Russian resilience

The Russian textile care services industry is steadily developing, thanks to gradually recovering consumer demand in the local market and the rise in purchasing power of the Russian population.

This year, however, became more complex for the industry, as tax pressures have increased significantly.

The increase in property tax in Russia this year, along with VAT, resulted in the growth of average costs for leading local laundry and drycleaning operators.

A significant number of their outlets are located within shopping malls and other commercial properties which require monthly payments of high rental rates to their landlords.

Still, the ever growing tax and other pressure on the industry has not led to a massive crisis in the industry, which was initially predicted by some local analysts: some expected massive bankruptcies of laundry operators in Russia this year. Instead of this, the crisis only resulted in the revision of investment programmes of some local players.

Although the industry was able to withstand the negative effects of the crisis most local analysts still believe the current situation remains rather complex.

Dmitry Nesvetov, president of Diana, Russia’s largest network of laundries, in an exclusive interview to LCNi, comments: “This year there were no large-scale projects in the industry, so the situation generally stabilised. The current main goal of the industry is adapting to the changes in tax and regulatory policies implemented by the state. As the tax burden has increased, we have been forced to pay more attention balancing finance.”

As in the past, the Russian laundry and drycleaning services industry is still primarily concentrated in the largest cities of the country, particularly Moscow and St Petersburg.

With regard to St Petersburg, in recent years the market in the 6 million population city has grown significantly, and is showing a positive dynamic at present. Analysts say these trends could be also explained by the status of St Petersburg as the cultural capital of Russia, which contributes to the growth of the demand for laundry and drycleaning services among the local inhabitants.

Moreover, local customers have become more selective in using the services of drycleaning and laundry operations in recent years, and are ready to pay more for services of a higher quality.

Igor Goncharov, head of Chaika, a Russian network of laundries and drycleaners, says that despite the existing problems the Russian market still has a big potential for a further growth, as the current level of saturation remains low.

Goncharov comments: “According to some market data and forecasts, the number of laundry and drycleaning enterprises in Russia will reach the USSR level within the next 2-3 years.

“At present each drycleaner in Russia serves 50,000 local people, compared with 10,000 in the case of the EU and 1:7,000 for the US.

“That means the domestic market is still far from saturation and we expect the appearance of new companies in it in the near future along with the development of existing enterprises.”

Other analysts also confirm that the current number of drycleaners and laundries in Russia is still significantly lower the Soviet figures, despite a recent increase of their number, which has been observed in recent years.

One of the reasons for this is the traditional Russian mentality, which is reflected by less mobility of local citizens, compared with that of those living in Western countries.

In addition, the majority of Russian households have their own washing machines, which restricts the demand for laundry services.

Secondly, in contrast to the majority of Western countries the current tariffs for water, electricity and energy in Russia are significantly lower those in West, which makes the use of laundries more affordable for local citizens.

Still, most analysts believe in the high potential of the Russian market.

According to their predictions, the services of laundry and drycleaning businesses could cover around one-third of the 140 million Russian population within the next several years. However, if this niche has already been occupied in large cities, then the level of saturation of these services in the vast Russian provinces is expected to be significantly lower. Nevertheless, in recent years, these services have become more affordable for local citizens, due to the appearance of selfservice laundries in Russia. In value terms, the current value of the Russian market for drycleaning and laundry services is varied in the range of US$150-170 million.

In contrast to Western laundries and drycleaners, the range of services provided by the majority of Russian companies remains rather limited. However, this situation may change in the coming years, as many local companies are constantly expanding the range of provided services.

With regard to customer structure, the range of clients using the services of laundries has significantly expanded. In terms of major customers, 80% of laundry clients are individuals, while the remaining account for business.

Still, representatives of leading Russian drycleaning and laundry operators remain generally sceptical. Nesvetov says: “Given the current market realities there are only limited opportunities for a further growth. In general, the current growth rates of the Russian retail market remain weak, as the purchasing power of local customers is steadily declining.

“If everything remains at the current level, then there will be no big chances for the future growth of the market.”

Most local analysts are unhappy with the small volumes of support to the industry provided by the state. According to Nesvetov, there are currently no special measures to support the industry, which he believes could be offered by the state.

He also adds while there is a general programme to stimulate the development of small- and medium-sized businesses, there is a high possibility that further implementation will be suspended by the state shortly.