- Unsanctioned Ukrainian resellers pass on goods from Poland
- Foreign retailers still holding back on Ukrainian investments
In a crumbling Soviet-era apartment building in Kiev, up a rattling graffiti-scarred elevator, Anastasia Chumak has created an oasis of comfort furnished by Ikea.
The catch: there is no Ikea outlet in Ukraine. So Chumak turned to a local web-based entrepreneur, who takes orders from Ukrainians, buys the goods from an Ikea store in Poland and trucks them back for delivery. After two years of equipping her flat with kitchen gadgets, a beige Ektorp sofa and colorful Swedish bedding, Chumak also uses such unsanctioned internet resalers to buy other goods not available in the war-rattled nation.
“Whatever you need, it’s easier to order and have it delivered from Poland than look for things in Kiev,” said Chumak, a 27-year-old quality assurance manager.
Dozens of private distributors selling products from Ikea furniture to C&A clothing have popped up as an insurgency in Ukraine’s east and a byzantine bureaucracy keeps western companies from investing in stores, networks and advertising. Online entrepreneurs are satisfying a growing appetite for name-brand goods in the former Soviet republic, whose formal retail sector is struggling to develop after the deepest recession in any European country in a decade.
“There’s still huge uncertainty about what’s going to happen in Ukraine," said Liza Ermolenko, an emerging-market analyst at Capital Economics Ltd. in London. "We don’t even know if the current government will still be in place next year. For big companies to really start investing on a large scale, that would be too risky.”
That creates a comfortable niche for an online business model that aims to draw frustrated consumers unable to find what they like amid a sea of Asian knockoffs and domestic goods that lack the cachet of western rivals. Selling and buying name-brand goods online, albeit without contractual agreement with original brand owners, can be profitable for local entrepreneurs as would-be competitors from abroad are scared away by the weak hryvnia currency and a shaky political system.
“International retailers have put Ukraine on hold,” said Natalia Kravets, the director of retail in Kiev for Colliers International. Even with some success in reforms and the emergence of the economy from its long contraction, the perception that Ukraine is too risky keeps driving investment decisions, she said.
Retail sales this year may rebound by more than 4 percent from the dip in 2015, said Kostyantyn Fastovets, an economist at Adamant Capital in Kiev. Retail and wholesale account for about 12 percent of gross domestic product, which inched up 0.1 percent in the most recent quarter from the same period a year ago. Retail sales rose 2.5 percent in April from a year earlier, after being down more than 20 percent in each month of 2015.
Though online resales are still a minuscule component, in terms of ease, choice and cost they offer a big advantage versus traditional retail. Facing a currency plummeting by as much as 67 percent in two years, traditional retail outlets typically tag another 20 percent to the cost of stocked goods to cover exchange-rate risks, said Colliers’ Kravets. While resalers found on sites such as poland24.com.ua impose a margin for shipping and duties crossing the border, that still works out as the cheapest option.
While business is booming online, some brick-and-mortar stores barely feel the economic rebound.
At the cavernous steel-and-glass Budynok Mebliv, a two-story Soviet-built furniture emporium in Kiev, floor personnel easily outnumbered customers on a recent visit. Inna Lavrynenko, the owner of outlet M-Mebli, spent the day scrolling through her smart phone surrounded by Ukraine-made sofas upholstered in a medley of color, design and fabrics ranging from faux-silk roses to op-art velvet. Nearby, a pair of saleswomen minding a competing floor space chatted away. Lavrynenko hadn’t had a sale in days.
“The situation is dire, we don’t have any customers and there is almost no interest in cheap furniture,” Lavrynenko said, adding that she’s afraid the business will fold. She even weathered the global economic crisis better than the current war-beleaguered economy. “2008 was much easier. 2008 was not even a crisis when compared to now.’’
42 Million Consumers
In a warren of basement retail space below Budynok Mebliv, medical intern Iryna Shvets meandered past orange couches, mock rustic Americana shelves and stripped mattresses, but kept her wallet in her purse. Though the choice at the mall is slim for someone looking for sleek and sharp design, she would prefer buying at a store if new products that meet her taste start filling store showrooms.
“Ikea via the internet is interesting, but to buy furniture I prefer taking it into my hands, touching it,” she said.
Until there is a change of heart from skittish international retailers willing to tap a market of 42 million consumers at the European Union’s doorstep, online resalers will enjoy outsized sales growth, said Serhiy Khaletskyi, a co-owner of delivery business ikea-kiev.com.
"Ordering in Europe and having it shipped here is cheaper than buying same thing here, that is for sure,” said Khaletskyi, who says orders this year have jumped five-fold. “More and more people find out about Ikea.”
Ikea has no “immediate plans” to open any stores in Ukraine, but keeps an eye on the market there, the company said in an e-mailed response to Bloomberg questions.
"We are happy that there is a big interest in Ikea products in Ukraine,” it said, without specifically saying whether it supports or opposes resellers that use its logo and name without permission.
Chumak said she became an Ikea “maniac” after reading about the world’s largest furniture retailer in a home style magazine, and finding distributors including Khaletskyi’s in an internet search. She recently offered a tour of her apartment, showing off a drawer-full of AA batteries in their distinctive yellow boxes, black kitchen utensils hanging from burnished Grundtal towel racks, flowered Diskodans living-room curtains and Fillsta bedroom lamps.
"Whatever you need, it’s easier,” she said. “Kiev stores are full of junk. I hate shops that sell that stuff. Ikea should be there in their place.”