers1 that take into account shoppers’ history of interaction with our brands. Customers can then receive offers for products and accessories of interest, as well as attractive prices that reflect individual discounts and accumulated bonus points. As a result, we expect shifting sales to the mobile platform could increase conversion rates by 0.35–0.5 p.p. as well as support sales margins.
The Group aims to increase the share of purchases made through the OneRetail platform (purchases by identified users through customer and consultant mobile apps and websites) from 42% in 2020 to over 85% in the medium term . As of the end of 2020, the number of active identified customers had grown to 18.7 million,2 of which 42% were OneRetail customers. During the year, the overall number of OneRetail customers increased by almost 79%.
Using the OneRetail platform, we aim to unify all points of purchase in an environment centered around the single basket. This service will enable our customers to freely add to and continue to update their baskets from any touchpoint with us, both online or offline. The introduction of the single basket is critical to creating a seamless online and offline experience, while increasing customer satisfaction and customers’ desire to make purchases using the OneRetail platform.
The payment stage is one of the most important components of the customer journey. For that reason, we are committed to providing customers with various and convenient ways to pay for and finance a purchase, regardless of where they are located or how they prefer to pay. Just like with the app or website, most in-store transactions are done online and are contactless. People can pay for a purchase in-store without going to the checkout counter by simply using their smartphones to visit a payment link provided by a sales consultant. We provide our customers with the opportunity to pay for items on credit by filling out loan applications online or offline. The Group has plans to provide a service of preapproved credit limits or installments for identified customers and also launch virtual credit cards, instant credit accounts and other innovative options.
The speed and timeliness of order fulfillment determines how competitive retailers are and which ones customers choose. We believe it is a key advantage for the Group to have an extensive retail network that is fully integrated with its online platform. Our infrastructure already enables us to ensure that in most Russian cities, 34% of orders are ready within 15 minutes for pickup from a store after they are placed online. The Group also intends to provide customers with a wide range of delivery or pickup options to ensure even greater comfort and an overall high level of satisfaction with their purchases.
As of the start of 2021, the Group could provide around 60% of the Russian population with delivery within 24 hours from the moment their orders were placed, which is something that no other Russian online retailers can do. We are planning to substantially increase our network’s reach by developing our presence in regions outside Moscow and St. Petersburg. The Group is aiming to open over 500 new stores in more than 100 new cities in the medium term (in addition to the 279 cities where we were already operating as of December 31, 2020), thereby increasing its ability to deliver goods within 24 hours to more than 70% of the Russian population. The store network will mainly expand as a result of small-format Eldorado 250 stores, which already proved effective in 2020.
In terms of developing the logistics platform, the Group’s main goal is to increase the share of orders ready for pickup within 15 minutes after being placed from 34% of GMV at the end of 2020 to more than 50% in the medium term. Inventory management efficiency needs to be significantly improved to achieve this goal. To this end, we are paying greater attention to digital logistics technologies, including AI-powered solutions. As of the end of 2020, demand forecasting algorithms covered about 50% of the Group’s product range. Further expanding their use will substantially increase the accuracy of stock placement. In addition, we use AI technologies to better use warehouse space, which also improves the efficiency of all logistics.
The last mile of the customer experience is a crucial part of our strategy. To further enhance our customers’ delivery experience, we plan to increase the number of pickup points via new partnerships to more than 100,000 in the medium term from 55,000 as of the beginning of 2021 .
In 2020, we launched a delivery service for digital and home appliances weighing up to 20 kg in partnership with taxi aggregator services, and we have made good progress with the project. We continue to develop all types of courier services in line with our strategy, with a particular emphasis on eco-friendly delivery methods such as couriers on foot or bicycle. We are also planning to actively invest in developing a courier application that can track orders in real time, has a chat function and offers the option of adjusting orders.
In an effort to speed up the introduction of technological solutions (time to market), we are developing an approach powered by microservice and agile product teams. Priority areas for the expansion of technological systems include:
We believe the Group’s further digital transformation as a tech company is a key strategic objective. To this end, we plan to expand our IT team and in-house capabilities to create high-quality tech products and solutions. Our strategy calls for increasing the number of our tech personnel from 487 employees at the end of 2020 to more than 1,000 employees by the end of 2021. The share of in-house developments in the Group’s total spending on software development is set to increase to 53% by the end of 2021. We are also continuing to scale up our product approach, which includes building agile product teams responsible for the continuous development of key IT products.
Alongside the goal of doubling the size of our business and our strategic overarching objectives, we have established a number of KPIs that enable us to more accurately assess the success of our strategy.
The Group plans to increase the number of loyal active customers from 19 million to 25 million, partly by boosting the share of OneRetail customers from 42% to more than 85% in the medium term. We believe that the further transformation of our business and the dynamic development of the mobile platform will enable us to boost the share of total online sales to more than 85% of GMV (60% in 2020) and the share of sales through the mobile platform to 60% of GMV (31%). We also intend to increase the proportion of orders available within 15 minutes after being placed from 34% of GMV in 2020 to more than 50% of GMV.
The Group firmly believes that these operational goals must be achieved in conjunction with strong financial results and strong financial discipline. We expect our EBITDA margin to remain in the historical range of 5%–7%. We plan to maintain a comfortable debt profile, with an IAS 17–based net debt / IAS 17–based EBITDA ratio of less than 2.0x, and we do not intend to increase CAPEX to more than 2% of GMV annually.
In addition to its financial goals, the Group has adopted a new dividend policy that calls for the allocation of at least 100% of its IAS 17–based net profit for dividend payment.
Sustainable development is an integral part of the Group’s strategy. We recognize our responsibility to society and aim to attain leading positions in sustainable development by promoting social and environmental responsibility through everything we do.
Our approach in this regard is becoming more organized and structured, as reflected in both the public’s recognition of our social and environmental initiatives and our adoption of new and even more ambitious challenges and obligations. In early 2021, the Group approved a sustainability strategy that identifies key priorities and focuses for development: our Planet, People and Communities, Customers and technologies. The Group has also prioritized the UN Sustainable Development Goals to which it will make significant and tangible contributions for the global sustainable development agenda (see “Sustainability Strategy,” page 143).