Exploring the Russian DIY market

Kingfisher, the British parent of European home improvement chains B&Q and Castorama, has stepped up its entrance into Russia, hoping to tap its estimated $20.3 billion DIY market.

Kingfisher already has four Castorama stores in the country -- two in St. Petersburg, one in Samara and the most recently opened location in Moscow. Kingfisher plans to open 50 more stores in Russia under the “Castorama” banner over the next 10 years, and is pursuing a goal of “market leadership” in the country.

Of the rapidly developing countries known in the finance world as BRICS (Brazil, Russia, India, China and South Africa), Russia is one of the more unexplored by retail chains and other Western business interests, according to experts in the area.

Daniel McCarthy serves as professor of global management and innovation with a specialization in the Russian market at the Northeastern University College of Business Administration in Boston. His colleague, Sheila Puffer, is a professor of international business and a fellow at Harvard University’s Davis Center for Russian Studies.

“Private ownership has been very recent in Russia,” Puffer explained. “Their mortgage loans are now becoming more well-known. This had been a cash-based society for a long time.”

“The amount of new homes in the outskirts of Russia is just really taking off,” McCarthy continued. “This was once really a two-class society, where the very wealthy had their homes, and those were very opulent homes. Now a growing middle class is driving home ownership.”

The climate is open to a growing retail presence, particularly in the DIY arena they said, because of a combination of rising home ownership rates and rising disposable income. In 2007, real wages were up 16 percent year-over-year, Puffer noted, and real disposable income rose 12.5 percent year-over-year

But what do Western business leaders really know about the prospects in Russia? According to a study published June 17 in the Moscow Times, some misconceptions and trepidation persist.

The study, produced by international research firm Datamonitor, surveyed 800 senior executives of companies in the United States, Great Britain, France and Germany. Surveyors asked general knowledge questions, as well as opinions on business prospects in the BRICS nations.

Fourteen percent of those surveyed said they believed Russia’s chief export was vodka (it’s oil). Sixty-five percent of respondents could not name the currency used in the country (the ruble).

Kingfisher estimates the size of the Russian home improvement retail market to be at 10 billion pounds ($20.3 billion). The company has “heavily adapted” its four Russian stores to their local markets, focusing on the “heavier” end of DIY sales -- electrical products, flooring, tiling, building materials, heating equipment and other major home renovation items.

Such big ticket items, sales of which have notably fallen off in the U.S. market over the past year, make sense in the Russian market, where individuals traditionally are self-reliant when it comes to their homes.

“People are very resourceful, even in spite of a sometimes underdeveloped infrastructure that has not been able to keep up with the growth of new homes,” Puffer said. “Overall, Russians are great at dealing with shortages. They’re used to doing their own painting in their homes and their own home improvement projects.”