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In Ukraine direct sales may expand to include essentially new kinds of services
Despite the financial crisis Ukrainians show no signs of slowing down their consumption rate. In fact, they are stepping it up, as evidenced by the direct sales market. At present, it has a comparatively free niche; there are a constantly increasing number of orders, while the world’s leading direct sales companies are complaining about seriously inadequate supplies, as The Day was told by Valentyn Kalashnyk, president of the Ukrainian Direct Marketing Association (UDMA).
The association’s statistics show that in 2007 the direct sales market was worth some €150 million, and they expected it to reach €230 million in 2008. About 40 domestic and international direct sales companies are operating in Ukraine. Their contributions are becoming increasingly important for Ukrposhta, the national postal service operator, considering that the volume of regular mail is dropping with each passing year. A considerable part of its revenues is de facto generated by direct sales companies, coming primarily from mail orders to catalog companies and money transfers for purchased goods. At present, some 70 percent of mail orders handled by Ukrposhta are from business entities.
Yet even this market is exposed to the financial crisis. Most direct sales operators are tightening their belts, tangibly cutting down on customer recruiting, analyzing their databases, and sending their catalogs only to customers that are more likely to make mail orders. A sudden increase in shipping costs is another unpleasant surprise for this line of business.
“The problem is not with the increase as such,” explains Kalashnyk, “because it had to happen, sooner or later. The point is that the operators weren’t notified in advance, considering that they set prices in their catalogs for the next six to eight months and the shipping costs are an essential component here.” He believes that doubling the shipping costs will result in heavy losses for the operators, causing up to 50 percent of small companies to pull out of the market.
“Some operators do business in many countries and they will survive, but here in Kyiv there are several dozen small companies that send less than a hundred parcels a week (these companies are aimed at gradually expanding their sales volumes). They are sure to leave the market because they lack stability,” Kalashnyk said.
Buying goods by mail order is especially popular in small settlements where the important thing is the availability of goods. Another advantage of this kind of trade is the ability to offer customers a sufficiently large assortment of goods. There are also shortcomings, specifically the fact that goods may take a long time to reach customers. Kalashnyk, however, is sure that these are our Ukrainian problems: “For example, in Germany the ordered goods must be delivered [to the customer] the next day after a company ships it with a postal service. Even cookies and other sweets are sold by mail order. They are not delivered in a week’s time as in Ukraine. So far our mail orders are mostly for books, journals, CDs, footwear, cosmetics, and bijouterie.
Although the UDMA president offers no clear-cut forecasts for 2009, he notes that the market may slow down a bit. Despite all hardships, Kalashnyk assures that two more large international operators are getting ready to access the Ukrainian market. This is proof of Ukrainians’ purchasing power and the development of direct sales in our country.
