Business Case Creating World Class Customer Experience in «Detskiy Mir» Chain of Children Goods Stores

1
Business Case
Creating World Class Customer
Experience in «Detskiy Mir»
Chain of Children Goods Stores
Microsoft Case Competition CX

3 Disclosure
5 New offer
8 The history of the global brand
9 Microsoft Business Model
10 Microsoft in Russia
11 Customer Experience
15 Retail in Russia
18 Retail of children goods
24 Detskiy Mir
32 Appendixes
Contents

3
Disclosure Changellenge >> Capital team
wrote this case solely to provide
material for the Microsoft Case
Competition CX. The author did
not intend to illustrate either ef-
fective or ineffective handling of a
managerial situation. The author
may have disguised certain names
and other identifying informa-
tion to protect confidentiality. The
data represented in this case is not
necessarily actual or true and may
have been changed to preserve
confidentiality.
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any form of reproduction, storage
or transmittal without its writ-
ten permission. Reproduction of
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lenge.com

5
The working day in mid-October
2012 was coming to a close. Ilya
Sobolev, a key account manager of
Microsoft, was sitting in a comfortable
armchair in Krylatskoye, drinking tea
and pondering over the new task. Tea in
a teacup was about to end and ponder-
ing resulted in a clear picture. Ilya put
the teacup aside, put off the written
sheets of paper, moved a keyboard
closer and began charting a plan for
the commercial offer for a would-be
customer of the ‘Detskiy Mir’.
An hour before, a discipline head
Michael called Ilya in his Outlook
blinked with an invitation just in the
moment when Ilya was sending a report
to Michael over which he had been
working last days. ‘Aha, here is a new
work, to the minute’, thought Ilya when
he was standing up.
Entering a meeting room under a
name ‘Helen’, written on the door,
Ilya found there, apart from Michael,
three more colleagues: Microsoft prod-
uct expert Ivan Zacharov, leading mar-
keting consultant of the department
‘Retail Sales and Marketing’ Nataly
Astahova and technical consultant on
Microsoft products Alexander Obolen-
sky. Ilya greeted them and took a seat
against Michael.
— As you already know from the in-
vitation to this meeting, began Michael,
we will discuss new perspectives which
new serious upgrade of the products
opens to us. Now it is necessary to
detect a potential customer with
whom we should work. Your offers?
— A product retail looks promising
for complex changes, offered Nataly.
— But they already use our prod-
ucts with good result, corrected her
Ivan. They have excellent systems for
business-process management whereas
interactive technologies are not so
important for them yet. It seems to me
that non-food chains are more suitable:
consumer electronics, apparel, children
goods …
— Chains for selling consumer
goods and electronic devices are dealt
with by Victor’s team, Ivan interrupted
his colleague and ponder for a while.
Hmmm, as for me, I like children goods.
Here we have a promising customer —
‘Detskiy Mir’. For the time being they
only buy from us PC licenses to use
Windows, as well as licenses to
use Windows and Exchange Server. Is it
all true, Ilya?
— Yes, it is, Ilya, men-
tally remembering the negotiations
with ‘Detskiy Mir’ three months ago.
But unfortunately we are here some-
what limited in the space. It’s not until
recently the company terminated the
introduction of ERP system from Oracle
and is now adding to it modules includ-
ing CRM . Since introduction took
much time and cost very dearly, now
we are just not in a position to convince
them to switch to using a line-up of
Dynamics: products and from the point
of view of the rest solutions we enjoy a
full carte blanche: Windows 8* to make
it possible to use not only PCs but also
tablets; Windows Phone for active use
of telephones; technology Kinect for
interactive communication with buyers;
Windows Azure for migration of com-
putations into the cloud; SharePoint
and Lync for improvement of mutual
work by employees; System Center
for management of IT-media. And I’m
quite sure that we can integrate each
of these solutions into their Oracle and
secure effective exchange of informa-
tion between the systems.
— Fine. I think they really need our
products. I know they recently had the
changing of the guard in IT department
which now is headed by Francois Le
Jan, Michael made a pregnant pause,
and now they are going to radically
overhaul their IT-systems to improve
New
offer
Case
1
ERP = Enterprise resource Planning; software product, —
complex system for managing the enterprise
2
A large international corporation.
A competitor of Microsoft in the sphere
of business applications.
3
CRM = Customer Relationship Management;
software product, — system for management of relations
with customers (often is a separate module of EPR system)
4
Microsoft Dynamics — line-up of Microsoft products
in the of enterprise management
5
Customer Enterprise — is management
of customer’s emotions
* Here and later we mean both Windows 8 and Windows RT.
Windows RT is a new version of Windows for ARM-processors.
It provides all the functions of Windows 8 except for launching
classical Windows programs.
office
fine
first
Office
confirmed

6
customer experience and general ef-
fectiveness of their work. And it is not a
small project: ‘Detskiy Mir’ has millions
of customers and, having in mind that
the company was conserva-
tive in the past from the point of view
of the IT, the room for changes are
colossal.
— Yes, ignited Nataly, we can offer
‘Detskiy Mir’ a complex program for
improvement of customer experience
and, as a result, for raising sales of the
company. Improved management of in-
formation, planning large national mar-
keting campaigns, interactive design
for points of sale, videogames, tablets
… We are in a position to radically facili-
tate the process of buying and add to
it real emotions which is made possible
by using new technologies.
— That’s interrupted Michael
with approval. — For the coming week
our customer is ‘Detskiy Mir’. And now,
colleagues, let’s do it in order: begin
with needs and once more single out
Microsoft products which satisfy them.
And, let’s remember, we are helping
customers improve sales …
Stormy discussion took the rest of
the day. During that time main prod-
ucts were chosen as well as a strategy
to sell them Ilya should ponder over
for ‘Detskiy Mir’. These products were
operational systems of Windows 8,
Windows Phone and Kinect. Server and
infrastructures products directly not
connected with customers of ‘Det-
skiy Mir’ will be dealt with by a team
of consultants headed by Alexander
Obolensky.
Ilya nodded with carefully
folded up sheets of paper and set off
to prepare the commercial offer and,
the new strategy for raising customer
experience of ‘Detskiy Mir’.
Your task is to convince the customer to implement Windows 8,
Windows Phone and Kinect. Since it is a retail, do remember that
by alleviating customer experience with the help of these prod-
ucts, we will raise sales of ‘Detskiy Mir’. And it is not important
whether it will be at the expense of raising the number of cus-
tomers, more purchases per customers or raising a median bill.
Make calculation within the perspective of 3 years. Do have in
mind that your commercial offer will effectively affect the custom-
er if you not only focus on the sales of their products, but also
create a real strategy of developing customer experience for the
customer and show which role in it will be able to play Windows
8, Windows phone and Kinect.
Case
sufficiently
fine
confidence
it is the figures that affect them most of all: try to calculate how,

8
The history of the international
company began in 1975, when Paul
Allen and Bill Gates, friends with a pas-
sion in computer programming, were
seeking to make a successful business
utilizing their shared skills. The Janu-
ary 1975 issue of Popular Electronics
featured Micro Instrumentation and
Telemetry Systems’s (MITS) Altair 8800
microcomputer. Allen noticed that they
could program a BASIC interpreter for
the device; after a call from Gates claim-
ing to have a working interpreter, MITS
requested a demonstration. Since they
didn’t actually have one, Allen worked
on a simulator for the Altair while Gates
developed the interpreter. Although
they developed the interpreter on a
simulator and not the actual device, the
interpreter worked flawlessly when they
demonstrated the interpreter to MITS
in Albuquerque, New Mexico in March
1975; MITS agreed to distribute it, mar-
keting it as Altair BASIC. They officially
established Microsoft on April 4, 1975,
with Gates as the CEO. Allen came up
with the original name of “Micro-Soft,”
as recounted in a 1995 Fortune maga-
zine article. In August 1977 the com-
pany formed an agreement with ASCII
Magazine in Japan, resulting in its first
international office, “ASCII Microsoft”.
In January 1979 the company moved
to Belview. In 1980 Steve Balmer joins
the company and later he will replace Bill
Gates as CEO. In 1981 Bill Gates became
President and Chairman of the Board.
Nowadays corporation Microsoft is a
global leader in producing software, ren-
dering services and developing internet
technologies for personal computers and
servers and Bill Gates became a legend of
global business and one of the ‘icons’ of
the 20th century.
Brand Microsoft is one of the most
expensive in the world. According to re-
searches of Best Global Brands, its value
amounts to more than $60bn, a little bit
less than those of IBM and Coca-Cola. At
present, the company employs about 90
thousand workers. As of 2012 , earnings
of the company amounted to $73.72 bn
and net income amounted to $16.98bn.
By level of capitalization, the company
occupies the fourth place in the world.
Mission of the company is to help
people and businesses throughout
the world realize their full potential.
The company provides customers with
software for solving sets of problems.
A number of products of the company
includes ‘table’ and networking opera-
tional systems, server applications for
customer-server media, business appli-
cations and office applications for users,
interactive programs and games, means
for working in the Internet and tools for
development. Besides that, Microsoft of-
fers interactive online services, publishes
books on computer subjects, produces
peripheral equipment for computers.
Products of Microsoft sell in more than
80 countries, are translated into more
than 45 languages and compatible
with the majority platforms of personal
computers.
Responding to growing needs of cus-
tomers, the company is actively creating
new products and investing in develop-
ments and no expense is spared. Only in
2011 corporation Microsoft spent about
$9.4bn on researching and developing
new computer technologies (this is the
largest amount in the world). Deter-
mining global trends in many aspects,
Microsoft is one of the main generators
of growth for the market of information
technologies.
Microsoft formulates its values in the
following way: ‘As a company and as per-
sons, we value honesty, decency, open-
ness, personal improvement, constructive
self-criticism, constant self-improvement
and mutual respect. We are committed
to our customers and partners and we
have passion for technologies. We take
on the most difficult tasks and are proud
that we carry them through. We consider
ourselves responsible to our custom-
ers, shareholders, partners and workers,
fulfilling our obligations and striving for
the highest quality.’
The history
of the global brand
History
6
Company fiscal year ends June 29

9
In the summer of 2012 Microsoft hit
the market with its new tablet computer
Surface. Unexpectedly, the company,
which produced solely software and
became the recognized leader within
the market, entered the new field —
hardware. Not so long ago the com-
pany didn’t make any devices under
well-known trademark, outsourcing this
advantage to its partners (except the
Xbox). But now the company made the
first step to cover all the 3 segments of
the IT market: hardware, software and
cloud services.
But first let us introduce all these
segments: hardware — devices itself
and technology which stays behind
them (processors, hard drives, memory
etc.), software — operational systems
and programs run on devices, cloud —
services and programs run not on your
device but somewhere in internet.
Each of the four main game chang-
ing companies in IT industry (of course,
there are more than four companies but
let’s not complicate), Microsoft, Apple,
Google and Samsung, are focused on
several segments but not on every (see
table on the right).
Apple business model is to create
devices with manufacturing and lots of
technology outsourced. The company
designs devices and creates software
which makes its products unique. Of
course, Apple has several cloud serv-
ices but is hardly a top player in this
segment. It is also worth mentioning
that the company starts investment in
processors for its products, i.e. increases
its presence in hardware segment.
Up till now Microsoft has been rarely
present in hardware segment (except
for mice and XBOX with Kinect) giving
the privilege of creating hardware to its
platform of partners (from Acer to HP).
In fact the company is specialized on
developing software and here it often
has a close to monopoly position with
except to mobile segment (unfortu-
nately for Microsoft the fastest growing
segment). Microsoft also started work
towards cloud services and became
more successful than Apple but less
than Google.
Google started from cloud services
which billions of people use (search,
mail, maps etc.) and later came to
software market with introduction of
Android operating system for smart-
phones and tablets. At the moment
the company tries to adapt both its
services and Android as a primary
operational system for PCs (little suc-
cess by now but the direction could be
clearly seen).
Samsung has been always focused
on hardware and become an undisput-
able leader in the segment, creating not
only research labs but also great infra-
structure to develop and manufacture
key components for Samsung products.
Until recently the company has not
prioritized software and cloud develop-
ment but failure with Bada increased
priority for such developments.
Each of the companies above tries
to reach new segments. Apple aspires
to its own cloud services, while Google
reaches for the PC software market and
enters hardware (with the purchase of
Motorola Mobility ). Samsung realized
that by selling devices with its own soft-
ware they can easily grow margins.
The same situation happens with
Microsoft. Microsoft understood that
the market behavior has changed:
people no longer buy first available
computer or other device just to set up
particular operational system, conven-
ient for working with. Moreover the
PC market itself grows slowly than the
portable devices market does, espe-
cially smartphones, which extremely
fast became truly personal need. As
the result the 2012-2015 years will be
tablet and smartphone time for the
corporation.
Microsoft
Business
Model
Company Hardware Software Cloud
Microsoft +/– + +/–
Apple + + –
Google – +/– +
Samsung + – –
Business
7
Companies picked by one of Russian computer market leading analysts Eldar Murtazin.
8
Bada (stylized as bada) is an operating system for mobile devices such as smartphones
and tablet computers. It is developed by Samsung Electronics. All Bada-powered devices
are branded under the Wave name; similar to how Samsung’s Android-powered devices are
branded under the name Galaxy.
9
Motorola Mobility was formerly known as the Mobile Devices division of Motorola until it was spun off as a separate entity in January 2011. It pioneered the flip
phone with the StarTAC in the mid-1990s. By the turn of the 21st century, it produced another innovative hit product, the (original) RAZR, a very thin flip phone.
Motorola had a commanding lead in the analog cellphone market, but it was slow to embrace digital technology. This allowed global rivals such as Nokia and
Samsung Electronics to surpass it; it essentially failed to enter the global smartphone market until the 2010s. On August 15, 2011, Google Inc. announced that it
had agreed to acquire the company for US$12.5 billion.

10
First legal products from Microsoft
appeared in the country in 1987. Sup-
plier of the product was the first joint
venture USSR /US in the field of com-
puting engineering and programming
JV ‘Dynamo’. In 1990 Russian-speaking
users received first russified products of
Microsoft. To the ceremony of presenta-
tion of Russian-language operational
system MS DOS 4/01 in Moscow even
appeared Bill Gates.
In November 1992 the corporation
opened in Moscow an official represent-
ative office (since July 2004 — PLC ‘Mi-
crosoft Rus’). Already at the beginning of
2000s Microsoft issued Russian versions
of all its main office program products,
launched free telephone service for
informational and technical support for
Russian users, created full-fledged net-
work of distributors and dealers, service
and retail partners and began authoriza-
tion of training centers and specialists in
the technologies of the company.
Windows 95 and Microsoft Of-
fice 96 were a great success, sales in
Russia soared as well as in the whole
world. And after that the corporation
embarked on a full-scale promotion
of its server products included in the
family Microsoft BackOffice, a system
of corporate governance of data bases,
Microsoft SQL, a system of circulation of
documents of an enterprise Microsoft
Exchange Server, a system of support of
corporate internet representative office
Microsoft Internet Information Server
and server operational system Windows
NT Server. Soon a Russian version was
issued of Windows NT Workstation, —
a desktop operational system especially
designed to be used in business.
Today licensed soft from Microsoft
is used at the hundreds of thousands
of working places in Russia. Based on
Microsoft products, projects are being
carried out for introduction of power-
ful information systems in the largest
domestic commercial companies and
government organizations. In 2012 fiscal
year the earnings of units of Microsoft
amounted to $1.4-1.5bn. According to
Nick Prianishnikov, president of Russian
office of Microsoft, this sum is more than
the respective figure of Chinese unit of
Microsoft.
In recent years Microsoft consider-
ably increased a number of regional
offices in Russia, from 58 to 70 for a first
half of 2012. Now the representative
office of the company ‘Microsoft Rus’ is
engaged in promoting soft, developing
partners’ network, adopting products,
localizing advanced solutions and
developing the market of information
technologies in Russia. The company
develops and builds new plans for the
future.
Microsoft
in Russia
Business

11
As Colin Shaw says, a customer
experience is an interaction between a
company and a customer as perceived
through a customer’s conscious and
subconscious mind. It is a mix of an
organization’s rational performance,
the senses stimulated and the emotions
evoked and intuitively measured against
customer expectations across all mo-
ments of contact.
Importantly:
■ A customer experience is not just
about a rational experience (e.g. how
quickly a phone is answered, what hours
you’re open, delivery time scales, etc.).
■ More than 50 percent of a customer
experience is subconscious, or how a
customer feels.
■ A customer experience is not just
about the ‘what,’ but also about the
‘how.’
■ A customer experience is about how a
customer consciously and subconscious-
ly sees his or her experience.
It’s a complex process of under-
standing your organization’s rela-
tionship with your customers. When
addressed effectively, customer experi-
ence eases customer acquisition, drives
customer loyalty and improves customer
retention.
Customer experience (CX) is the sum
of all experiences a customer has with a
supplier of goods or services, over the
duration of their relationship with that
supplier. From awareness, discovery,
attraction, interaction, purchase, use,
cultivation and advocacy. It can also be
used to mean an individual experience
over one transaction; the distinction is
usually clear in context.
Customer
Experience
Customer Experience

12
In 2006 one famous strategy con-
sulting company report found that 80
percent of executives believed their
company delivered a superior customer
experience, while only eight percent
of customers said they received one.
Business Week’s Jeneanne Rae says,
«Building great consumer experiences is
a complex enterprise, involving strategy,
integration of technology, orchestrating
business models, brand management
and CEO commitment».
In the past, companies competed
through product differentiation and
price points. Today, with products more
and more commoditized and price
differences negligible, the remaining
differentiator is how well a company
can deliver a customer experience that
is personalized, rewarding, and meets
customer needs.
The goal of customer experience
management (CEM) is to move custom-
ers from satisfied to loyal and then from
loyal to advocate. Traditionally, manag-
ing the customer relationship has been
the domain of Customer Relationship
Management (CRM). However, CRM
strategies and solutions are designed to
focus on product, price and enterprise
process, with minimal or no focus on
customer need and desire. The result is
a sharp mismatch between the organi-
zation’s approach to customer expecta-
tions and what customers actually want,
resulting in the failure of many CRM
implementations.
Where CRM is enterprise-focused
and designed to manage customers for
maximum efficiency, CEM is a strategy
that focuses the operations and proc-
esses of a business around the needs of
the individual customer. Companies are
focusing on the importance of the expe-
rience and realizing that «building great
consumer experiences is a complex en-
terprise, involving strategy, integration
of technology, orchestrating business
models, brand management and CEO
commitment.»
According to Bernd Schmitt, “the
term ‘Customer Experience Man-
agement’ represents the discipline,
methodology and/or process used to
comprehensively manage a customer’s
cross-channel exposure, interaction and
transaction with a company, product,
brand or service.” Customer experience
solutions provide strategies, process
models, and information technology to
design, manage and optimize the end-
to-end customer experience process.
One of the key features of success-
ful CEM implementations is their ability
to manage multi-channel interactions.
Customer experience solutions address
the cross-channel (contact center, Inter-
net, self-service, mobile devices, brick
and mortar stores), cross-touch point
(phone, chat, email, Web, in-person),
and cross-lifecycle (ordering, fulfillment,
billing, support, etc.) nature of the cus-
tomer experience process. By contrast,
CRM solutions tend to offer point solu-
tions for specific customer-facing func-
tions such as, but not limited to, sales
force automation, customer analytics,
and campaign management.
Customer
Experience
Management
Customer Experience

13
Customer service is a series of
activities designed to enhance the level
of customer satisfaction — that is, the
feeling that a product or service has met
the customer expectation.
Its importance varies by products,
industry and customer; defective or
broken merchandise can be ex-changed,
often only with a receipt and within
a specified time frame. Retail stores
often have a desk or counter devoted
to dealing with returns, exchanges
and complaints, or will perform re-
lated functions at the point of sale; the
perceived success of such interactions
being dependent on employees “who
can adjust themselves to the personal-
ity of the guest. From the point of view
of an overall sales process engineer-
ing effort, customer service plays an
important role in an organization’s
ability to generate income and revenue.
From that perspective, customer service
should be included as part of an overall
approach to systematic improvement. A
customer service experience can change
the entire perception a customer has of
the organization.
Some have argued that the qual-
ity and level of customer service has
decreased in recent years, and that this
can be attributed to a lack of support
or understanding at the executive and
middle management levels of a cor-
poration and/or a customer service
policy. To address this argument, many
organizations have employed a variety
of methods to improve their customer
satisfaction levels, and other KPIs.
Customer support is a range of
customer services to assist customers in
making cost effective and correct use
of a product. It includes assistance in
planning, installation, training, trouble
shooting, maintenance, upgrading, and
disposal of a product.
Customer service may be provided
by a person (e.g., sales and service
representative), or by automated means.
Examples of automated means are Inter-
net sites. An advantage with automated
means is an in-creased ability to provide
service 24-hours a day, which can, at
least, be a complement to customer
service by persons.
Another example of automated cus-
tomer service is by touch-tone phone,
which usually involves a main menu,
and the use of the keypad as options
(i.e. “Press 1 for English, Press 2 for
Spanish”, etc.)
However, in the Internet era, a
challenge has been to maintain and/or
enhance the personal experience while
making use of the efficiencies of online
commerce. Writing in Fast Company,
entrepreneur and customer systems
innovator Micah Solomon has made the
point that “Online customers are literally
invisible to you (and you to them), so
it’s easy to shortchange them emotion-
ally. But this lack of visual and tactile
presence makes it even more crucial to
create a sense of personal, human-to-
human connection in the online arena.
Customer
service
Customer Experience
10
Founder & CEO of Beyond Philosophy, one of the world’s first organizations devoted to customer experience

14
Customer experience manage-
ment covers overall customer cycle. As
the customer progresses through the
various stages of the customer cycle
(pre-purchase and post-purchase), the
customer is likely to come in contact
with a variety of touch points, some
of which will be more important than
others.
The first stage is Pre-Purchase Stage.
Attention to pre-purchase touch points
can improve the retailer’s customer con-
version rates. Web presence is impor-
tant here as most major purchases are
preceded by online information search.
For instance over 75% of consumer
electronics purchase and over 90%
automobile purchases are preceded by
extensive online research by consumers.
The second stage is purchase itself.
Studies show that more than 70%
consumers make their decision “in-
store”, which opens the opportunity for
shopper marketing (defined as “market-
ing to someone who is shopping and
about to make a decision”) as opposed
to marketing to customers (where a cus-
tomer is defined as someone who has
purchased in the past).Clearly the store
becomes the focal point during pur-
chase stage. The traditional wisdom is to
increase the amount of time customers
spend in the store by placing the most
popular departments at the opposite
ends of the store. Better customer expe-
rience will lead to more spending.
Post-Purchase is the final stage of
the customer cycle. Customer service
and loyalty program are two important
touch points. For most, retailers realize
the importance of customer service. Not
many are making the link between loy-
alty programs and customer experience.
There is often the debate about
whether customers choose the store first
(where to shop) or the brand first (what
to buy) in the purchase cycle. By guid-
ing the consumer to make decisions, by
offering a superior value proposition
and by creating memorable experiences
along the way, the retailer can become
the destination of choice. Customers
will first decide to go to that store and
then decide what brand to buy once in
the store. As Jeff Bezos said, “More and
more money will go into making a great
customer experience, and less will go
into shouting about the service. Word
of mouth is becoming more powerful.
If you offer a great service, people find
out”. In other words, spend on customer
experience, not advertising, to build the
retail brand.
Customer Cycle
Customer
Cycle
Potential
Touchpoints
Pre-purchase Purchase Post-Purchase
Information
search
Brand
comparison
Vendor
comparison
Channel
comparison
Web
Advertiserments
Direct mail
Store
Salespeople
Branded Customer Experience Management
Present Consistent Experience in a Branded Environment Ensure
Consistent Experience across all Touchpoints
Brand
decision
Model
decision
Channel
decision
Trial
Terms
of purchase
Web
Store
Placement POP
Salespeople
Resellers
Kiosks
Installation
and training
Use and derive
value
Service
Disposal
and upgrading
Customer
Service
Web
Product&
package
Loyality
program
11
Jeffrey Preston "Jeff" Bezos (born January 12, 1964)
is an American entrepreneur who played a key role in the
growth of e-commerce as the founder and CEO of Amazon.
com, Inc., an online merchant of books and later of a wide
variety of products. Under his guidance, Amazon.com
became the largest retailer on the World Wide Web and
the model for Internet sales.
Customer Experience

15
Retail trade (part of which is the
trade in baby goods) is by tradition one
of the main sources of country’s GDP. But
due to its own specifics it always acutely
responds to the state of global economy
and level of consumer demand. So the
economic recession of 2008 strongly
affected the performance of trade which
only recently began to show the first
signs of material rise. But yet all ana-
lysts are of opinion that Russian retail
suffered less than those in Europe and
US. And now the trend reversed to the
positive: during the first quarter of 2012
the retail in the RF rose by 6.8%.
Modern trade at the beginning of
21th century underwent serious struc-
tural changes: shrinkage of spontaneous
markets, consolidation of retail chains,
expansion of overseas operators, the
sharpening of competition between
large retail chains. For the time being,
the main players of retail market are
large Russian and international chains.
The largest of these in Russia are: X5 Re-
tail Group, Ashan, Magnit, Metro Group,
M.Video, O’KEY, Eldorado, Lenta. Market
share of ten of the largest players does
not exceed, for the time being, 20%; by
2015 this showing may reach already
30%. Capital investments by Magnit,
X5 Retail Group, O’KEY and Dixi for the
period 2012-15 may exceed $13.6 bn.
Experts point out that as of today
there exists non-uniformity in regional
performance of turnover of retail sales.
So, 8 out of 83 subjects of the Russian
Federation (Moscow, Saint Petersburg,
Moscow region, Sverdlovsk region, Ros-
tov region, Samar region, Tyumen region
and Krasnodar territory) account for
44.8% of all turnover of retail sales, with
Moscow accounting 17.1%.
To the specifics of the Russian
consumption one should ascribe the
absence of developed culture of con-
suming and, as a result, strong signifi-
cance of the price and rational factors
in the act of buying. Companies realize
less significance of their own chains’
brands and pay much more attention to
‘real’ needs of a customer outside the
context of marketing moves which work
here not so well. It determines a small
market share for and slow development
of premium segment of the retail. The
market of expensive delicatessen widely
develops in the capital exclusively: only
here there exists a sufficient potential
base of buyers. One of the key players of
the ‘expensive’ retail ‘Azbuka Vkusa’ has
49 points in Moscow, but was forced to
leave Petersburg’s market, the second-
largest in Russia, specifically due to the
absence of sufficient demand for high-
quality products and service.
Retail
in Russia
Retail in Russia

16
When talking about the outlook for
development of trade chains, analysts
single out several trends. Firstly, transi-
tion to intensive development. Today
chains reached the level when the
supplementary increase of trade spaces
leads to slower growth of consumer
traffic and additional investment eats
into retailers’ margin. That is why the
main players will zero in on efficiency
growth and optimization of costs. The
winners will be chains with a high level
of distribution centralization and own
brands in the structure of sales and,
among formats, hypermarkets and cor-
ner shops will enjoy the most popularity.
Secondly, one may observe the trend of
increasing number of buyers due to the
widening of choice of goods, offering
supplementary services and conducting
promo-actions. Dwellers of large cities
are especially sensitive to that.
Considering all of the above factors
and due to the increasing value of tech-
nological trends Russian retail is con-
cerned with developing its IT infrastruc-
ture. According to recent forecasts retail
IT expenditures will increase 11.6% per
year. Some experts propose even more
dramatic growth up to 40% per year.
Consumer tendency to use mobile
devices during shopping process and to
shop on-line also affects Russian retailers
a lot. As for their own IT ecosystem re-
tailers turned to pay more attention on
gaining and retaining consumers’ loyalty
while cutting expenditures. As experts
point out today Russian retail industry is
interested in agile and scalable IT infra-
structure that takes into account peculiar
market segment’s requests.
Thus the most cutting edge tenden-
cies in retail-oriented IT are connected
to seamless satisfaction of industry’s
demands and even with offering such
innovative projects that will provide
dramatic competitive advantage to the
peculiar business. Analysts point that it
can be achieved through proper usage
of modern communication tools and
technologies, mobile apps, social media,
e-commerce and so on. But at the same
time according to the experts innova-
tive decisions for retail industry now
should also be tightly connected with
technological IT and business process re-
engineering within the very enterprise or
network.
Another trend that appears on mod-
ern Russian retail market is blurring of
border between on- and offline buyers.
Both retail components tend to supple-
ment with each other. This phenomenon
is also called ROPO-effect (research
online, purchase offline). According to
this pattern consumer searches for infor-
mation concerning the product, reviews
and prices online and then buys the
product offline. Thus Internet becomes a
resource that somehow sells even if the
Internet-session does not end up with
a classic purchase. This trend seems to
spread wider so the role of Internet as
an informational platform and purchase-
driver is likely to increase over time. The
vice versa effect when consumer chooses
the product in-store and then orders it
online for cheaper purchase takes place
as well. In this case offline store acts as
a shop-window creating incentives for
online purchase.
The successful business processes
changes should be adjusted to the
strategic plans of a retailer. Thus it is very
important for the company to build the
proper Business Model before applying
any information technologies.
Retail in Russia

17
Customer value
proposition
Retail business models integrate two distinct yet intertwined dimensions
Operating model
Product/service offering
Cost model
Product
offering
Retail business model
Organization
Service offering
Sourcing
Shopping
experience
Store
operations
Price
and revenue
model
Value chain
Basic retail business model consists
of the two parts — Customer value
proposition & Operating model. For the
entire business model's success, retailers
should improve their operating model
and keep the value proposition aligned
with shifts in the market.
The value proposition includes
3 elements:
■ The product or service — depth and
breadth of assortment, private-label op-
tions, and product quality
■ The customer’s shopping experience,
including the physical layout of the store
and the arrangement of merchandise
■ The pricing and revenue model,
including the pricing strategy (such
as high-low or everyday low prices)
and value-added services, such as free
delivery
The operating model
includes following 3 elements:
■ Cost model — sourcing and store
operations
■ Value chain structure — degree of
integration with suppliers and logistics
■ Organizational process
Usually, for improving their business,
managers are focused on changes to
only one or two elements of the busi-
ness model. Retailing has always been a
competitive game. But the rules of that
game are changing faster than ever.
It is no longer enough to offer quality
goods and services. Today, retailers must
also maintain the most efficient supply
chain. They must manage their store
operations with precision. And they must
offer customers a shopping or customer
experience that matches the way people
live and work today. Anything less than
that and it’s time to close up shop. To-
day's consumer is smarter. And smarter
consumers need smarter retail.
Retail in Russia

18
Children goods consist of many cat-
egories: foodstuff, cosmetics, clothes and
footwear, toys and many others things.
The market differs from general retail
in orientation on young consumers and
traditionally breaks into narrower age
segments every of which has own specif-
ics. But at the same time there are no
general consensus among experts where
the border of children-goods market
passes. With certainty one may single
out the market for goods for newborns
(up to 3 years), but the upper age range
varies from 12 to 18 years. Besides, seg-
ments of the markers often overlap. For
example, nearly 40 percent of soft toys
is bought not for children as well as the
segment toys&gifts is a boundary area
between the baby’s and grown-ups’
markets.
A significant feature of children
goods is the target consumer since a de-
cision to by, as a rule, is made by parents
whereas a product ‘is consumed’ by a
child. This refers, first of all, to age seg-
ment from 0 to 3 years. But the older a
child growth, the more it is involved in a
process of choosing goods (e.g. for age
segment 6-10 45% of children partici-
pate in purchasing).
Another significant feature is the
absence in the children market of the
notion of ‘deferred demand’. Children
grow constantly which makes it neces-
sary to renew their clothes each year,
buy special children goods etc. It main-
tains turnover of the market. Choice of
a final purchase in the market also bears
some specifics. The wish ‘to give a child
the best’ is inherent in the majority of
parents and they are ready to pay for it,
buying expensive children goods and
services with pleasure. Expenses for chil-
dren are in weak dependence on family
income level, with the exception of very
poor and very rich families.
That is why the market of children
goods in all times attracted business
by its stability and sustainable demand.
The history of crisis in Russia has proved
these qualities of the market. Fall of
the market was less in comparison with
‘grown-up’ goods.
First large trading centers for children
appeared in 1950s. Many mothers from all
USSR made purchases in ‘Detskiy Mir’, one
of the largest chains of universal shops
which even had foreign suppliers.
After the break-up of the USSR, Rus-
sian ‘children’ industry suffered a lot. Seg-
ments of clothes and toys were practically
squeezed out from the market by Chinese
and Turkish goods because it was getting
more and more complex to compete with
them in prices. Industry of children food
has also undergone changes. After sharp
reduction in the middle of 1990s of budget
financing the system of production of chil-
dren food based on the state order ceased
to exist. Only large privatized enterprises
continued to produce children foods. And
against the general background of deficit
of the production the segment of children
food was quickly occupied by large global
players.
The economic crisis has also contrib-
uted to the development of the market.
After the crisis of 1998 many families
strived for saving on buying clothes and
footwear since children quickly grow out
Retail
of children
goods
First steps
of children retail
in Russia
Retail of children goods

19
of them. But in spite of this there are some
largest markets of children goods which
successfully work up to now: ‘Central Chil-
dren Fair’ in the Tulskaya street, ‘Children
Fair in Kolomenskaya’ and others.
Revival of the Russian children industry
began in 21th century. Since beginning of
2000s incomes of population and birth rate
have been constantly growing. It results in
increasing massive effective demand for
children goods. It is the quality of children
goods that moves to the forefront, gradu-
ally putting aside the price factor, which
makes it possible to develop production
and trading in the middle- and high-end
segments. Market of children goods shows
the performance of high growth.
Key factors for development of the
market are birth rate, increase in income
of population and promotion of con-
sumption culture for children goods. Rise
in birth rate only directly influences the
market for newborns whereas for the
other segments it has a deferred effect.
The turnover of the market is mainly pro-
vided due to the fact that children clothes,
footwear, toys and books require constant
renewal which is why the demand for chil-
dren goods has no direct dependence on
prices and income level of a family.
In 2007-08, according to the esti-
mates by experts, the largest retailers
controlled more than half overall volume
of a civilized retail: share of Detskiy Mir
amounted to 25-30%, that of “Banana-
mother’ amounted to 15-20%, and
“Mothercare’ and “Little ship’ have 5-7%
each. The share of the rest of net players
does not exceed 10%.
However, the economic crisis of
2008-09 led to the redistribution of the
market. Several chains ceased to exist,
others slowed down their growth/ whereas
the rest found themselves having new
possibilities for acceleration of expansion.
For example, based in 2006, the chain
of shops for newborns and preschool-
ers ‘Little daughters & sons’ tries, since
2008, to occupy in the regions a place of
‘Banana-mother’ (‘Banana-mama’ became
bankrupt in 2008).
According to Association of Children’s
Goods Industry, volume of the market of
children goods in 2011 estimated 417bn
RUR. The median growth rate is about 15%
per annum, though separate segments of
the market (e. g. goods for newborns) grow
faster. It is forecasted that the high rate of
growth will remain at the same level while
the potential maximum size of market is 650-
710bn RUR which could be reached by 2015.
Preconditions for rapid development will be
increase in birth rate, improvement of the
economic situation as well as the develop-
ment of retail market. Average total spend on
children annually is 403 USD (however this
number do not include nutrition except for
baby nutrition and education spend).
Geographically the market is mostly
localized in central federal district (FD)
which accounts for almost 48,7% of
sales. Southern FD — 17,1%, Privolzskiy
FD — 16%, North-Western FD — 7,1%,
Far-Eastern — 6,4%, Ural FD — 3,2% and
Siberian — 3,5%.
In the structure of sales, the largest
share is attributed to clothes (21%), then
goes baby nutrition (18%), goods for new-
borns (18%), toys (16%), shoes (11%); furni-
ture 3% and other accounts for 14% (total
is not equal to 100% due to rounding).
Goods for newborn and toys are the high-
est growing segments (about 20% annual
growth rates). Slightly different results give
survey of customers (2009 data): parents
say they spend 38% on clothes, 23% on
footwear, 10% on toys and 6% on hygiene.
The main sellers of children goods are
children chains, hyper- and supermarkets,
but you may find children goods on the
shelves of drugstores, cosmetics shops, in
the malls and even in the bazars. However,
a share of unorganized trade (bazars,
kiosks) is rapidly shrinking; it is estimated
that by 2015 it will reduce twofold and
amount to about 15% of overall volume
Russian market
of children goods

20
of the market. At the same time one may
observe significant rise in the segment of
electronic trade. Year after year you may
see the increase in number of purchases
made in on-line shops and it is anticipated
that by 2015 a share of internet sales will
amount to 13% of overall volume of mar-
ket for children goods in Russia.
Occupying the dominant position
in the market for children goods is the
import. Its share varies from 60% in the
segment of baby cosmetics and goods
for newborn to 90% in the segments
of children footwear, clothes and toys.
According to Federal Customs Service of
the RF, furniture occupies 31.7% in the
overall imports of goods for newborns,
tableware occupies 30.7%, car seats
occupy 18.2 and children carriages oc-
cupy 7.3%.
Manufacturers from South-East Asia
contribute to 70% of ‘children’ imports,
more than 50% of goods comes from
China. A serious problem becomes a suf-
ficiently high share of counterfeit production
and grey imports in the Russian market for
children products. “Rospotrebnadzor’ regu-
larly registers the presence in the goods of
dangerous substances and their non-com-
pliance with the sanitary standards.
Since 2000s parents’ attitude to the
clothes of their children has been vary-
ing from ‘let it be warm’ to the search of
quality and fine things. That became a
powerful stimulus to the development of
children industry in Russia. Shops display
a lot of brands of foreign and Russian
manufacturers, from affordable to elite.
Clothes are the most capacious segment
of children non-food goods. About 32%
of total children goods market in 2010
fell on children clothes and footwear;
about 21% of these expenses are spent
on clothes, second place by expenses
comes to footwear (12%). Studies show
that on the average in Russia a family with
one child spends about 860 ruble to buy
children clothes and approximately 550
ruble to buy children footwear. More often
purchases are made in specialized children
shops; in Moscow and Saint Petersburg
the second-popular place are hypermar-
kets whereas in cities with population less
than 1 million the second-popular place
comes to bazars and fairs.
The market may conditionally be bro-
ken into price segments: low-end (from
$5 to $30), middle (from $30 to $100)
and premium (higher than $100). In the
low-end segment which accounts for up
to 85% of the market, goods dominate
of Chinese and Turkish production. The
center of a price line-up accounts for
about 10% of the market. This segment
sells mostly the products manufactured
by Chinese, Indonesian and Polish com-
panies and by several Russian companies.
Leading positions among Russian pro-
ducers of children clothes are occupied
by ‘Gloria Jeans’ (with brands ‘Gloria
Jeans, ‘Gee Jay’) and ‘World of Child-
hood’ (with brands “World of Childhood’,
‘Etty-Detty’, ‘Sela’, ‘Little Fairy’, ‘ Gulliver’
and other).
According to experts’ estimates, legal
Russian production accounts for about
20% of overall volume of the market. But
since there is no competitive fabrics in
Russia, companies are forced to de-
liver raw material from abroad. As a rule,
fabrics are bought in Pakistan, China and
Turkey. And as the wages of seamstresses
in Russia are higher those, for example, in
China, many Russian producers transfer
their production abroad. Thus, it is very
difficult for Russian brands to compete by
price with cheap imports. Premium price
segment is dominated by imported goods.
The market of children footwear is not
so developed as the market of clothes. Rep-
resented are mainly either expensive foreign
European brands or cheap Asian goods.
Russian manufacturer occupy a median
price segment. In Russia, footwear of such
brands is made as ‘Cotofey’, ‘Antipola’, ‘Paris
commune’, ‘Scorohod’ and some other.
Clothes
and footwear
12
Russian consumption supervision Agency

21
Baby nutrition occupies a dominant
position in the structure of expenses
for children in the first three years of
their life. This market may condition-
ally be broken into two main segments:
substitutes for breast milk and additional
foodstuff (vegetable and fruit mushes,
canned meat, juices etc.) In terms of
money the share of additional foodstuff
amounts to 79% (including puree (46%),
juices (15%), mushes (14%), whereas
products sufficiently new to the Russian
market such as biscuits and tea oc-
cupy 3% and 1% accordingly; a share of
substitutes for breast milk amounts to
about 21%.
Main feature of the modern market
is the constant expansion and renewal
of the range, taking into account the
scientific recommendations and con-
sumer priorities. The largest players are
‘Wimm-Bill-Dann’, ‘Progress’, ‘Unimilk’,
‘Nutritech’, ‘Nestle’, ‘Nutricia’, ‘HIPP’ and
‘Heinz’. Their share in 2012 amounted to
about 70% in terms of money and about
60% in physical terms.
On the average, a share of the im-
ported products in the market for baby
nutrition amounts to about 50 — 60%.
Imported products dominate in the seg-
ments of evaporated milk formulae and
mushes (about 90%) as well as vegetable
puree and canned products of high-end
price level. ‘Wimm-Bill-Dann’ is gradually
increasing the number of regional enter-
prises; “Unimilk’ is building up the volume
of production of baby nutrition. Besides
that, these domestic companies, in spite
of the crisis, actively develop new niches
and launch new brands: ‘Wimm-Bill-
Dann’ launches ‘Zdrivers’ (Health Drivers)
whereas ‘Unimilk’ introduces ‘Smeshariki’
(‘Laughing Babies’) and ‘Disney’.
In 2010 the volume of the market for
baby nutrition amounted to 67bn RUR.
As a foundation for forecasts serves the
level of consumption of baby food which
now in Russia only amounts to 12 kg per
child per annum, which is by 10 kg less
the showings for West Europe. In general,
it is expected that the market will rise at a
rate no less than 15% per annum.
Notwithstanding the crisis, in the pe-
riod 2008 — 09 market growth was 11%.
And, in the opinion of experts, even in the
conditions of lowering efficient demand,
the segment of baby nutrition will remain
one of the dynamically growing ones in
the food market.
Most advancing for already many
years is the segment of juices. And the
share of imported brands does not exceed
4%. Main Russian producers are PLC
‘Lebediansky’, PLC ‘Gardens of Don’, ‘Mul-
ton’ and PLC ‘Wimm-Bill-Dann’ and they
materially increase volumes of production
and maintain dominant positions. Their
products in aggregate occupy 85% of the
market.
Predominant channels for buying
baby food are supermarkets (22.5%) and
specialized children shops (19.4%). Drug-
stores, discounters and small shops have
about 10% each. Shares of hypermarkets
and big self-service stores amount to 7%
and 6.8% respectively. Maximum con-
sumer costs for baby nutrition fall on the
second year of child’s life.
Two largest parts of goods for new-
born are pampers and baby cosmetics.
Active purchases of baby pampers are
Russians having children aged less a year
(77%) and parents of children from 1 year
to 3 years (22%). However, the majority
of parents of children older than a year
make use of pampers only while walking
or visiting. Most popular places for buying
pampers are super- and hypermarkets
(52% of mothers with babies aged less a
year and 53% mothers with babies aged
1 — 3 years prefer to buy pampers just
there). 97% of purchasers give preference
to imported products.
The largest producers of pampers
represented in the Russian market are
Procter&Gamble (trademark Pampers),
Baby nutrition
Goods for newborn

22
Kimberly-Clark (trademark Huggies) and
SCA (trademark Libero). Procter&Gamble
occupies more than 40% of all-Russian
sales, with Kimberly-Clark occupying near-
ly 30% and SCA occupying about 20%.
According to analysts’ estimates, the
segment of pampers has a very high po-
tential since the market is only saturated at
17%. Practically all production comes from
abroad. For a long time, pampers were
not produced in Russia. It is only in May
2008 that the first line was brought into
operation at the factory of the company
Procter&Gamble. Company Kimberly-
Clark opened in summer 2010 a plant for
manufacturing hygienic goods for babies
in Stupino district of Moscow region.
The enterprise is planned to get into full
capacity by 2015.
Baby cosmetics includes hygienic,
therapeutic, prophylactic and decora-
tive agents for skin care, hair care and
nail care. The market of baby cosmetics
numbers more than 90 trademarks and
2 thousand product names. Purchasers
prefer famous brands, share of unbranded
products accounts for approximately 2%
of all range. About 44% of the market falls
on imports.
A list of the largest producers includes:
■ Bubchen — 15.9%;
■ Johnson& Johnson (brand Johnson’s
baby) — 14.5%;
■ ‘Kalina’ — recently acquired by Unilev-
er — (brands ‘Little fairy’, ‘Dracosha’ (‘Little
Gragon’))” 11.8%;
■ Svoboda (Liberty) — series ‘Me and
mammy’, ‘Titan’, ‘Alice’: 8.3%;
■ Neva Cosmetics (series ‘Tip-top’, ‘Big-
eared childminder’, and ‘Babies’) — 6.3%;
■ ‘World of childhood’ (brands ‘World
of childhood’, ‘Curnosoki’ (Babies with
turned-up noses)): 4%;
■ ‘Our mammy’ — 3.9%.
Their aggregate share in price-lists of sell-
ers amounts, by various estimates, from
53% to 85%.
Multinational companies dominate
medium-high and premium price seg-
ments whereas medium-low and economy
segments belong to Russian producers.
Most popular channels for purchasing
baby cosmetics are supermarkets, hyper-
markets as well as specialized children
shops and drugstores. According to Ros-
BusinessConsulting, in 2011 hypermarkets
and universal shops seriously firmed their
positions since the number of purchasers
acquiring baby cosmetics through their
mediation rose by 8% (to 54.6%) in com-
parison to 2010. On the contrary, special-
ized children shop and drugstores lost 2%
and 5.8% of their contingents which now
amount to 43.1% and 28.6% respectively
(total amount is higher than 100% as peo-
ple may buy goods in several locations).
The toy segment of children goods is
developing most dynamically. Parents pay
more and more attention to intellectual
growth and development of their children
and try to begin it as early as possible.
Before the economic crisis of 2008-09 rate
of growth of the segment reached 25 —
30% a year. In 2010 the volume of Russian
market for children toys was valued at
60bn RUR, which accounted for about
16% of overall market for children goods
in Russia.
Nearly 75% of toys represented in
the global market are produced in China.
Wide choice and low prime cost allowed
China to become in fact a monopolist.
Companies with global brands such as
Mattel, Hasbro and Disney transferred
their production to China. A share of
imports in the structure of Russian market
for children toys accounts for about 88 —
90%. The main supplier is also China.
Leading positions among Russian
producers are occupied by closed cor-
Toys

23
poration ‘Zavod Ogonioc’ (Moscow), PLC
‘Vesna’ (Kirov), Trading House ‘Gulliver and
Co.’ PLC ‘Stellar’ (Rostov-on-Don), PLC
‘Elf Market’ (Moscow), PLC ‘Aelita’ (Saint
Petersburg), closed corporation ‘Step
Puzzle’ (Podolsk), PLC ‘Nordplast’ (Saint
Petersburg), PLC ‘Zvezda’ (Lobnia) etc. In
the opinion of President of Association
of Children’s Goods Industry Antonina
Tsibulina, the maid trends of the market
are increased attention of parents to the
quality of goods, increase in control from
the part of the state and active combina-
tion of toys with new technologies.
Among the channels of sales in large
cities, organized retail dominates. A share
of sales through hypermarkets and super-
markets accounts for 40-45% in Moscow
and Saint Petersburg and in specialized
shops it accounts for 30 — 35%. Archaic
forms of trade including open bazars ac-
count about 20% and this share is rapidly
shrinking. Interestingly enough, goods
in various points of sale differ in price
category. For cheaper products purchas-
ers go to supermarkets whereas for more
expensive gift toys they set off to the
specialized shops.
Children goods in Russia, according
to Detskiy Mir estimates, are sold through
four main channels: 54% — specialized
shops, 21% — food supermarkets, 20% —
fairs and open markets and 5% — inter-
net.
There are more than 50 chains of shops
of children goods now in Russia and they
already became an important channel of
distribution in million cities. Rapid growth of
children retail is one of the recent tendencies
both in Russia and in the world.
Chains of children goods are broken
into three types: universal; those special-
ized in selling toys and companies of the
segment clothes/footwear. The majority
(75%) of chain operators situates their
children shops mainly in trading centers.
No famous brand has a format of shops
of the type ‘street retail’ prevailing. Online
trade is really picking up and 47% of trade
chains has internet-shops (a larger part of
internet portals is opened in 2010-2012).
For the time being, most part of net
operators of children goods is actively
developing, in the first place, in the mar-
kets of Moscow and million cities, which
is attributed both to effective demand in
these cities and to possibility of quality
offer taking into account the priorities of
development of children chains in trading
centers and trading/entertaining centers.
In spite of the economic crisis, experts
forecast material growth of specialized
retail and, in particular, of ‘children retail’.
Competition will grow and the task of
leaders will be to develop effective strat-
egy to retain consumers, increase a share
of their expenses and to develop loyalty to
their brands. Important for all chains will
be functions of line-up management and
building up an emotional component of
brands in order to reach out to a perspec-
tive target group.
One may find a piece of evidence of
development of children retail market in
appearance of new players and advance-
ment of chains of existing brands. One of
the most ambitious projects in the Russian
market of goods for children is the chain
of supermarkets ‘Academia’ founded at the
beginning of 2008 by the company ‘New
Detskiy Mir’. In 2010 two largest Peters-
burg’s chains of children shops ‘Healthy
small child’ and ‘Children’ merged and ap-
proached the second place in the market
of Moscow. And in March 2012, Hamleys,
the largest British net of children toys,
entered the Russian market
Market players

24
The largest and oldest in Europe shop
‘Detskiy Mir’ opened in 1957. Less than
for three years the edifice was built of
total space 54.5 thousand square meter
of which 22.5 thousand square meter was
directly designed for shopping space. It
was a first edifice designed and built just
for a shop of children goods.
Practically at once ‘Detskiy Mir’ con-
centrated on its shopping floor all sales of
children goods in Moscow and became
a leader in this segment of market in the
country. In the first year of its existence
the turnover of the universal shop already
amounted to 93m ruble which at that mo-
ment was big money. And with each year
this figure was growing.
Exclusive products and innovations
appeared at the counter of ‘Detskiy
Mir’from the first days of its working. In
times of Soviet economy it was a difficult
task: the central store of ‘Detskiy Mir’ was
even forced to take on a role of initiator
of development and production of many
various goods for children, from footwear
through school uniform to tool kits for
manual training.
In a constant struggle to improve
quality of products, the management of
‘Detskiy Mir’ was forced to seek and find
new methods of organization of business
relationships with partners enterprises,
suppliers, designers and so on. It was
necessary to come on to direct ties with
industry, organize trade exhibitions of
particular groups of goods, customer
conferences, surveys by questionnaire,
show of new products. Thus, suppliers
had the chance to receive opinions of
their products and information of the
needs of customers. Besides that, ‘Detskiy
Mir’ actively set up contacts with foreign
manufacturers. The trademark of ‘Detskiy
Mir’ was widely known in a territory of the
former USSR.
By 1990 ‘Detskiy Mir’ had 28 shops
in Moscow and distribution warehouse in
Karacharovo, west of Moscow. Turbulent
times of 1990s influenced chain sig-
nificantly. The main change happened in
1996 when financial corporation ‘Sistema’
purchased stake in ‘Detskiy Mir’; later
‘Sistema’ increased its share to 70,5% by
2004.
In 2001 ‘Detskiy Mir’ starts regional
expansion opening its first store in Orel.
However in 2002-2004 chain opens
only one new store a year. But situa-
tion significantly changes in 2005-2008.
Russian booming retail spurs company
expansion: ‘Detskiy Mir’ opens 14 stores in
2005, 21 — in 2006, 25 — in 2007 and 40
in 2008. In 2009 the financial crisis stops
expansion: in 2009 and 2010 company
opens only 3 shops a year. However in
2009 company developed logistics with
new distribution center in Krekshino and IT
with implementation of Oracle ERP. In 2010
company opens internet-shop.
In 2011 regional expansion continues.
“Detskiy Mir’ opens 21 new shops, enters
Kazakhstan market, develops together
‘Detskiy Mir’ is a national chain
of shops for selling children goods.
The retail chain already exists for
more than 50 years and during
this period the company opened
points of sale in 64 cities of Russia
and Kazakhstan.
Nowadays ‘Detskiy Mir’ leads
in Russian by number of shops
and turnover. In large cities you
may ask practically each inhabit-
ant about location of ‘Detskiy Mir’:
both grown-up and children know
the brand.
Detskiy Mir
Great beginning
Detskiy Mir

25
with SCG London new store and store
zoning concept and implements new
loyalty program Yo-Yo.
In 2012 “Detskiy Mir’ shows even more
robust growth than in 2011. 15 new stores
are opened in first half of year. In June
2012 ‘Detskiy Mir’ purchases Russian part
of chain ‘Early Learning Centre’ consisting
of 19 small shops.
Mission of the company consists in
building a national trade chain called up to
provide the society with civilized condi-
tions for the most qualitative, safe and
perspective investment in a rising genera-
tion.
‘Detskiy Mir’ is planning to become
a national benchmark of a shop with the
widest choice of quality goods for children
and adolescents. Management of the
company is building socially-responsible
business which together with the state and
public organizations will always counteract
infiltration into the domestic market of
goods which may harm moral standards
and psychiatric health of children.
In 2011 ‘Detskiy Mir’ voiced a new
strategy of development. The company
set course for expansion and raising the
effectiveness of business. And already
in2012 the retailer opened 23 new shops
in Russia and Kazakhstan, widening the
chain to 173 trading objects. Thanks to
the new points trading space increased
to 330 thousand square meter, and staff
reached almost 7 000 employees. But the
widening does not end at that and already
by the end of 2012 the company plans to
increase their chain in Russia to 200 shops,
opening since October nearly 10 shops
each month.
Chain ‘Detskiy Mir’ is oriented on
customers who are interested in acquir-
ing quality goods at affordable prices.
Recognizable brand with more than a half-
century history, the widest choice of goods
and optimum combination ‘price/quality’
help the company retain the leading posi-
tions in the market.
The company has «one-stop-shop»
business model. Malls and stores of ‘Det-
skiy Mir’ offer the widest choice of goods
for children from 0 to 17 years as well as
for their parents.
Points of sale offer goods of the following
categories:
■ Games and toys. This category com-
bines all kinds of toys: soft and interactive
toys, transport, electronics, playsets, board
games, construction sets, musical instru-
ments and toy guns. ‘Detskiy Mir’ is a
market leader in this category.
■ Goods for small children. This category
combines goods required for children in
first years of their lives: baby carriages,
pampers, furniture, jumpers, cosmetics,
and dishes, toys for small children, rattles
as well as car seats.
■ Sport and active recreation. This catego-
ry combines goods for engaging in sports
activities: sportswear, bicycles, roller skates,
sleds, accessories for swimming, tourism,
winter holidays and sport games.
■ Clothes and footwear. This category
combines clothes, footwear and acces-
sories for children of all ages: summer and
winter jackets, jeans, shorts, tights, T-shirts,
children underwear of all types and fash-
ions for all seasons.
■ School and creative work. This category
combines games for the brain and things
required for children at school: bags, pen-
cil cases, stationeries, trainable materials,
books, microscopes, accessories for draw-
ing and modeling, kits for creative work.
Target audience of consumer of
children goods of ‘Detskiy Mir’ entirely
consists of children and is broken by age
Idea of a shop
Company’ business
Detskiy Mir

26
into several segments. The first segment
includes newborns (from 0 to 3 years). In
this category of consumers a decision to
buy is made by parents or tutors. ‘Older’
segment includes preschoolers from 4 to
6 years. School age is divided in compo-
nents since the groups differ in their con-
sumer behavior: junior school age (from 7
to 10), median school age (11 — 14 years)
and senior school age (15 — 17 years).
In majority of cases (70% of sales in
Russia) children products are purchased
with no children involved. ‘Detskiy Mir’
target audience is women aged 25 to 39
and having an up to 9-year-old child (or
children). Usually they are middle-class
consumers who are interested in paying a
reasonable price for quality goods. Yet, the
older a child is, the more involved he/she
becomes in product selection process. The
parental influence on choice-making de-
creases once children move from “children
segment” to “elder children segment”.
As a result of increment of trading
spaces, proceeds for 6 months of 2012
amounted to 10 649 m RUR, an increase
by 16.1% (8.5% in dollar terms) year-to-
year. Like-for-like growth of sales of the
chain of shops ‘Detskiy Mir’ amounted
to 9.1% in ruble terms for the 6 months
of 2012 and that has taken place due to
increase in the sum of average purchase.
Share of sales of Group of companies
‘Detskiy Mir’ outside the limits of Moscow
rose to 61.4%. Number of customers of
the chain ‘Detskiy Mir’ for the first half of
2012 rose by 10.4% to 33m person. Active
growth is demonstrated by the area of
online trade. Proceeds of internet-store
‘Detskiy Mir’ grew more than twofold
and amounted to 33m ruble. During this
period the coverage of regions increased
by 7 cities. Gross profits of the company
increased by 16.1% year-to-year and
amounted to 3 915m ruble. Gross margin
remained at the year-to-year level and
amounted to 36.8%.
In the first 6 months of 2012 rate of
growth of proceeds exceeded that of com-
mercial and management expenses which
weighed on the reduction of the ratio
‘expenses/proceeds’ to 41,5% (43.6% year-
to-year). In comparison with the respective
showing for 6 months of 2011, the com-
mercial and management expenses have
risen by 10.3% to 4 415m ruble. Growth
of expenses is caused by high rate of
development and, as a consequence, by
widening the geography and audience of
marketing activities.
Main revenue streams in 1H2012 were
unchanged. 38% of revenue came from
toys, 23% — goods for newborns and
baby nutrition, 21% — clothes, 11% —
school needs (stationary and etc.) and
7% — shoes. 39% of revenue was made in
Moscow and Moscow region, 61% in other
regions; share of Moscow felt from 42%
in 1H 2011. As of visitors share, Moscow
and Moscow region accounts for 30% of
visitors in 1H 2012 and 35% in 1H 2011
with total number of visitors around Russia
reaching 33,5m people in 1H2012 and
30,4m in 1H 2011.
The company possesses a branched
chain of 173 shops throughout Rus-
sia and a separate internet-store; shops
cover almost 89% of Russia in terms of
retail volume. ‘Detskiy Mir’ outlets are
located close to metro stations, busy
traffic routes or within large residential
areas with population more than 200,000
people. However, at the moment almost
31% of chain space is located in Moscow
and Moscow region. The approach to
an outlet is always properly navigated.
Several signposts in Moscow metro sta-
tions are located near exits to city surface.
Almost all stores are located within a
Corporate finances
Points of sale
Detskiy Mir
12
Measure for growth of sales adjusted for acquiring new points
of sale and selling the existing ones

27
shopping mall or gallery with only a few
being standalone shops.
All stores belong to one of the fol-
lowing groups, or “formats”: hypermarket
(starting from 3,000 m2), flagman store
(from 1,500 m2), local shop (from 800
m2), and small outlet (around 600 m2).
The majority (up to 70% of all stores) are
large hypermarkets, where visitors can
spend all day and always find something
special. In most cases they are located
within large shopping malls with customer
flow of 20,000 to 70,000 people on first
and second floors (rarely on third floor
and only in shopping malls with elevators).
Hypermarkets of ‘Detskiy Mir’ boggle the
imagination with the bounty of colorful
goods and width of choice, Shopping trip
to such a hypermarket always turns for a
child into a festive occasion. New hyper-
markets are equipped with playgrounds
where animators are working and children
who do not want to part with their parents
even for a moment may use special little
carriage-machines and small children like
very much to move along the territory
of a hypermarket using these machines.
But there are not a lot of free spaces in
a hypermarket: most spaces are used for
accommodation of the products. When
festive occasions are carried out (show of
models of children clothes, contests and
prize drawing) they are usually organized
on a small area near the entrance.
The other category of points of sale
are small district stores. Flagman stores, lo-
cal shops and small outlets are more likely
to be parent-targeted. They have a con-
venient location (within a shopping mole
close to metro stations), but have less
space and limited range of products of-
fered. Local shops are usually “on the way”
whenever there is an urgent need to buy
a present or baby food which you have
run out of. Yet, there are no play spaces for
kids, and aisles between shelves are too
narrow to pass with a customer trolley.
But, of course, division into four
groups of such a wide network is very
conditional. In spite of general principles
of decoration and organization of internal
space, all stores of the chain more or
less differ from each other. It depends on
geographical location of a store, year of
its foundation, type of point of sale and
other factors. Let’s take an example: Mos-
cow. Here you may find long-functioning
points of sale, practically not changing
with time. After 2008 ‘Detskiy Mir’ began
to create stores in accordance with the
new strategy which takes in account visual
communication of brand within the trad-
ing space, system of navigation inside the
store and zoning. New look have acquired
four stores of ‘Detskiy Mir’ in Andropov
avenue, in trading/entertainment center
“Metropolis’, in trading/entertainment
center ‘Rio’ and near metro station ‘Kras-
nopresnenskaya’. The latter is especially
distinguished among the other points of
the chain. Trading center ‘On Krasnaya
Presnia’ is a three-storied building, a
spacious, colorful store ‘Detskiy Mir’ with
glass windows and by level of decoration
and service it is close to that of premium
shops of the retailer. Inside the store there
are areas singled out for main product line
groups: clothes for girls, clothes for boys,
footwear, goods for newborns, goods for
prospective mothers, toys for girls and
boys, goods for active holiday etc. Search
is simplified by a convenient system of
indicators for grown-ups and colorful
decoration of product group zones.
Entertaining navigation is provided for
children based on the use of a fairy-tale
character. Inclusion into the trading space
of game and entertainment components
helps attract a child into a process of
purchase and facilitates a choice of goods
by grown-ups.
In addition to traditional stores, the
company has its own internet-shop which
the geography of delivery numbers more
than 20 Russian cities. It is the biggest
internet-shop for buying children goods
in Moscow. According to company data
total number of visits in December 2011
accounted 1m unique visitors. Now the
company is upgrading the current version
of its site in order to make it easier from
the point of view of choosing a product.
Detskiy Mir

28
According to the actual data from Google
Analytics, an average visit depth from en-
trance to purchase amounts to 25 pages.
It shows the necessity to improve naviga-
tion and exposition of product line on the
site. And after the plans include the launch
of a mobile version of the site, QR-codes,
participation in co-branding programs of
loyalty as well as offering the possibility to
make payments with all kinds electronic
currency, integration of the internet-shops
with social networks and creation of such
services as wish-lists, ‘gift to a friend’,
‘order delivery’ and so on.
For the time being, online sales ac-
count for less than 1% of turnover of ‘Det-
skiy Mir’, or 40m RUR in 2011 and 33m
RUR in 1H2012. Plans are afoot to increase
this figure up to 5% by 2015. In the opin-
ion of the management, the online pur-
chase does not take away customer from
off-line retail: it takes place mainly due to
more active promotion of the project in
the chain. If anything, the internet-store, in
its turn, promotes the off-line retail into the
Internet, serving as a site in the function of
its business card.
The principle of formatting a product
range in ‘Detskiy Mir’ provides a customer
with the possibility to buy all the things
needed in one place. It is for this that cus-
tomer love ‘Detskiy Mir’: you can buy here
‘everything in the world’. At present, more
than 300 thousand names of articles are
represented in large hypermarkets.
It is very important for a chain of chil-
dren goods to have a wide product range,
especially in the category of goods for new-
borns. Having chosen for their baby suitable
nutrition and sanitary products, parents
are reluctant to change them. In practice,
visitors enter a shop for a concrete article of
a concrete producer and, having not found
it, may leave a shop without purchases. The
same tendency to a certain degree refers to
other goods: games, clothes, footwear. For
the time being, conversion of visitors into
purchasers in ‘Detskiy Mir’ is equal to 40%
and the company is planning to seriously
raise this figure.
With maximum wide product range
as a target, the company pays special
attention to goods arrangement on the
shelves. For an appropriate placement of
goods, consumer’s preferences are moni-
tored non-stop, resulting in most relevant
display of goods. Furthermore, network
suppliers’ experience and wishes are taken
into account whenever possible.
In accordance with the corporate policy,
a separate merchandising system for each
product group is in place. Thus, suppliers
of each product category are contacted
separately. POS materials, such as promo
stands, equipment branding etc. are often
put in place in display areas for marketing
purposes. Chillout music and radio com-
mercials improve the store ambience.
Festive promotions, such as one-set
seasonal sales, are launched on a regular
basis. For example, at the start of a new
school year customers are offered related
sets of school goods; such practice allows
them to buy everything they need for their
families at a time.
‘Detskiy Mir’ service quality standards
are targeted at creating festive atmos-
phere. Immediately after being employed,
shop assistants, cashiers and sales area
managers have to complete special train-
ing. In due time, ‘Detskiy Mir’ employees
undergo other workshops and further
training to upgrade their skills. However,
since there are few staff members in sales
area, and self-service approach is mainly
predominant, the company has imple-
mented zoning and navigation systems to
help customers choose the product they
need with maximum convenience possible.
As no shop assistants are usually present
in sales area, it’s almost always up to a
customer to find an appropriate model,
size or color. Service at the cashier desk
does not differ much from competitors’
solutions, i.e., automated billing and a free
pouch with the chain logo.
Product range
and service
Detskiy Mir

29
A different approach is applied to
forming a product range for internet
portal. Group of goods bought in internet
strongly differs from off-line trade. For
example, foodstuffs, clothes and foot-
wear are practically not sold. At the end
of February 2012, own goods matrix was
approved for a channel of online sales, in
which 53% of the product range should
fall on toys, 40% should fall on goods for
newborns. The discrepancy of the product
range matrix with the off-line store is
equal to 15 — 20%. In the category ‘toys’
the retailer sells in the internet-shop full
lines-up of famous brands Lego, Hasbro,
Winx, Barbie and others. According to
statistics of requests, visitors are searching
in the Internet concrete popular brands.
Less known brands will be taken out of the
product range.
Maximum convenience for purchasers
is the main principle of the internet-shop
of ‘Detskiy Mir’ and instantaneous book-
ing of goods differ it from others. Due to
integration of the internet-shop with the
warehouse of ‘Detskiy Mir’, a customer
may be sure that an ordered article is re-
ally available in stock..
Brand ‘Detskiy Mir’ is in existence for
more than 50 years and now is the most
recognizable in the country among the
chains of children goods. The advantages of
the ‘first entrance’ into the market still help
the company retain leadership. All those
who now buy children goods are the people
bought up in times when ‘Detskiy Mir’ was
the only shop of that kind with unbelievably
fabulous choice of goods. For Soviet par-
ents the name ‘Detskiy Mir’ has practically
become a synonym to “children goods shop’
and for the children visits to ‘Detskiy Mir’
have always been a ‘fairy’ occasion.
Nowadays the company develops its
network, positioning itself as a number
one company in Russia providing a wide
range of quality children goods at afford-
able prices. Slogan of the company is ‘Det-
skiy Mir’ — for happy children’. And the
management carefully watches the quality
of goods and services provided in order to
comply with the image of a bright, colorful
and ‘kind’ shop.
The company allocates hefty budget
to develop its brand which includes show-
case decoration, raising quality of service,
marketing campaigns online and off-line.
In first 6 month of 2011 the company
spent 78m ruble on marketing and in 6
month 2012 — almost 220m ruble.
All stores of the chain ‘Detskiy Mir’
are decorated in one style throughout.
The entrance is always enhanced by an
electric sign bearing large blue name and
logotype with yellow, red, blue and green
cubes that is known from the childhood.
Store showcases are constantly updated
with new POS-materials with information
about current promotions and topical
stock placement. Store external appear-
ance plays a huge role in attracting cus-
tomers. Decoration singles out a shop and
stimulates customers to go inside. When a
store is located in a shopping mall, where
all children-goods stores are located next
to each other, attractive look of its outlets
helps the company to gain competitive
edge.
Site of the company exists from 1996
in the Internet. It gives all required infor-
mation about the company, goods, ad-
dresses of shops with indication of formats.
Two years ago, own online store began to
function which now picks up popularity.
‘Detskiy Mir’ is widely advertised
though all possible channels: TV, radio,
outdoor and print advertising. The most
difficult thing is to formulate an appeal
to a person who makes decision to buy.
Communication is built in two directions:
rational (for parents) and emotional (for
children). However, the advertising cam-
paign with a slogan ‘Detskiy Mir’ — for
happy children’ is oriented on emotional
motives and directed onto children.
Marketing
Detskiy Mir

30
Active PR is conducted through social
networks. ‘Detskiy Mir’ is developing in-
formal channels of communication in two
social networks: in Contact (more than 55
000 participants in the group) and Face-
book (more than 2 000 participants). In
these communities the company not only
educates, but also entertains the public.
The content of the groups is designed for
children audience. By the jubilee celebra-
tion the company even launched its own
game application ‘Detskiy Mir’ which
united 7 000 participants. Within the
framework of the group various contests
and promo-actions are sometimes pub-
lished which are organized by ‘Detskiy
Mir’ in conjunction with its partners. Be-
sides that, more than once a lottery was
held for exclusive conditions of selling in
the shops of the chain, — winners may
make use of discount coupon for 10%.
All the year round ‘Detskiy Mir’
conducts large advertising campaigns.
Children festive occasions, fashion
shows and contests are organized on a
regularly basis. By agreement with the
suppliers, the chain offers discounts and
carry out sales. The company always
organizes festive occasions on the eve
of significant events: 1st September, New
Year, 1st May. For example, in honor of
its jubilee in 2012 the company gave
grand entertainment for Muscovites in
the Gorky Park. Several playgrounds
were deployed in the Park. For boys a
special entertainment was prepared with
radio-controlled small machines whereas
girls were waited for by beauty parlor
of popular fairies Winx where masters
taught young women of fashion to
make them up and hairdressing. And, of
course, all day long functioning were the
playgrounds with toys and construction
sets; and they could not do without fa-
vorite area with trampolines. All occasion
long multiple prizes from the company
were drawn.
Functioning in all stores of the chain is
the program of loyalty ‘Progressive bonus
card’ (‘Yo-Yo-Card’). Since 2011 purchasers
may register at the reception of any store a
plastic card with a magnetic strip (’Yo-Yo-
Card’). The card gives the right to partici-
pate in the program of accumulation of bo-
nuses when making payment for the goods
in all stores of the chain ‘Detskiy Mir’ and
these bonuses may be written off for full
or partial payment for goods of the chain.
Also, with the purchase of every goods, if
the purchase was made with the help of a
progressive bonus card, cardholder receives
a bonus in the form of 5% discount from
the price of every goods acquired. Later a
client may pay up to 20% of purchase using
bonuses (excluding baby nutrition, goods
for newborn and sale items).
For cardholders a special service is
designed that allows to verify online a
number of bonuses assigned. To do that
it is necessary to visit the site and key in a
number of your bonus card or to get the
balance over free service telephone.
Participants of the bonus program con-
stantly receive information at their e-mail or
through SMS relating to actions and official
offers by the chain. However no reminder
to come back to a shop exists.
Share of sales from loyal customers
is valued by the company at 60-70% of
overall number of customers.
Program of loyalty
Detskiy Mir

31
But all this is not a limit. Recently a
concept of Customer experience man-
agement (CEM) is enjoying a particular
spreading and this concept interested the
management of ‘Detskiy Mir’. Customer
experience management is a paradigm
suggesting a creative look at the world of
consumption which goes beyond simple
selling of goods and services and includes
management of customers’ emotions
upon purchase.
The idea of managing impressions,
in the best way possible, fits a shop of
children goods. First attempts to create ‘an
emotional world of a brand’ were made in
2008 when the company opened in Mos-
cow several new stores with new decora-
tion. For the first time articles were divided
into two groups: ‘emotional’ one (toys,
sport, books) and ‘rational’ one (clothes,
footwear, goods for prospective mothers),
which differ in the degree of activity of a
child in the process of making a purchase.
Marketing director of ‘Detskiy Mir’
thinks that the changes helped to make
stores of the chain really universal, con-
venient and comfortable. ‘Detskiy Mir’ is
something more than just a store: it is a
center of communication between children
and grown-ups in which you may not only
make necessary and pleasant purchases
but also pass the time with use for a child
and joy for the whole family.
But the company is not going to rest
on its laurels, especially now that before it
stand large-scale plans to develop the net-
work and brands. There exists a large po-
tential for supplementing children goods
with emotions and impressions. And it
refers not only to appearance and inner
contents of a store but also to playing up
the process of purchase. Similarly to the
Western companies (Hamleys, Toys”R”Us),
‘Detskiy Mir’ wants to try to integrate a
child into a process of purchase and make
it a participant of that process. For exam-
ple, the chain of shops Hamleys is famed
for use of not only shop assistants but also
demonstrators who play with children and
arrange bright performances. Responsible
for animation on London stores are tens
of workers many of whom are students of
theatrical institutes.
With the help of creating various game
elements and managing the atmosphere
inside stores it is possible to seriously influ-
ence the effectiveness of sales. Brightness
of shop windows and the interactive will
attract more purchasers. Optimization of
location and search of goods of required
sizes and colors will increase the conver-
sion of visitors into purchasers and the
system of relationship with customers after
the purchase will force them to return
again and again. And what else, but the
new information technologies could help
the company achieve its goals …
Detskiy Mir
A new stage
of development
Detskiy Mir

33 Appendixes
Company Country of origin Year of foundation Number of outlets in Russia Revenue, 2011, bn RUR
Detskiy Mir Russia 1947 173 23
Zdoroviy Malysh Russia 2001 82
16,8
Deti Russia 1997 69
Dochki-Sinochki Russia 1996 about 100 9
Korablick Russia 1999 more than 100 6,49
Behemoth Russia 2005 71 4,3
2.
Priorities of the types of children goods stores
Types of the stores visited (Where did you buy children goods
during the last 3 months?), % of respondents. Several answers
were possible.
1.
The biggest retailers on the Russian market of children goods
Regional
capitals
SPB Moscow
Internet
Fairs and open markets
Universal stores
Specialized stores
9
37
76
13
33
79
91
28
38
78
8789

34
3.
Average monthly expenses
in Detskiy Mir
Monthly expenses for children goods
of a family with one child, rub.
4.
Which digital devices use children and their parents
In May-August Online Market Intelligence Agency surveyed 3833 people from Russian million-cities.
All of the respondents have children, %
Do you use the following device?
Moscow
Mobile PC PC Notebook Smartphone Handeld
garne console
Tablet
SPB Regional
capitals
3 930
3 550
2 980
85
80
65
35
15
12
50
63
47
15
20
7
Appendixes
Parents
Children
The survey also covered question “Do children use mobile applications?”. 48% of respondents answered positively, 40% negatively,
12% did not know. Most often children use game applications (78% very often, 15% often), then educational apps
(37% — very of the, 28% often, 17% — rarely) and then apps for drawing, making music or video (31% — very often, 29% — often, 18% — rarely).

35
5.
Competitors of ‘Detskiy Mir’
Appendixes
Zdoroviy Malysh
Healthy small child
In 2001 Petersburg chain put into operation
the stores for selling goods for babies and their
parents called ‘Healthy small child’. Rich product
range, excellent quality — all this made a firm
incredibly popular among fathers and mothers
throughout the country.
Step by step the company expanded its
chain in Russia and, at last, occupied leading
positions in the field of children goods. Since
2002 the company ‘Healthy small child’ not only
became a distributor of children products, but
also carries out programs connected with the
help of families.
Choice is immense in every store of the
chain ‘Healthy small child’. Here you can find
goods which can suit any taste and for little
ones of any age: both for newborns and older
children.
The owner of the chain “Healthy small child’
is Petersburg company ‘Special Service’ that
united chains ‘Healthy small child’ and ‘Deti’ in
2010 and now it is a player N2 in the metropoli-
tan market by number of points of sale.
Dochki-Sinochki
Daughters and sons
‘Daughters & Sons’ is a chain of supermar-
kets for selling the goods for newborns and
children of preschool age. The chain includes
27 supermarkets in 12 cities of Russia. Average
trading space of each store is 1500 square meter.
Plans are afoot to open 100 stores in cities with
population more than 250 000 dwellers.
The company offers customers a wide
range of production: more than 55 000 names
from more than 500 suppliers from Russia,
Belarus, Ukraine, Poland, China, Turkey, Spain,
France, Italy and some other countries.The
company tries to offer goods of all directions:
children knitted fabric, apparel, children clothes
up to 14 years, tights, socks, children acces-
sories (children’s dummy, small bottles, rattles,
teething toys etc.), cots, carriages, bicycles,
highchairs, baths, potty, matrasses, sleeping
gear, gift sets, baby cosmetics, goods for new-
borns, linen for expectant mothers and nursing
mothers and so on.
Deti
Children
Closed corporation ‘Deti’ specializes in selling children goods by wholesale
and retail. The company ‘Deti’ was founded in 1997. Having begun working
as a wholesaler, the company actively developed and for the time being is
one of the largest network of retail stores for children goods.
Nowadays the chain ‘Deti’ numbers 29 stores in Saint Petersburg and
40 stores in Moscow and Moscow region. All stores are represented in a
format of self-service which gives wider possibilities of access by customers
to goods and raises the convenience of choice. Stores have trading space
varying from 350 to 2500 square meter. The company employs more than 1
700 skilled workers who are ready at any time to give a piece of profes-
sional advice on a particular group of goods.
The company ‘Deti’ offers about 30 thousand of names of children
goods from the birth to 12 years as well as for their mothers. Always in
stock are baby nutrition, goods for child care, cots, carriages, playpens,
furniture for children room, highchairs, car seats, swings, jumpers, sport
complexes, clothes, baby cosmetics, toys, bicycles, electric vehicles, walking
frames, trolley and many other things. In 2010 closed corporation ‘Special
Service’, which owns the chain ‘Healthy small child’, acquired 100% of ‘Deti’.
Korablick
Little ship
The first store ‘Korablick’ was opened in
Moscow near the metro station ‘Marino’ in 1999.
Founder and owner of the chain is Alexey Zuev.
In order to resist the largest competitors — ‘‘Det-
skiy Mir’’ and ‘Banana-mammy’ — the chain ‘Ko-
rablick’ has chosen a format of ‘soft discounter’
with low prices and high level of service. In 2005
‘Korablick’ was a first children chain to launch an
Internet-store.
The chain ‘Korablick’ carries out an aggres-
sive advertising campaign, using, for example,
such slogans as ‘Make children — the rest we’ll
provide’, ‘250 thousand ruble in three years but
have gifts now and for each’. Only in 2006 ‘Ko-
rablick’ spent on advertising in Moscow $1.2m.
According to marketing research by Nielsen, at
the end of 2007 ‘Korablick’ occupied the third
spot in the rating of the most famous and visited
children retailers.
According to workers of the chain ‘Ko-
rablick’, as a result of the crisis the demand
for products changed and the earnings shrank
nearly by 50%. Product range of the stores “Ko-
rablick’ exceeds 10 thousand of various names
of articles.
Behemoth
Hypermarket ‘Behemoth’ is the largest fed-
eral trading chain for selling toys which includes
71 stores located in the European part of the RF,
in Ural and Western Siberia.
The chain was formed in 2005 with the
opening of the first store in Penza. It is with this
store that the history of the hypermarket began.
Six years went by and during this period the
company managed to open 70 hypermarkets in
the largest cities of Russia, to create and develop
franchising network which now includes more
than 400 franchisees-partners.
The idea to create national network special-
izing exclusively in toys originated from the
group of companies ‘Grand Toys’, the largest
Russian supplier which entered the market in
1998.
Behemoth works in the format cash&carry.
It makes it possible to buy in one place and
at once all goods that a customer chose in a
required quantity (all stocks are conveniently
located in the sales area) and at affordable
prices. Besides low prices for wholesalers, there
exist a special system of discounts and a set of
supplementary services.

36
6.
Children goods industry top trends in 2012
Antonina Tsitsulina, President of Association of Children’s
Goods Industry, named the following key trends in children
industry in 2012:
Appendixes
1.
Increasing government regula-
tion in children goods industry;
2.
High demand to ecologically
neutral products;
3.
New technologies including
screened interaction in stores;
4.
Economic instability resulting in
Do-it-Yourself market growth;
5.
Any customer may become
your competitor soon as bar-
riers for new player entry are
low in internet-era;
6.
Growth of market with high
Mergers & Acquisitions po-
tential;
7.
High demand for children
goods from charity programs;
8.
Civil society is an established
power with opinion leaders
covering millions of people
in social media;
9.
Digital natives generation
grown up on Pcs, laptops,
tablets and smartphones;
10.
Power of children: children
now make more influence on
parents than ever before.
2007 2008 2009 2010 2011 1Н 2012
Revenue 540 770 797 364 584 604 659 311 782 900 354 266
Gross profit 213 282 320 287 215 120 280 669 271 503 130 500
Margin, % 39,40 40,16 36,79 42,57 35,40 36,80
Net income/(loss) (16 248) (50 592) (102 346) 1 084 (5 600) (28 930)
Number of shops 129 128 131 150 164
Shopping area
(th. sq. meters)
109 150 200 215 236 330
Number of visitors,
mln.
68,2 69,7 33,5
7.
Financial statements of ‘Detskiy Mir’ (amounts in thousands of U.S. dollars)

37
8.
‘Detskiy Mir’ revenue breakdown by the regions, %
9.
‘Detskiy Mir’ quarterly breakdown in 2011
Appendixes
1H 2012 1H 2011
Share of revenue, % N of outlets Share of revenue, % N of outlets
Moscow and Moscow region 38,60 41 41,80 39
The Central Federal District 10,20 33 10,30 32
Northwestern Federal District 10,60 30 10,30 29
Volga (Privolzhsky) Federal District 18,70 15 17,70 14
Southern Federal District 6,20 35 5,70 31
Ural Federal District 8,40 12 7,80 8
Siberian Federal District 6,80 6 6,40 5
Kazakhstan 0,50 1 0
Q1
8000
7000
6000
5000
4000
3000
2000
1000
22
20
18
16
14
12
10
8
6
4
2
Q2 Q3 Q4
Visitors, mln people (right axis)
Revenue, mln RUR (left axis)
15
18 21
15
4346
4 826
6 050
7 786

38
10.
‘Detskiy Mir’
new store concept
Appendixes
Modern
Emotional
Convenient
for client
Effective
for trade

39
10.
Typical zoning
of the ‘Detskiy Mir’ store
Appendixes
Staff premisesConstruction
toys
Toys for small
children
Goods for
small children:
food, pam-
pers, strollers,
cosmetics
Boys clothing Clothing
for little
babies
Girls clothing Promotional
area
Shoes Entrance
Multimedia school and
creative work
Girls’ toysSoft toysBoys toys Cash
zone

40
11.
Microsoft’s products
Appendixes Windows 8
Windows 8 is a new operating sys-
tem produced by Microsoft for use
on personal computers, includ-
ing home and business desktops,
laptops, tablets, and home theater
PCs. Windows 8 is scheduled
for general availability at the end of
2012.
Windows 8 introduces significant
changes to the operating sys-
tem’s platform and graphical user
interface, such as a new interface
design incorporating a new design
language used by other Microsoft
products, more personalization
options for the Start screen, includ-
ing more colors, a new online
store that can be used to obtain
new applications, along with a new
platform for apps that can provide
what Microsoft described as a “fast
and fluid” experience with empha-
sis on touch screen input. People
will also notice and enjoy improve-
ments to the Mail, Photos, and
People apps.

Business Case Creating World Class Customer Experience in «Detskiy Mir» Chain of Children Goods Stores

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