Detsky Mir CEO talks expansion plans

22/10/2018

Vladimir Chirakhov, CEO of Detsky Mir, gave an extended interview to leading Russian business daily Vedomosti about the company’s plans, expansion to Belarus and ambitions to enter a new business segment – pet products. 

Detsky Mir Group is the leading children’s goods retailer in Russian and Kazakhstan. As of the end of 2017, the Group’s market share by revenue in Russia amounted to 20%, while its online store covered 9.6% of the market. 

Detsky Mir opened its first shop in Kazakhstan in 2011. Since then, the company has become the leading player in the Kazakh children’s goods market with sales doubling annually, Today Detsky Mir operates 25 stores in Kazakhstan. In H1 2018, revenue from Kazakhstan stores amounted to nearly RUB 1 billion. By the end of 2018, Chirakhov expects revenue may increase several-fold, while the number of store is expected to reach 70. The Kazakh market has great potential due to the country’s high birth rate, and profitability is on par with that in Russia.

As well as further developing its business in Russia and Kazakhstan, Detsky Mir plans to enter the Belorussian market. Despite the relatively small size of the Belorussian market, Detsky Mir sees great potential for its own products as well as for local products. The opening of first shops in Minsk and other major cities in Belarus is expected in H1 2019.

The Company also plans to enter a new business segment — pet products. Chirakhov believes the pet products market has great potential for a number of reasons: 

“First of all, it is a big market in Russia, estimated at RUB 200 billion. In comparison, the children’s goods market is estimated at RUB 500 billion. Secondly, there is no obvious leader in the market — the market is highly fragmented, offering great opportunities for consolidation. Thirdly, it is sustainable, just like the children’s goods market — people don’t economise when it comes to their pets.”

Test launch of pet product shops under the brand name “Zoozavr” is planned for late this year. Launching a store selling pet supplies is similar to launching a children’s goods store — 90% of business processes are identical. The new chain will employ the same infrastructure and IT systems and will be managed by the same team. Small pet shops (100-250 sq m) will be located in shopping centres and in major shopping districts. The first ten shops will appear in Moscow and the Moscow region.

A key goal will be to ensure fast service — most of current pet shops take 1-2 days to deliver products. Our aim is to make deliveries within 3 hours. This will be supplemented by rapid increase in online sales, existing and new infrastructure — warehouses, stores, logistics — and a strong brand name. 

In 3Q, Detsky Mir’s online sales growth rate was close to 100%. By the end of 2018, revenue from online sales will amount to a minimum of RUB 9 billion, making Detsky Mir one of the largest online retailers in Russia. In 2019, we expect revenue from online sales to increase by at least 50%.

In Russia, Detsky Mir plans to further expand its network and open at least 300 new stores in addition to the existing 600. These plans do not require additional costs — the Company does not plan to increase CAPEX to expand to new markets and enter new business segments. At the same time, the Company’s business model allows it to allocate all of its net profit to dividend payouts.

Read Chirakhov’s full interview, in Russian, here: https://www.vedomosti.ru/business/characters/2018/10/21/784218-chirahov