Russian Toy Retailer Shrinks its Stores in Regional Expansion Plan

While Toys R Us, one of the largest toy retailers in the US and Western Europe has been forced into receivership, Detsky Mir, a similar company in Russia has been reported to be quietly reinventing its business. In line with its new vision, Detsky Mir has recently launched a more compact store format as part of its strategy to meet the current market demands. This new business structure will enable the company to expand its geographical coverage to new areas in view of increasing sales and to sustain its large-scale operations.

In its description, Detsky Mir has referred to the new format as a “super mall,” the new outlets occupy spaces ranging from 600sqm to 800 sq. m, with each outlet featuring about 5,000 product lines. In comparison, the previous Detsky Mir store occupied about 1,400 sq. m and it featured about 15,000 products. While this may seem large, it cannot be compared to the company’s e-commerce platform which features as much as 40,000 products.

Coping with the reduction in display space, the company is optimistic that the super small outlets will deliver scaled down receipts. In regular stores, the typical receipts are usually US$30. However, the smaller stores are expected to yield an average of about US$15 in receipts.

The lower value of expected receipts is due to the changes in the business structure. The new Detsky Mir stores will not feature big-ticket products such as prams, bikes, and junior furniture, which are commonly relied on to increase sales in larger outlets. The shopper will be able to order such big-ticket items online and pick up at the smaller stores. This O2O offering is one of the added benefits of extending the brands geographical coverage.

 Overall, the main idea behind scaling down the toy shops is to reach the Russian customers residing in remote areas, which constitute a market that has been neglected by a majority of the country’s bigger retail brands. This is an idea that will promote the establishment of super small shops in the satellite and suburban areas surrounding the bigger cities in Russia, as well as in many of the country’s less populous urban districts, such as cities with fewer than 20,000 residents. The different proposed sites are at locations where the local customers have a high purchasing power.
The target customers for these new super malls are young parents between the age of 20-30 years who have one or two children aged three years or younger and a monthly household income of about $700. The secondary market targets are parents aged between 25-40 years with two children aged below 14 years and a monthly income of $1,100. The marketing strategy is aimed at securing the patronage of this group of target customers in a market that is already very competitive.

While the company has apparently set out in a trailblazing approach, Detsky Mir is not the only Russian toy retailers that have reviewed its business plan to scale down its stores. Last year, Dochki Synochki, Detsky Mir’s major competitor launched five smaller outlets, with one in Moscow and the other located in the Nizhny Novgorod region, which is about 350 km from the capital and home to some major manufacturing businesses.

Reports from the industry analysts have supported the new strategies of these two companies to reduce the average floor space of their outlets. Moreover, these stores have a higher per sq. m yield than other competition with bigger retail shops. By increasing the number of O2O pickup points, the business reaches out to customers living outside the countries larger cities who have indeed commended the idea.

Regarding the business opportunities for the toy manufacturers and distributors, these smaller stores will most likely be stocked with low-cost own label toys rather than expensive licensed merchandise. From this perspective, measures should be taken by the companies to offer high-quality toys in the popular toy categories such as model cars, dolls, educational games and nursery stationery.