The Russian electronics market has come a long way since the early 90s and has become one of the most dynamic in the world. And if in the 90s we copied much of what we peeped in the West, now the situation is diametrically opposite. Often the heroes of the “Tête-à-tête” rubric are people who have created their own success story, raised their business on knowledge and skills, and withstood the competition. Today’s hero in this column, Pavel Kudryavtsev, is one of the owners of the Horoshaya Svyaz retail chain from St. Petersburg. I am sure that residents of St. Petersburg have seen these stores, they are also in other cities. But it seemed to me interesting to talk with Pavel about their trade-in program “SentKupil”, as well as about how a small retail chain has become a large operator of trade-in services and offers these services to other market players. The trade-in service from Good Communication appeared in 2019, which allowed the company to grow and increase its sales. And the idea of the service is well formed in its description: “We are sure that the lifespan of smartphones is much longer than the period of renewal of the model range of manufacturers. And if someone buys a new smartphone for themselves, someone else can use the old device for a long time. Our task is to make modern smartphones available to as many people in Russia as possible. Therefore, we provide the service of exchanging smartphones for both new and reused devices. “
A detailed conversation with Pavel happened around both the market in general and the trade-in, although, of course, I was interested in the trade-in as such and what is happening to it in Russia. There are many interesting points in the text that can change your idea of how it all works.
EM. Everyone was afraid of 2020, already November, and you can assess how this year has developed for the market. Good, awful, bad?
PC. The year was great. We were able to do everything that we put on the back burner. The most important thing for our company is that we have achieved a profit. Two years before that, in the 18th and 19th, we had a hard minus. In 2018, the reason was investments in development, we wanted to expand retail to one hundred stores, open in all major cities of Russia. In 2019, we realized that the chosen business model does not work and we need to change everything, and the margin has dropped. There was no way to leave the large shopping centers, so we caught huge disadvantages. It was clear that in 2020 we need to reduce our retail network, the coronavirus helped us to do this as efficiently as possible.
We approached the issue globally and thoroughly, since March we began to make a profit. And this despite the fact that many were literally crying at that moment. The cellular market is one of the few that continued to work. Most of the stores were located in places that continued to work, as a result, we received a greater influx of customers in them. Large chains did not work, they offered sales only via the Internet. We have street-style stores or the first floors of shopping centers, in the central gallery next to grocery stores.
EM. It turns out that the closure of large stores helped you and as a result of this the economy has changed?
PC. Not only. The rent in all stores has changed, and in a very serious way. Stores of federal chains are closing, they have become unprofitable. The number of applicants for retail space is decreasing, there is no shortage of them. Therefore, now landlords are ready to reduce the rental rate, we have cut costs by almost half, which also gives a completely different economy. They began to talk and negotiate with us, before this crisis they almost did not go to meet them.
Now, in the first place in terms of rental price, there are no longer cell phone stores, probably pharmacies and shawarma, even gold is not in the first place.
The state helped us negotiate the lease. If you could not agree with the landlord on the lease, then you could put forward two conditions, start paying in full at the previously agreed cost in the 21st year, and no penalties could be imposed on you. Either within a month you leave the lease in an accelerated mode and also no fines can be imposed on you. These are force majeure circumstances that put us in the position that we either agree here and now, or move out. We do not have a single contract on a postponement, we either agreed or withdrew from the contract.
For example, in “Mega” in Omsk we had bondage, a contract for five years without the ability to withdraw from it. We signed a contract in the 18th year, when the economy of the project was developing, the store was profitable. But the change in market conditions made this store unprofitable, it was impossible to get out of the lease. Stores could bring a loss of 500-700 thousand rubles a month, and it was necessary to negotiate, to close such points.
EM. Has the planning horizon changed for you this year?
PC. Has changed a lot, we live within weeks. It is impossible to predict what will happen in long periods of time, no one can. There are external factors, for example, in St. Petersburg, with an increase in the number of cases, shopping centers may close, which will change any planning. For the 21st year, the tax legislation is changing, it is difficult to plan something. Therefore, we make quick decisions, we remain either in the product or in the money.
EM. Do you prefer to play goods or money? What’s better?
PC. We have always played with the commodity, especially when the ruble exchange rate changes. In our memory, there has never been a situation when the course changed in the other direction, and did not grow. It was never possible to buy a product cheaper because of the change in the course. Therefore, you buy a product, then sell it and get the same money.
The specificity of our company is also that half of the goods sold are new, and the other half is discounted. Due to the coronavirus, we could not buy a discounted product, large chains did not process it, and there was a shortage. The warehouses were full, but it was impossible to buy the goods. Therefore, we reoriented ourselves to new phones and began to buy them in large quantities. Where we used to have a markdown and we were not afraid that the devices would be scratched or damaged, now we put new phones.
For example, we bought Xiaomi 9A / 9C, running models. There was a shortage of them quickly, and we had thousands of them. People came for them.
EM. How did people know that you have these Xiaomi smartphones? Marketing?
PC. Our stores are located in public areas, so people found out, they just came. Marketing needs to be discussed separately. When we were growing strongly, we considered ourselves a large company, hired super-expensive specialists from large chains, Yulmart, MVideo and others. Our marketing department was greatly inflated, only the salary fund was about a million rubles a month. At one of the meetings, we realized that the department does not even justify its salary, let alone other expenses. As a result, the marketing department was reduced to two people.
All shares with vendors were sent to trade-in, they began to advertise on the Internet for exchange, purchase and sale. There is no point in competing with large players, they will always have larger budgets, the ability to bet lower prices. We have chosen a different path of development for ourselves. To open stores only in walk-through places, to work on a stream, so as not to incur advertising costs. Therefore, most of our points are near the metro, street format, central galleries of shopping centers. Practice shows that this decision was correct. For example, having a store in a city with a population of 300 thousand people and a marketing budget of 300 rubles, and this is a space budget for one point, we will not get the result. For the city it will be about nothing, for us – huge expenses that will never pay off.
Therefore, we invest in the marketing of our promotions, we promote our unique capabilities, which allows us to make the price of goods on the showcase less for the buyer. Due to this, we are leaving.
EM. In 2017, everything was fine with you, you began to develop rapidly and did not count money. I will allow myself an analogy with a car, a beginner is careful in the first year, and then there comes the deceptive impression that you already know how to do everything and can drive into the garage, driving the car with one hand. This is where everything happens, did you have it?
PC. I would call this topic “tell us about one of your fakapov”. This is it. On the example of a car, it looks like this: we, having not learned to drive properly, bought ourselves a Rolls-Royce in the form of a huge office load, expensive employees. The thought was simple: we would buy a Rolls-Royce, drive it up to new partners, conclude a bunch of deals, open many stores, and everything will work out for us.
We didn’t start opening more stores because we saw the promise of this model. At the beginning, we inflated the IT staff, advertising, realized that we have professionals who must work. And in order to feed them and get money, we began to inflate the number of stores in order to earn money for the maintenance of the state. We have the opposite story, we realized that with our team we can grow 1.5-2 times per year and be in the black.
We started to grow, but the market conditions changed, the business model did not work and, unfortunately, these people became too expensive for us. It’s a shame, since we are one of the leaders in IT among small companies in Russia. Our system allows you to control all aspects of the business – plans down to the seller, purchases and everything else. Automation of everything that is possible.
EM. Do you share your IT solution with someone?
PC. It’s complicated. We have several companies that we help with the IT business, but they are not even from cellular retail. We are ready to sell our software for company management, but there are no buyers for it. The problem is that such software is expensive, the initial payment is noticeable. Many do not understand that it is expensive, do not realize the scale of our investments, these are tens of millions of rubles for 18 years of our work in the market. There were several times when we changed one system to another, a terrible time, we had to change everything. Such a system is a reflection of business processes within the company, for each business they are approximately the same, there is no uniqueness here.
Those who have grown more or less create such systems for themselves on their own. Those who are not yet mature have no money for such a system. And, most likely, they will never grow to such a system. Often these are the players who act as operators’ franchisees, they work on someone else’s software.
Another example. Our personnel training department is so strong that we sell its services to third-party companies, it is profitable and loads this department.
EM. How many stores were there at the beginning of 2019, how many are there now?
PC. At the beginning of 2019, we had 45 stores, then we expanded to 85 stores, and now we have 43 stores. It was a cleanup, we closed shops when we could not agree on a lease. Closed when there was no traffic, as we expected. All inefficient stores were closed.
EM. I know that you have your own trade-in in stores, does this service help the business?
PC. We are one of the trade-in operators in Russia and we can talk on this topic for a very long time. Most importantly, trade-in as a service is in its infancy in Russia. If we take the volume of the mobile electronics market, and also take the volume of the Avito market, it turns out that it is significantly higher than the sales volume of all trade-in operators.
The main problem of the trade-in market in Russia is that setting up a service in federal networks, for example, with operators, is such that they do not want to bear any responsibility for anything. Because of this, the buyback price drops dramatically. Everyone wants not to be responsible for anything, not to check the phone, to remove any responsibility from the seller. It is clear that the service cannot work this way, and this is a dead-end story. For the end consumer, the price of buying a phone becomes uninteresting, and he considers the possibility of selling it on Avito or, as practice proves, keeps it altogether. We conducted a study that shows that in 60% of cases, people leave their phones with them.
EM. Oh, this is my story. When I was buying my second Galaxy Fold, I wanted to deliver the first model. In perfect condition, but about 40 thousand rubles were given for it, which looked strange with a purchase price in the region of 160 thousand less than a year ago. It was easier to keep the device for yourself. You can give it to the child rather than use a trade-in.
The second comment about Avito. I tried to sell it at Avito, where the trade-in also killed the prices. A year ago I was selling iPhone 11 Pro, they wanted to buy a new device for a maximum of 50% of its cost. It was not profitable, and I also left the device.
PC. The story of “Avito” is unprofitable, dangerous, and there are many “buts” in it. We initially positioned our trade-in platform as the one where you can get the maximum cost for a smartphone. We are the end consumer of these devices, since we ourselves sell them in our retail. Discounted devices in our retail are on average 10-15% more expensive than they are sold at Avito. We remove all risks plus we give a guarantee.
Why can we buy more expensive than others? The answer is that we can sell such devices more expensive, the formula is very simple. And this is our huge advantage over all trade-in players, we have our own retail and our own wholesale channel.
Let’s get back to the question of why trade-in is undeveloped. Operators do not want to take risks, they put all these risks into the price, and it becomes uninteresting. It turns out a vicious circle, a low price leads to the fact that they carry broken phones, these can be scammers. It is clear that a normal person will not hand over anything for that kind of money. Broken, locked phones appear in the acceptance of trade-in, operators impose fines on sellers, and sellers are fired. Sellers don’t live long.
MTS turned off the trade-in program in the spring and launched it again in the fall. For the operator, the trade-in itself is not important, this is an option to give a different price for the product, to give the buyer a discount. There were cases when they brought in a cable from a vacuum cleaner and accepted it, giving a discount on a new product. This is how a trade-in cannot work, or rather, it is not a trade-in. This is a way to bypass the RRC from the manufacturer, to give a different value.
EM. Your truth. I had a story at MTS when I bought a smartphone as a gift and was offered to use the trade-in, immediately buy an inexpensive phone for a penny and immediately hand it over. The discount I received was about 10 thousand rubles. That is, there is no economic sense here, it’s just a different price of the device, sale at a cost different from the RRC.
PC. Interesting. Let’s talk about Avito, there are two types of ads – with popular phone models and unpopular ones. If we are talking about A-brands, top-end smartphones, then 90% of ads are outbid, they buy cheap phones from those who want to sell them, and immediately put them at some price of their own. And when an ordinary person comes to Avito to buy some popular phone, for example, an S-series from Samsung or an iPhone, he will be 99% outbid. And this also repels, because they want to deceive you, you meet with incomprehensible people. These are not the first hands.
We recently did one interesting thing, simultaneously posted 5 ads on Avito in St. Petersburg. And with this mass of ads, they changed the market. Sellers in stores took photos, wrote unique ads. To facilitate this work, we made a small program for the sellers. And our ads became a reference point, what we sold more expensive became more expensive everywhere, and what we sold inexpensively fell in price.
We had a lot of proposals for top Sony models from the 18th and 19th years, bought the remains in one federal network at a tasty price and broadcast it to the market. The announcements indicated the phones of specific stores where the goods were located, we did not hide the fact that we are us. Therefore, it is difficult to measure who came to the store on such an ad from Avito, and who just went in and bought the device, it is difficult, the price is the same. But we got 10% plus in turnover. In the spring, when there was isolation, it supported us and this move proved its effectiveness, we want to repeat it, since we will now have a large amount of discounted goods.
EM. What is markdown? It’s not just used phones, are they?
PC. Not only. These may be completely new devices that simply did not go on sale and the retail network is cleaning warehouses of them. These can be returns to points, large players cannot return them to shelves and sell again. Showcase samples. The latter are often in excellent condition, but have lost the box or charger, the federal network cannot sell the device in this form. Such devices are assembled and then immediately put on the stock exchange in bulk, we buy such devices on it, make additional equipment and sell them.
The competition for such discounted devices among wholesale players is huge, this was superimposed on the deficit of the last half of the year. I will say that for the first time the profit from discounted equipment was comparable to the profit from a new one, and usually it is less. And this is even taking into account the fact that this includes the cost of verification, additional equipment, rejection and the need to buy such devices for real money.
EM. It is clear how such devices are assembled, but how do you disassemble them? After all, there are those that simply do not work?
PC. We have a huge department that checks such devices. We do not restore devices, we do not take an iPhone or replace the case on it to make it look like new. We can replace the display, fix the device. But we are not trying to transform a well-worn smartphone into something new.
When sorting, we have three states: we sell excellent or good in our stores, a bad state goes to wholesale channels, and broken devices go to spare parts, we disassemble them. It turns out that we have a closed cycle of services, everything goes into action.
EM. What can be removed from a broken device?
PC. The main components are the screen, cameras, battery, cables. Anything that can be used for repairs or sold to services.
EM. And you can make money on the analysis of phones, does it give you something?
PC. You can’t make money, it’s just additional efficiency, we squeeze it out of the machines that we get anyway. In the best case, this gives us zero, but it is impossible to say that you can earn something on parsing.
We have an additional warranty for the second year, that is, we need spare parts for repairs. There is an insurance of the screen against the fact that the user will break it himself. All these operations require spare parts and this is a good way to get them. It is important to understand that we are not talking about the newest smartphones, for example, this is the iPhone 6/7/8, that is, devices of those generations.
EM. And your customer, coming to the store, expects to be offered a trade-in? Is he ready for this service?
PC. Trade-in, like any service, did not immediately go to retail with us, we had to swing this service. The client needs to offer this option, highlight it on the price tag, on advertising materials inside the store. For example, we began to act like most stores today, on the price tag began to write in large quantities the smallest price that can be on the device. This is the trade-in price. We do not violate anything, but a person sees the price that he can receive. Many go around several stores and eventually come back to us. Our price, taking into account the trade-in, may be lower than in large federal networks. We get help from manufacturers, but we also buy goods at a higher price, because we know how to sell them. And therefore, the price of a new device for the buyer is more effective than that of the feds.
The trade-in was difficult to implement, it took about six months. It was necessary to train the salespeople, to motivate them. Today we sell about 20% of all devices to trade-in. For the business as a whole, this gave 10% growth, which would not have happened otherwise. But the client is not waiting for the service.
In November, we launched a promotion and doubled the trade-in discounts, this is our Black Friday. And in the first week we saw an increase of 1.5 times, instantly.
EM. What are the customers?
PC. All carry. The average cost of the purchased device is 5-6 thousand rubles, but it includes devices of different price groups. The average price varies greatly, the market is very dynamic and constantly changing. We have PCT devices, and there are devices from the gray market. For example, there is a flagship Samsung on the showcase for 70 thousand rubles, it also costs 55 thousand in the gray market, and the question is how much to buy it back. If you calculate the buyback price from the RRP price, then this is one cost. If from the cost of a gray smartphone, then it is different.
Sometimes we manage to sell discounted equipment for more than it can be bought on the Internet. Figuratively speaking, the same flagship for 70 thousand rubles for the PCT version and 55 thousand for the gray version is sold for 50-52 thousand. We have a box, a one-year warranty, and it’s a matter of price.
A batch of gray equipment of a certain model may appear on the market. The secondary market price immediately falls, this moment must be captured, otherwise your buyout price will become too high. A plane arrives from Hong Kong, brings a thousand iPhones, we immediately see that they have begun to carry such models. And we need to make a decision, whether we need so many phones that they bring them to the points, or not. You need to understand how high-quality such phones are, whether there is a catch in them.
A tasty price for outbid, who know where to get a cheaper device, bring it to us and immediately earn a thousand rubles. Of course, outbidders keep track of our prices and are guided by them. In St. Petersburg, the market at prices for discounted equipment adjusts to us, this is not bragging, but reality. Everyone knows that Good Communication is a big story where prices are adequate. You can look at pawnshops, but there the price is taken from the ceiling.
EM. Do you have a calculator that calculates the cost of the purchased equipment, how often does it change prices?
PC. Weekly, except for situations when a large volume of a device is brought in at once. For example, they bring 50 phones of a certain brand per day, then we quickly decide that this model needs to be made cheaper, pay less for its redemption. Of the latter, three or four times we reduced the prices for demo versions of Samsung smartphones, because we did not understand what would come to us, in what capacity, what works in them or not. As a result, such demo versions were brought into a separate category. For example, in October about 50 Samsung S10 + smartphones were brought to points, for one model this is a lot, but this is a demo version.
The calculation of the cost of the redemption is automatic. There is an RRP for most models, we try to stick to this cost for smartphones. All smartphones are divided into categories, and depending on this, we offer one or another purchase price. We take a smartphone with a price of up to 20 thousand rubles for an average of 50% of its price. We also divide into brands, we take A-brand for 60% of the cost. B-brands are something like OPPO, they are less popular, we take them for 50%, but C-brands – for 40%. Expensive models are estimated with us for 70%, for example, iPhone 11 Pro 256 GB in good condition, we buy without scratches for 70 thousand rubles. It’s a good price, and people agree. We did not come to this right away, but this scheme proved to be excellent.
We have the largest buyout price list for different models, it has 2 items, our closest competitor has a price list of 000 models. It is impossible to handle such a volume with our hands, so our system works automatically, and we intervene if something goes wrong. For example, as it happens with demo versions of smartphones.
Buying expensive devices at reasonable prices, we not only increased the average check in trade-in, we, in principle, increased the average check in retail. A person not only hands over a telephone, but he also buys an expensive device. The more expensive you buy a phone, the more expensive model you can sell.
EM. What is your difference from other trade-in operators?
PC. I will not praise myself, but I will outline several common problems. Many people perceive trade-in as an opportunity to master the marketing budget. For trade-in, you can make a discount on new models. People do not see the economy in this, since they almost do not use the received devices, which are brought by buyers, and this is a problem. You need a closed loop for this to work. It is impossible to redeem devices into the void, you need to do something with them, you need to be able to sell them later.
Another problem is that many retailers perceive trade-in as a marketing ploy to sell more. Bring anything and get a discount. And what do you want to do with this? You need to take the goods, which can then be sold, and not just sent to a landfill. Otherwise, there is no economy for a trade-in operator. Therefore, today the majority of retail chains are rebooting their trade-in, approaching the service in a new way, trying to make it work. In order for sellers to evaluate the device being handed over, so that they arrive at the warehouse quickly, negotiate with vendors as quickly as possible, and not like everyone else.
EM. That is, there are risks for you to work with large federal players?
PC. In our retail we divide the leased devices into four levels, our sellers can separate the phones and, depending on this, give different prices. For federal networks, we give only two levels – whether it works or not. Competitors have exactly the same approach in federal retail, but they buy out a working device at the price at which we buy out a non-working one. All this is due to the reluctance of large chains to dive into trade-in, all risks are included in the price. And therefore, such a service is not so interesting for the client, he pays for all risks and receives a low cost of redemption in a large network.
EM. How many devices do you buy per month and how does this compare to the market?
PC. On average, we buy back about 2 phones every month. For comparison, the operator’s retail, which has several thousand stores, buys out about the same, more precisely, for them it was a record of one month. Another operator buys out four times less. And these are real market figures.
EM. Do you work with vendors, do you get any kind of trade-in support?
PC. Of course, just like everyone else. There is an RRC for some model, the manufacturer is ready to give a discount of 4 rubles, of which 000% is compensated by him, and 60% by us. This money is compensated as marketing, it just goes to the account. Here, more often than not, you agree on some amount of compensation and already build your sales based on this. That is, this is marketing for the manufacturer, a second price list with a different price for the buyer.
The conversation turned out to be lengthy, not everything was included in this text. In my opinion, openness, discussion of the insides of the trade-in service and not only this allowed us to give an honest look at the market. With great pleasure I communicated not only with Pavel, but also with other members of the team. I hope that you also learned a lot from this text and now know how a trade-in works when it is organized correctly and conveniently for the client.
we are in social networks:
Anything to add ?! Write … email@example.com