Page 28 - bne magazine March 2017 issue

28 I Companies & Markets bne March 2017
being repeated across the Russian retail sector as the coun- try’s leading retailers become ever more professional in the face of rising competition. Detsky Mir’s rising revenue bucks the trend in Russia’s retail overall, where turnover contract- ed last year by 3.5%.
Child’s play
Detsky Mir’s strategy has been to focus on run-of-the-mill children’s goods. In addition to traditional toys, which account for 35% of revenues, the chain is the go-to place for school clothes, shoes and stationary, as well as baby products. At the start of each term the stores are packed with families tool-
ing up for the new semester and the store even has a line of smart jackets and frilly children’s dresses that are traditional for school kids on the first day of school in Russia. Through a 2012 acquisition, it also owns 45 Early Learning Center stores specialising in educational games and toys.
Children’s goods has been one of the fastest growing retail categories in recent years. In 2012, Russia briefly became
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the largest market in Europe for children’s goods, overtaking Germany with sales worth $11.3bn a year; market research at the time found that Russians are unusually generous when it comes to shopping for their kids. And despite the passing of the post-Soviet demographic peak in 2016, Russia remains one of the most fertile countries in Europe, although its replace- ment rate is still below the 2.1 children per family ratio to maintain a stable population size.
As the children’s goods market has been growing with a compound annual growth rate that is easily double that in the rest of Europe, Detsky Mir’s valuation has grown considerably. “The last equity investment made in the company was by the Russian-China Investment Fund (RCIF) in January 2016 that is part of the Russian state-backed Russian Direct Invest-
ment Fund (RDIF),” the company said in its statement. “RCIF acquired a 23.1% stake for RUB9.75bn, giving the company an implied total value of RUB42.2bn. Looking back a bit fur-
ther, in 2012 analyst consensus valued the company at about RUB9.5bn.”
EU-Turkey customs union needs updating but obstacles lie ahead Iana Dreyer of Borderlex
On February 3, EU member states discussed the bloc’s plans to modernise its economic relationships with Tur- key, following the European Commission’s request in December to be given a negotiating mandate to bring the more than 20-year-old customs union that binds the two trading partners up to date. The move, though far less controversial than the process that would end with Turkey actually joining the EU, is still likely to entail difficult decisions for both sides that could derail any agreement.
Observers of the process expect a potential mandate from the member states in March or April, but the EU’s proposal comes at a time of a deepening rift between Europe and Turkey.
Attempts to revive Turkey’s EU accession process in the spring 2016 as part of a package of measures surrounding a deal over migrants became stalled last autumn. Then, following the failed coup in Turkey in June 2016, the government’s subse- quent crackdown on the political opposition and freedom of expression dismayed many in Europe. The EU’s attitude over
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these issues has not gone down well with the Turkish govern- ment, nor with a majority of the Turkish population who back President Recep Tayyip Erdogan and his ruling Justice and Development Party (AKP).
Amid this comes the EU-Turkey customs union modernisation, which has been under discussion for several years, as both sides feel the arrangement is out of date. What’s at stake is a huge trading relationship for the EU: Turkey is the bloc’s fifth largest trading partner, with €140bn worth of trade achieved in 2015.
The current customs union only deals with trade in manufac- turing. EU business accuses Turkey of not honouring all its arrangements under the agreement and levying illegal fees and causing excessive paperwork for EU exporters. Technical and sanitary standards continue to diverge with the EU’s, and that poses problems for exporters on both sides.
However, real business growth is increasingly happening outside of the manufacturing sector, with services and investment play-