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Evolving Russian vehicle market will reshape aftermarket sales

Monday, August 28, 2017 - 07:00
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Regional distributers are situated in the major metropolitan areas of Moscow, St. Petersburg and Kaliningrad. The largest in this group or regional players would be Avtopasker. It specializes in Russian-made vehicle parts and its locations are clustered within 400 miles of Moscow.

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What is fast becoming the most important distribution segment in Russia is really an amalgam of the wholesale distributor channel with the e-tailing channel. These distributors, both independent and members of European buying groups, rely on e-tailing to cover the great variety of vehicles in Russia, though many are in low volumes. However, their physical locations are serving installer shops as a two-step distribution system.

Among the larger players in this segment are Exist.Ru, primarily a web-oriented distributor, but one with more than 350 locations from St. Petersburg in the west to Vladivostok in the east. Also of note is AD Russia, which is part of Belgium’s AutoDistribution International. AD-Russia operates seven distinct business entities in 37 separate cities around the country, each carrying the “AD” banner.

France-based Groupauto partnered with Rossko to cover the Russian market. They stock around 70,000 unique SKUs and distribute to more than 7,000 installer shops, retailers and company stores. One major player in the Russian aftermarket is a Minsk-based company. Shate-Em takes advantage of a customs-free border between Russia and Belarus and has become a major supplier into the Russian market.

Challenging economic conditions may currently be having an adverse impact on the Russian aftermarket, but that shouldn’t be the only caveat to take into consideration when exploring market opportunities there. The Russian Federation has been fighting intellectual property abuses for more than two decades. Automotive parts and accessories are notorious for being counterfeited in Russia. For those taking their vehicles to authorized dealers or service networks, this is less of a concern, but still a concern.

At the DIY level, it’s often hard to tell what you’re buying. But many manufacturers are finding innovative ways to make sure consumers can identify the authentic products. These methods include educating installers about the parts, social media campaigns and traditional advertising methods.

Efforts to establish a sales channel may also be fraught with peril. One U.S.-based manufacturer, who asked to remain anonymous, had a harrowing experience a few years ago. After working with several small importers in the Russian market, one customer informed the company that they had registered their trademarks and copied their website. Their demand was exclusivity as the manufacturer’s partner in Russia. Fortunately, the manufacturer hired attorneys to successfully secure their trademarks, and the customer soon lost interest. Today, this company does about $5 million to $10 million in sales inside of Russia, but they are always careful to understand who they're dealing with.

Manufacturers looking to develop their brands in Russia should be mindful of the usual caveats of export sales. First and foremost, know your customers. Referrals are usually best, but when developing an account that arrived out of the blue, it’s best to double check their credentials.

Secondly, it’s important to secure payments when dealing with Russia. While most sales are conducted using secure banking methods, there are suppliers who grant credit terms. This should be done warily, and only with customers with whom there is experience.

Another complication when dealing with Russia is the fact that they are under U.S. sanctions. This prohibition would apply only “dual use” materials that could conceivably be used on energy exploration equipment. However, it should be noted that almost anything destined for Crimea, would require a U.S. export license.

Russia is no longer a vast, untamed wilderness for auto parts suppliers. There are definite market opportunities that can be taken advantage of today. For those who take the longer-term view, the market has enormous potential as vehicle ownership becomes more ubiquitous and affordable to the masses. Social and political risk factors can be anticipated, but the largest restraint to growth will be economic growth. Once growth rebounds to 2013-2014 levels, both new vehicle sales and aftermarket sales should increase commensurately.

Partnering in Russia also can be tricky, but it’s not impossible. Access to the market through European buying groups is possible, and there also are many well-established distributors in the market to work with. By employing due diligence and common sense, you can avoid the fate of a Solzhenitsyn character and have a pleasant experience in Russia.

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