Velo Park: A Window on the Russian Market. Exhibitions

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1 Velo Park: A Window on the Russian Market The economic downturn that started in the US last September has had a major impact on the Russian bicycle industry. This year s Velo Park show was about 20% smaller than in 2008, and Russia s largest bike company was a no-show. It s not all doom and gloom, however. The Russian companies that did show up at Velo Park are determined to weather the economic storm. Text & Photos: Grace S. Ruan 40 BMU 2009 Spring

2 The global recession is also having a major impact on the Russian economy. The ruble has depreciated against the US dollar by roughly 40-45%, and the country s recent growth and prosperity seem to be finished. This year s Velo Park show was around 20% smaller than last year s show. Some recessionbattered vendors stayed home in order to save cash, and some booths had been downsized. Russia s largest bicycle company, Velomotors, the large importers Velomir and Sportet, and the chain stores Alisa and Illion were all AWOL from the show. But in spite of the show s smaller size, most of the best-known companies showed up, including Stafyvelo, Atalis, Grat West, Panther Lithuania, Sportacademia, Maximum, Veloolimp, Giant Russia, Velomarket, Russ Bike, Arves Market, Cube, and ABT Sport. Participants from Taiwan included Velo, Hsin Lung, A-Pro, Neco, Smart, More Choice, TBEA, and Wheel Giant. There were also three companies from China and at least one company from India. Lien Chien Chih, head of the Taiwan Economic Section, (far left), secretary Chen Hsieh Chun (second from right), and TAITRA manager Lee Wen Cheng (second from left) visited the show to wish participants well; first on right: TBEA Secretary-General James Liu performed market fact-finding and served Taiwanese firms Spring BMU 41

3 Apart from the effect of the economic climate, bicycle sales are also influenced by the weather, especially in Russia. Because of the mild winter, bicycle sales boomed during the first half of 2008, but persistent rains during the second half of the year deterred many would-be bicycle buyers. Then the financial crisis began during the fourth quarter. Inventory is currently large, and it has been reported that the market has more than 600,000 unsold bicycles. Many stores selling exercise equipment and bicycles have seen their sales fallen off, and some have even shut their doors. Because winter lasts practically half the year in Russia, most stores and companies selling bicycles also sell other sports Saddles have a huge influence on riding comfort. Velo President Stella Yu (second from right) explained saddle design principles to TAITRA manager Lee Wen Cheng (second from left). According to product manager Edgaras Stanius (center) of Panther Lithuania-Baltik, the company's Lithuanian plant produces 350,000 bicycles annually and has 700 employees. Also shown are Arves Velo GM Vladimir Aranovski (left), who is also the Russian agent for Lithuania-Baltik, and Dainius Capskas, Panther's sales manager for Eastern and Central Europe. Velomotors international purchasing General manager Igor Ivanov is a familiar face at the Taipei and Shanghai cycle shows. equipment. For instance, Veloimperia changed its name to Sportacademia after branching out into sports equipment; this company has around 60 dealers. Due to the mild winter and rainy weather last year, as many as 30% of retailers have gone out of business. There are no authoritative statistics concerning bicycle production and sales in Russia, and every company has its own set of figures, which tend to be exaggerated. It is thought that overall bicycle output is around three million units annually, however, and most of these are assembled using parts imported from China or are imported in CKD form. Roughly five to six million bicycles are sold annually in Russia. Apart from the domestic market, Russian bicycles are also sold in nearby countries such as Belarus, Ukraine, and Kazakhstan, and these countries also sell bikes to Russia. Moscow is Russia s largest city, and has a population of around ten million. Muscovites enjoy a very high level of consumer affluence (Moscow accounts for 25% of Russia s consumer spending, which is up from 23% in the past). Commodity prices are also extremely high in Moscow. As a result, just doing business in Moscow for one day The Cube booth had a recreational mood. Grat West assembles nearly 200,000 "Stinger" bicycles annually, and also manufactures alloy rims. 42 BMU 2009 Spring

4 Tree branches cloaked in snow transformed the city into a white world. Children's bikes featured many colors, and sales were bustling. Alna Bike sells Prologo and SR Suntour bikes. may cost US$ St. Petersburg is Russia s second-largest city, and has a population of more than five million. It is a typical European city, and seems to have too few people for its size. There are many islands, bridges, and lakes in and around the city. Residents enjoy a high standard of living. Russia s Prime Minister Putin is from St. Petersburg. The companies Maximum and Wels are both located in St. Petersburg. Most imported bicycles are sold Moscow's highest point is in the Lenin Hills, and From the Lenin Hills, the area around Moscow Moscow University is located at the summit of the University's stadium is blanketed in snow. hills. through these two cities. Mountain bikes are the most popular type of bicycle, and people like to ride on forest roads, in parks, and along country lanes. Sales of BMX and children s bikes have grown steadily, so more and more bicycle companies have increased their sales of children s bicycles. The best-known children s bicycle brands include Alisa (produced by Tatra), Simba Toys, and Stels (produced by Velomoters). In the past, Russia imported most of its bicycles from China (estimated to account for 80% of consumption), Taiwan, Vietnam, and the EU. Due to the soaring prices of petroleum and raw materials such as steel and aluminum during the past few years, the Russian economy has enjoyed burgeoning growth, and the country is considered one of the four BRIC nations (which also include China, India, and Brazil). Due to the rising standard of living, as well as the nearness of Western Europe, Russians have a growing appetite for tasteful, high-quality goods. Bicycles are fashionable sports and recreation products, and Russia has a steadily increasing demand for highend bikes. Russia s bicycle imports from Taiwan grew by 108% last year, whereas the number of bicycles imported from China decreased by roughly 39% from GUM is Moscow's largest department store, and is located near Red Square. Christ the Savior Cathedral in Moscow is one of the world's tallest and largest Eastern Orthodox cathedrals Spring BMU 43

5 According to Velocity President Alexsey Tukalkin (right), motorcycles sold well last year; brand manager Oleg Elkin is on the left. Velomarket represents Obrea and Ghost and many other parts and accessories brands million in 2007 two only 2.45 million last year. Whether the current financial downturn will change these trends is still unknown, however. Although Russia s imports from China increased by 19% this January, only the beginning of the sales season in April will provide an accurate picture of the coming year. The tariff rate is 20% for imported bicycles and 10% for imported parts. There are some gray areas, however, so some people say that the tariffs on parts are 5-10%. Although the Russian government is actively cracking down on smuggling and tax invasion, tariffs still remain a bit of a gray area. Russia has impounded more than two billion rubles worth of cargo from China since September 11 of last year, including apparel, leather goods, and shoes, and this move was done in order to crack down on so-called gray tariffs. In spite of vigorous efforts by Chinese based in Moscow, these goods have still not yet been released, and many Chinese merchants have suffered grave losses. It s getting more and more difficult for Chinese businesses to survive in Russia. The government originally planned to close Moscow s largest wholesale market Tserkovoh Park on December 31, Although this plan has not yet been implemented, many local Chinese and other Asians are still worried. In addition, many Asians in Moscow are concerned about security. According to our understanding, Russians have become increasingly xenophobic Boris Lin of A-Pro rides one of his company's new ORI folding bikes. since the economic crisis took hold last year. While the unemployment rate was once only 1% in Moscow and 3% in St. Petersburg, the number of jobless has grown rapidly since the outbreak of the crisis. Some say that as many as 6.1 million people are unemployed nationwide. Because of the depreciation of the ruble against the dollar, commodity prices have risen by as much as 30-50%. Bicycle prices rose last year due to the soaring cost of raw materials, and they have continued to climb by up to 50% due to the recent depreciation of the ruble. The economic slump has made local bicycle businesses very conservative, and some companies have been adjusting their internal structures. Success is one of Russia's major importers, and imports bicycles mainly from China, and some from India. President Rajeer Narang noted that the appreciation of the RMB and depreciation of the rupee induced him to shift some orders from China to India this year. The company formerly imported 60 containers worth of bicycles from China, and only 5-6 from India, but this year it will import 70 containers from India and only 30 from China. 44 BMU 2009 Spring

6 Shown here are Alna Bike technical department manager Sergei Podkopaev (left) and brand manager Victor Titov (right). Russ Bike imports its mountain bikes from China. Product Designer Alex Nikoloev. Jan Pavlicek of JAPA Bohemia in the Czech Republic says he has six customers in Russia, and meets them annually at the Velo Park show. Many Indian company representatives were at Velo Park, some as exhibitors and some just to attend the show. Among them was Success President Rajeer Narang (second from left). Hsin Lung has some customers in Russia. Rosvevo currently has three bicycle stores, and plans to add two more. These two representatives from Tornado work together very well. Russia s ABM deals in automotive, bicycle, and motorcycle products. The Stark booth was small but highly attractive. Ekip Center used to sell only ski equipment, but branched out into bicycles because the company felt bikes have a bright future. Their products are unique and innovative. Bicycles were available show for test rides by visitors Spring BMU 45

7 Stefyvelo GM Maksim Uzhegov is confident that he can lead Stefyvelo through the economic crisis. Russia s major bicycle companies: Atalis GM Vladimir Tarkhanov has been in the bicycle industry for 11 years. Atalis has the "Kama" and "Ural" brands. Stefyvelo: Russia s second-largest bicycle manufacturer, Stefyvelo has an annual output of from 450,000 to a maximum of 600,000 bikes. The company s brand is Forward. The company has its own cycling team, and enjoys excellent brand recognition and a fine image. Former general manager Aleksandr Ignatyev laid a solid foundation for Stefyvelo. Ignatyev s death last year in an air accident dealt the company a severe blow, and it has been tough going since new general manager Maksim Uzhegov took over. Uzhegov is one of Stefyvelo s three stockholders, and has been at the company for ten years. He expressed that Stefyvelo s collaboration with Guangzhou Trinity Cycle is proceeding smoothly, and noted that the financial crisis has had a big influence on the company, which has scaled back its output this year. Atalis: After going into business in 1991, General Manager Vladimir Tarkhanov shifted from sports products to bicycles in Tarkhanov once worked for Velta, the largest bicycle manufacturer in the Perm area. Although Velta produced as many as a million bicycles annually at its peak, this state-owned firm failed to keep up with the times and the coming of free markets. After making losses in successive years, the government finally closed the company and announced bankruptcy in Velta s brands included Kama and Ural. Because no one else tried to register these brands, Atalis was able to gain possession of them. Kama is a children s bike brand, and Kama bikes account for 40% of the company s output. According to General Manager Tarkhanov, Atalis produced 130,000 bicycles in 2008 by assembling parts imported from China, and also sold whole bicycles imported from China in SKD form. For instance, Atalis imported approximately 10,000 Gamma bikes from China, and is importing children s bikes from Ningbo. While half of Atalis children s bikes are assembled locally, the remainder being imported, it imports only 10% of its mountain bikes as whole bicycle, and manufacturers the rest itself. The city of Perm has a population of around one million, and is home to three bicycle Stefyvelo GM Maksim Uzhegov (second from right) says he has a strong team at his company. Kama is Atalis' children's bike brand, and accounts for 40% of the company's sales. 46 BMU 2009 Spring

8 The show was quite compact, and familiar faces were everywhere. A-Pro Vice Manager Andrew Huang (far left) and Boris Lin (far right) visited the Sportacademia booth. Sportacademia President Michael Balashev is second from left. ABT no longer assembles bicycles; now they import whole bikes from China. GM Anton Botov of ABT Sport. firms (Stefyvelo, Atalis, and ABT Sport). Atalis employs roughly 250 persons, and sells its bicycles mainly to the east of Perm and in Kazakhstan. ABT Sport: ABT formerly assembled bicycles, and also made ski equipment. ABT GM Botov Anton said that all bicycles are now imported from China, mainly from Taiwanese firms in China s Taicang area, but also from Tianjin. The company sold approximately 30,000 bicycles in Sportacademia: This company showcased whole bicycles at this year s Velo Park show, and is the Russian agent for such brands as KHS, Felt, WTB, Sigma, Trelock, and Rubena. According to both President Michael Balashev and purchasing manager Michael Koryagin, due to the recession, as well as last year s mild winter and many rainy days, Sportacademia s retailers have fallen from 60 to only 40, and almost 30% of the stores have gone out of business. There are two Sportacademia stores in Moscow, said President Balashev, and the company has around 100 distributors According to Sportacademia purchasing manager Michael Koryagin, his company will not sponsor the Velo Park race this year due to budget cuts. These two classically-designed bikes from Sportacademia are very appealing to women cyclists Spring BMU 47

9 across Russia, of which 30% are located in the Moscow area. Although Sportacademia is trying as much as possible to obtain payment before it ships products, it has accepted delayed payments from stores with large inventories. The company has had to raise prices by about 30% to make up for the 40-45% depreciation of the ruble. Nearly half of the people in Russia would like to buy a good bicycle, said sales manager Bakastov Sezgey, which is to say a bike costing more than US$400, and he even remains optimistic that his company can grow in the face of the recession. On the other hand, Sportacademia projects that its sales will fall by 30% this year due to the downturn and depreciation of the ruble. According to General Manager Michael Balashev, whole bicycles will account 80% of the company s sales this year, and parts and accessories for the remaining 20%. Giant Russia: Last year was a bountiful time for Giant Russia, which sold 18,500 Giant bicycles during the year, said GM Boris Elchier. This sales figure was almost double the number for Credit for Giant s emergence among the top 15 bicycle firms in Russia must go to Elchier s successful business strategies. For example, Elchier shipped bicycles to dealers in December 2007, which allowed the stores to take advantage of the mild winter weather. Since the sales season normally begins in April, many companies do not make deliveries until February or later. In addition, a major dealer in Belarus has started purchasing bikes from Giant Russia, and it has enjoyed excellent sales growth. Giant has 200 retail stores in Russia, said Elchier, and the average unit price of its bikes has been roughly US$500. Average retail prices have risen to US$700 Giant's Ukrainian agent Victor Petrovich and Russian agent Boris Elchier give each other encouragement. in 2009 because of the ruble s poor exchange rate, however. Most companies are cutting their budgets, said Elchier, and Giant is no exception. But although this year s sales volume is expected to fall by around 30%, (to 12,000 bikes), and sales may fall by as much as 40%, Giant still plans to spend 1-3% on advertising. Because advertising can boost the company s recognition and give customers more confidence, Elchier feels that a recession is no time to slash Giant s advertising budget. Maximum: Located in St. Petersburg, Maximum is Au- Giant Russia enjoyed very good sales last year. Shown here are GM Boris Elchier (far right), Giant's Russian agent Victor Petrovich (third from right in back row), Giant International Business Division Director Jerry Chiang (second from left), and the head of Giant's International Business Division manager Jsephine Lin (forth from left). 48 BMU 2009 Spring The Maximum booth received a steady stream of visitors.

10 Maximum is the Russian agent for the Czech brand Author; GM Maximum Vozhakov stated that average unit prices are around US$ thor s general agent for Russia, and has been in existence for 15 years. According to GM Maximum Vozhakov, the company sold approximately 20,000 bicycles in 2008, of which 5,000 were sold in the Moscow area. The average unit price was US$ , and the company has roughly 50 retail stores. Maximum is also Scott s agent in the northwest and part of Russia, and sells about 5,000 Scott bikes annually. Scott s lowest priced model sells for US$450, and most models are priced around US$ The economic crisis has had less influence on Scott than on Author, said Vozhakov. Maximum employs about 30 persons. Veloolimp: This year s Veloolimp booth showed a lot of design flair. This company is an agent for Bergamont (Germany), Kelly s (Slovakia), Jagwire, Alex Rims, and Continental. CEO Andrey Sadovnikov stated that Russia s unemployment rate is Veloolimp GM Oleg Vainshtein is a familiar face at bicycle trade shows. Veloolimp CEO Andrey Sedovnikov (left) suggested that his company may increase imports from the EU. On the right is an old Army friend of Sedovnikov, who is now in charge of Veloolimp's Internet department. high, and approximately 6.1 million people are out of work. The unemployment rate rose by 1.7% in January and February alone. The inflation rate is roughly 14%, and the ruble has depreciated by around 30-50% against the dollar. The business climate is continuing to deteriorate, and Veloolimp expects its sales to drop by 30% in This company sold close to 30,000 bicycles last year, but has set a target of only 20,000 bikes for this year. The aftermarket will not be much affected by the recession, however. Veloolimp sells 30% of its bikes via hypermarkets, 40% through dealers, and 30% at retail stores. The weakness of the ruble has caused Veloolimp to cut back on its imports from China and Taiwan. Although the company imported 50% of its bicycles from Taiwan and China last year, the strength of the US dollar will probably prompt Veloolimp to place more orders in the EU this year. Because of high raw materials costs, Veloolimp has raised its prices considerably since September and October of last year. Manufacturers in Taiwan and China usually require tougher payment terms than EU manufacturers, including 30% down payments, and deliveries take at least two months. Veloolimp is thus finding it more competitive to make purchases from the EU. The company s online sales have doubled since last year, but it had to close a retail store and warehouse (2,100 m 2 ) in December Arves Market: Arves was established in 1998, and is the German firm Messingschlager s Russia agent. It is also an agent for Kenda and Selle Royal products, and established its own Cross-M brand in Its bikes are produced in Tianjin, China. Last year s many rainy days led to poor bicycle sales, said President Vladimir Sadotskiy, and Arves sold only 7,000 bikes. This company s bicycles carry wholesale prices of Spring BMU 49

11 All Arves Market's personnel at the show wore yellow T-shirts. Arves Market is a Kenda agent. Shown here are Vladimir Sadritsky (right) with his son (left). US$140, and are sold in stores for US$ According to Sadotskiy, Russian dealers used to begin placing orders in February, but now they start in March, and wholesalers only receive supplies in February. Sadotskiy is resigned to the havoc wreaked by the dollar s rise. For instance, last year he received two containers full of Kenda tires, which he must now sell at a loss. It is forecast at the dollar will rise to 41 rubles by is June. If the euro to dollar exchange rate remains around 1.3, Sadotskiy will continue importing from Asia, but he plans to start buying from the EU if this rate goes to 1.5. He also believes that the economic crisis will decrease the company s sales by 50%, and he has already canceled orders to Tianjin in response. Master Bike: Established in 2002, Master Bike mainly imports bicycles and parts from China, and sells 7,000-10,000 bicycles annually. After former President Oleg Nikolaevich died in a car accident last Master's new GM Alexey Narakidze is confident that he can increase sales during the recession. June, GM Alexey Narakidze took the helm starting last September. Narakidze was originally a supermarket manager, but has since become knowledgeable in the import business, and is experienced at making price comparisons. In spite of the economic downturn, Narakidze optimistically feels that Master Bike s sales will not be influenced, since some companies will go out of business. Master Bike imports 10% of its bikes from the EU, 60% from China, and 30% from Taiwan. Narakidze expressed great surprise and admiration when he heard that Giant President King Liu plans to ride from Beijing to Shanghai in May, and exclaimed that he finally understood why Taiwan s Master Bike sales units amounted to 10,000 bicycles. bicycle industry has been so successful. Motovelo (MVZ): Motovelo is located in Minsk, the capital of Belarus, and formerly produced as many as 500,000 bicycles annually. Once a state enterprise, Motovelo was purchased by MVZ in September 2007, and is now a private company. Their bicycle brand is Aist, and their motorcycle brand is Minsk. According to associate technical manager Mikhael Khorev, the company produced 365,000 bikes in 2008, which were sold in 20 countries. Approximately 60% are sold in Russia and Ukraine, and 40% are sold in Belarus. Belarus has a population of approxi- These two technical personnel from Motovelo (MVZ) were looking for partners among the Taiwanese firms at the show. Right: Assistant Manager Mikhael Khorev, left: Alexandr Hurynovich. Belarus Motovelo (MVZ) purchased Motovelo in September 2007; their booth was staffed by departmental managers. 50 BMU 2009 Spring

12 Normark GM Victor Skvortsov hopes to achieve growth of 50% this year, and believes that prices will increase. Men s Day in Russia is on February 23, but these men are getting a head start a few days early. mately 10 million, and the capital city of Minsk has around two million people. The recent recession has forced many companies to lay off employees. Motovelo has set a production target of 300,000 bicycles for The MVZ Group has 2,000 employees, and sells trucks, cars, motorcycles, and bicycles. The company s employees actively sought out Taiwanese firms interested in collaboration during the recent trade shows. The bicycles displayed by Motovelo at trade shows have improved greatly, and some of their service personnel now speak English, and not just Belarusian. MVZ produces its own plastic, tires, saddles, and handlebars, and purchases other parts in Belarus. Normark: Normark became a Shimano agent in August 2007, and has a good reputation in the fishing tackle market. It is also a distributor for Shimano fishing gear. Normark was established in September 2007 with 50% investment from Shimano and Rapala respectively. GM Victor Skvortsov hopes to achieve growth of 50% this year. Normark focuses mainly on the aftermarket; its customers include 100 bicycle stores in Russia, of which seven are considered key customers. It also has 1,000 stores selling its fishing gear, and its fishing gear sales amount to roughly five or six times its bicycle sales. Normark quotes all its prices in rubles, said Skvortsov, and Shimano Russia plans to raise its prices by 30-50% in response to the sinking ruble. The current recession is indeed dealing a harsh blow to the Russian economy, and most firms are adopting very conservative policies. The vast majority of bicycle companies have taken protective measures, and have deemphasized growth. Many firms are worried about the future and the many unknowns in the months and years ahead, and expect that the crisis will reshuffle the industry. Although this year s Velo Park show was smaller in size, this kind of regional exhibition gives firms a chance to better understand the market and establish relationships with customers. It s always worth remembering that it takes patience and time to develop new markets Spring BMU 51