The Shatura Furniture Company has announced its intention to become a world-class player on the furniture market, but it is betting exclusively on the unpretentious tastes of Russian mass consumers

Last year, the Shatura Furniture Company produced and sold a total of $120 million, or about 12% of the Russian output and 5% of the total sales of furniture in Russia. The company doesn’t have any direct domestic competitors. Its closest rival– Elektrogorskmebel– has only half the turnover. But, as Shatura General Director Valentin Zverev declared, in the next few years foreign companies with their own production and distribution networks will enter the Russian market and competition will get tougher. To keep consumer loyalty, the company has taken a number of measures to both re-organize production and management and to change its image and attract investors. Shatura’s products, however, will remain unchanged. The Russian market leader will continue to produce “luxury” bedroom suites and curio cabinets that strike the fancy of modest, older buyers far from Moscow and Petersburg. 

Foreign intervention

The onslaught of foreign furniture makers on the Russian market is indeed right around the corner. So far, they have only dared a few joint ventures. But in 2004, the German Schieder Möbel Holding will build two plants, in Kostroma and near Moscow. They also plan to eventually open at least two more factories, one in Ufa and the other in Rostov-on-the-Don.
In the near future, this trend will only increase. There are a number of reasons why. First, in Europe the demand for furniture is declining and production growth rates slowing. In countries such as Germany and France, output is even falling, while the Russian market is expanding by dozens of percent a year. Secondly, duties on cheap imported furniture were increased last year thanks to active lobbying by Shatura and other domestic furniture makers. It should be noted that one of the declared objectives of this action has been achieved: more Western investment in local production.
Finally, reliable raw material suppliers have already appeared in Russia, which is of no small importance to Western companies. IKEA’s “missionary” activity has helped somewhat. Since 2000, the Swedish concern has been introducing Western quality standards at Russian woodworking enterprises, as well as building its own plants. 

An uphill battle

Last year, Shatura bought the Evropeiskaya Mebelnaya Kompania (EMK; Eng. European Furniture Company) in Saratov Province for $10 million, which allowed it to increase production by 50%. The launch of its own production of wood chipboard has enabled the company to double the output of its main input material. By expanding production capacity, establishing new assembly lines with upgraded equipment, and increasing investment in logistics, the company forecasts that it will be able to increase sales by 30% in 2004 (compared to 19.4% in 2003), and quadruple them over the next five years.
The company’s organizational structure has been improved, which, according to Zverev, will help the company improve corporate management to European levels and make it as efficient as possible. Production and sales have been made into separate business divisions. At present, the company is made up of three divisions: the Shatura Production Company, EMK Production Company, and the Shatura Trading Company. A fourth business divisions– wood chipboard production – is likely to be set up soon.
Also, Shatura has decided to develop a new image with the French firms WNC and MLC, which cost it half a million. Changes to the brand mainly aim to make it more customer-oriented. The company will transform its logo, shop format, and sales organization.
As of today, Shatura’s retail network consists of nearly 300 outlets with an average total area of about 450 m2. The new format envisages increasing stores’ floor space to 1-1.5 thousand m2, allowing the company to present furniture to buyers in a more advantageous way and to expand its selection with accessories and upholstered furniture from other manufacturers. Thirty shops in this new format will be built in 2004. Shatura expects to completely replace its retail network within five years.
To implement this strategy, Shatura intends to resort to borrowed funds. The company is actively cooperating with Sberbank and is in negotiations with investors. Among them is EBRD.

The lone wolf

The Russian furniture industry, on the whole, has greeted Shatura’s plans to enter a new stage of competition – with Western manufacturers – with enthusiasm. Although other companies have great respect for Shatura’s experience and innovations, not everything in Shatura’s new strategy seems beyond reproach. In general, many are concerned that despite the declared global ambitions, expanded production, and huge amounts of money spent on improving business operations, Shatura is being too cautious in trying on world furniture concepts and trends for size. 
This can be seen, specifically, in the format of Shatura’s retail outlets. The planned improvement of the present format is not fully in line with the new trends in furniture retail, to sell ideas, images, and interior design rather than separate pieces of furniture. This newer strategy demands a substantial enlargement of not only floor space but also of selection to include a range of accessories. Shatura’s leaders believe that this is only a peripheral part of the program, which will account for no more than 20% of the changes, while service improvement will account for 80%. 
Shatura is not in position to solve the selection problem single-handedly in near future. To do that, it would have to unite distribution with other furniture manufacturers and to build corporate warehouses. It is not yet obvious to Russian companies that they would benefit from such a step. They are not morally prepared to turn rivals into partners and share their most valuable possessions, their dealer networks. For Shatura, sharing would be even less equitable.
Shatura’s choice for only one retail format – the so-called “shop next door” – seems questionable as well. First, this format works well in the system that includes three types of shops (with three different brand names): a major superstore, smaller neighborhood stores, and even smaller “shops next door”. This setup guarantees that retail outlets “catch” all different types of customers.
Second, it is not enough just to have company stores, even three hundred of them, as is the case with Shatura. The future of the retail market belongs to large shopping centers tens of thousands of square meters in area. They attract buyers not only through the novelty of their format but because they bring together diverse retailers under one roof and immediately solve the selection problem. It is estimated that large shopping malls will account for 40-50% of retail turnover in ten years. At present, Shatura does have a store at one shopping mall near Moscow, Mega, but the company doesn’t plan to expand this area of business. 

Stake on the Soviet

Shatura doesn’t intend to change its stylistic monotony, either. The new strategy is based on Shatura’s current designs: some call it “classical”, others – “antique reproductions.” Shatura has been more than once reproached for its neglect of the so-called modernist style, the alternative to the “classics.”
Some experts believe, though, that it is simply incorrect to talk about design for the mass furniture market. For example, according to Vitali Drobilenko, an architect from Novosibirsk working for Masterskaya Prostranstva Liniya 3, the Italian furniture ordered by his customers doesn’t differ, in general, from the furniture made by Shatura. Both are in the end a Soviet-style product. In Drobilenko’s opinion, the term “modern” cannot be applied to inexpensive furniture. It is more appropriate to talk about “primitivism,” as epitomized by IKEA.
Less refined and artistic furniture manufacturers are discussing Shatura’s choice from a far more business-oriented point of view: The “classics” sell better than “modern” furniture. Typically on the global furniture market, sales of the classics are 60% versus 40% “modern.” In Russia, this tendency is even more noticeable: as many as 80% of buyers, and in some regions over 80% of buyers, prefer a traditional style.
However, different conclusions can be drawn from this situation. At Shatura, they admit that Russians’ taste in furniture is underdeveloped. “It should be improved,” says Valentin Zverev (apparently, he wants to leave this mission to someone else). His rivals have other ideas. They believe it is better to give customers the opportunity to make a choice. Especially as Russian taste is already approaching world standards.

More in Russian >> www.expert.ru