The gray market of electronics in Russia in 2021 – to survive at any cost

Hey.

Without exaggeration, it can be argued that 2021 began very difficult for all segments of the electronics market. A shortage of components, inflation in any currency of the world, restrictions on production and an increase in the cost of logistics – this is an incomplete list of factors that have changed the usual rules of the game. Add to this the fall in real incomes for the vast majority of people, and the picture starts to take shape. In Russia, the impact on the market is not as noticeable as in many other countries, the results of 2020 are noticeably different for the better from European countries. There are many reasons for this, but there is no uniqueness in our market, by various measures the market fall is extended in time, the blow has been softened (read, they have spread straws). In this article I would like to consider the gray market for electronics, how it has changed due to the global crisis.

First, we need to define the concept of a gray product. So, a gray product is one that is not intended for sale in Russia. As a rule, it is delivered without going through the official representative office of the manufacturing company, buying on foreign markets. Pricing policy in different countries may differ, or interesting offers from distributors surface, and then, for example, Samsung TVs from Poland end up in Russia. The gray product is not covered by the manufacturer’s warranty, such product is serviced in unauthorized service centers. Moreover, manufacturers often deliberately limit certain possibilities of a gray product, make efforts to use it to bring problems to the consumer.

At the dawn of the formation of the Russian market, almost all the goods were to one degree or another gray, they bought it wherever it was. I remember how they bought a batch of Motorola phones intended for the Chinese market at MTS, they were worn like crazy trying to reflash them into English. The market was wild, went through the first stages of formation, the rules of the game were not established. By the early 2000s, manufacturers began to actively explore the Russian market, but gray supplies did not disappear and existed in parallel. In 2002, the share of official Siemens phones was about half of all sales, everything else was imported into the country from different parts of the world, including from Germany, where these tubes were then produced. In addition to the fact that such devices came to Russia, bypassing the representative office, they were also often imported as anything, but not telephones (sewer covers, green peas, and further down the list). Smuggling was considered the norm, and most large retail chains did not shy away from such a product. The interests of the state unexpectedly coincided with the interests of local representations, and in 2005 the whitewashing of the market began, the goods went through official channels, with an indication of the real value (at least, not like peas). The problem of Euroset in 2005 and the departure of Zhenya Chichvarkin to London became a natural result of the whitewashing of the company, suddenly there was no need to pay people in uniform to import goods, bypassing the standard procedures of the state. Chichvarkin’s problem was that he sincerely believed that the rules of the game had changed and changed his entire business to suit them. The irony with a tinge of sadness is that in the end it all happened, but Evroset with Zhenya was no longer at the head, and then even the trademark itself disappeared after the purchase of Svyaznoy (this did not bring anything good to the company, Messenger “lives like a patient on artificial respiration).

Today, by a gray phone, we usually mean a model not intended for Russia, for example, a smartphone from Samsung with Snapdragon, released for the American market. Many samples of devices do not have any differences, except for software, packaging and instructions, but at the same time the difference in price can be noticeable, which pushes rational, knowledgeable buyers to choose just such models. What’s the difference for which country a smart bracelet was released if it costs a penny and works great with your phone? Such bracelets used to be massively transported from China, the business was profitable.

In 2019, only one brand dominated the gray market in Russia – Xiaomi. There was a shortage of officially supplied goods from smartphones to a smart home, something was not brought at all. The perception of the brand by buyers was constantly improving, under the Xiaomi brand they were ready to buy anything, even the devil of a bald one. Because in the minds of people there was a concept that Xiaomi is cheap, profitable and very good. Like any idea, it didn’t stand up to reality, but who cares? After all, the main thing is that the result has been achieved.

High demand, lack of goods in official channels, plus the difference in cost, which reached 30-35% on smartphones, 50% on smart home, as well as on bracelets. The reason for the flourishing of the gray market was clear: independent retail received a hot product that outperformed federal chains in price. And everyone was happy.

One of the key features of the gray market, its formation and existence is the difference in prices in different countries. If such a difference does not exist, then the gray market has nowhere to come from, it makes no sense to carry the same smartphone far away and sell it for more than the one that was officially brought. Traditionally, the biggest difference in cost can be obtained on the most expensive models, for example, flagships. Therefore, in Russia, iPhones and iPads were in good demand, since the sales market was noticeable. It was also clear how to buy and bring these models. But despite the volume of sales of gray iPhones, they barely reached even 7% of the official ones. The reason is that all models appeared in Russia quickly, the prices were not prohibitively high. The reseller’s margin became minimal, on average, they earned about 1 rubles on such an iPhone (there is no typo, this is exactly how much). And the reason is that it was necessary to keep a noticeable difference in price with the official devices. From the once customary 500%, gray models have gone by 30-10% and the minimum margin for the seller, while the risks have not disappeared anywhere (such devices were taken away, fines were imposed, and so on).

The third place was taken by smartphones from Samsung, which just cost significantly less in comparison with the official price. The company turned a blind eye to the gray market of smartphones, since in percentage terms it occupied exactly the same 5-7% of total sales. And, moreover, it did not in any way reduce official sales, as if they were two parallel worlds that do not affect each other.

Look at the photo of the smartphone, you will not exactly say which country it is from, it looks exactly the same as the Russian device.

The gray market of electronics in Russia in 2021 - to survive at any cost

The buyer of a gray smartphone is, as a rule, a person who is prepared and clearly aware of his risks. Many of these buyers are smart and rational: why overpay for the same product if a guarantee is not needed, and the quality, most likely, will not let you down. Of course, those who eventually faced problems could permanently abandon gray devices, and such incidents happened (no one is insured against marriage, and here the question is, from whom did you buy and how much they would meet you). There are many rational buyers among the audience of Mobile-Review.com, which is also proved by our survey. The percentage of those who choose gray phones is several times higher than they are sold on the market in principle.

Perceptual stereotypes whisper to many that the gray market is huge. Let’s rate it in Russia for smartphones. In 2019, the volume of sales of officially delivered smartphones amounted to 32 million units, the volume of the gray market, added to this number, is about 900 thousand units. These are all iPhones brought to us in different ways, all Chinese smartphones and not only. Not very impressive, is it? As a percentage, this is only 2.8% of all sales in pieces. In 2020, the situation changed dramatically, the market volume decreased to 500 thousand units, almost halved, and the smartphone market volume remained the same, totaling 1.56%.

The reason for the fall of the gray market in the pandemic, there is no doubt about it. The gray market can be conditionally divided into two large segments – those who carry equipment in suitcases and hope to get fabulously rich, as well as those who bring equipment in containers. The former are directly dependent on civil aviation and the ability to smuggle something in the crew’s luggage. The lack of regular flights around the world, the tightening of Aeroflot’s rules for the crew and constant searches – all this led to the fact that this trickle dried up. There are still those who somehow drag in the exotic here, but these are piece stories, and they cannot have any influence on the market as a whole.

The legendary Gorbushka (the building of the Rubin factory) has always been the abode of those who bring gray electronics, here you could find anything you like. Gradually, the gray market faded away, and the inspectors learned not only to demand pieces of paper, but also to look at them correctly, the cost of business for servo carriers increased sharply, they began to be pushed out online. Only large companies remained that could bring goods in containers and live off the turnover. Including due to the fact that they actually lived in cash, they could sell cash and earn extra money on it.

In 2021, Gorbushkin Dvor plans to give almost a third of the area for household goods, as the electronics segment shrinks. Many traders who built their business on a gray product disappeared. The little ones lost their usual delivery channels, the big ones faced another problem.

In 2020, the deficit began to grow, the same Xiaomi almost disappeared from the gray market, since there was no product either in China or in other countries. This means that the very difference in cost has decreased. Someone got the goods on personal contacts, but the deliveries were sporadic, the risks remained at the same level. The same story with iPhone, Samsung and further down the list. In fact, the big players in the gray market have started to invest their money in subsidies in order to keep the contacts of those who buy from them. The economics of such a business quickly became clear, the opposite tendency began – a decrease in turnover, abandonment of their own stores.

By the end of 2020, the situation became even more complicated. Moreover, it is interesting that many large players of the gray market are literally sitting on the money. With one caveat, this is cash. And they have nowhere to buy goods. They cannot come to a distributor with a bag of money and buy the iPhones they need at a wholesale price. It is also impossible to deposit money into the accounts of your companies, since the question will arise, where are they from, today everything is transparent for the tax authorities. The business of intermediaries has flourished, who convert cash into non-cash for 10%, purchase goods and give them to such companies. The irony is that everything has turned exactly 180 degrees, now gray players are buying official goods, and cash has become a problem for them.

An official product is not what they are looking for in these companies, as a result, the turnover is sagging. We see gray traders entering the official market, which, on the one hand, makes room for those who stay. On the other hand, the pressure of the state will intensify, since the main sin in the coming years will be tax evasion and black cash.

There is no doubt that the gray market will shrink, but it will not disappear entirely. The reason is that there will always be those who want to try their luck on it, fill their own bumps and, of course, make millions. These brave people are driving the gray market, a few of them earn significant money, most of them burn out. It is impossible to make money on the same iPhones today in the gray market, but more and more new students appear with brilliant ideas of how they will get rich.

The shortage of components, the limitation of production capacities – all this leads to the fact that there are few goods, which means that prices for it will be more or less high everywhere in the world. As a result, the gray market will fall for a while, it will not be noticeable.

Finally, I want to say that every time I write about the gray market, I come across a peculiar perception of this topic. For some reason, many people believe that I am campaigning against the gray market and only for official deliveries (it is clear who pays him, it is not profitable for manufacturers, we are smart and buy profitably). There is nothing of the kind in such materials, there are always pros and cons, and then you choose yourself which product you want to buy. The main thing is to understand what you are going for and soberly assess your risks. True, this material is more about the market than about the consumer, but, nevertheless, I am sure that someone will want to leave such a familiar comment.

The market is in a fever, and many companies are starting a box office gap, which leads to attractions of unprecedented generosity and sales, and even the same iPhone 12. Which, in turn, makes the economy worse for gray sellers. We are in a full-fledged crisis, the gray market was one of the first to feel it on its own skin.

PS I think that I will try to touch upon the topic of this crisis for the electronics market in several materials, I am thinking about an article about what will happen to retail and the number of stores in it.

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