Five reasons why H&M need to enter the Ukrainian market just now

H&M and IKEA is the most expected in Ukraine brands —according to the research of GfK Ukraine Company.

However, yet there aren’t H&M ans IKEA in Ukraine. Despite this, the talking increased about the entering of H&M in the country in recent times, caused by the visits of the Swedish brand top managers in Kiev. Many believe that this is evidence of preparation for entering the Ukrainian market, and a part of media wrote that the H&M management already eyeing real estate in the largest SEC and on the main shopping streets. It is possible that there are understanding in Company – the best opportunity for entering the Ukrainian market may not be. And there are five main reasons – why.

Cheap entry price

The most significant costs in the retail – the square rent and salary personnel. Now these costs have reduced in Ukraine to minimum. The sales assistant salary can reach $200, and I believe rent does not exceed 7-8% of the store turnover.

However, many SEC owners are willing to lower the rental rate for key tenants, generating traffic. This approach of most SEC owners can be traced quite clearly. A relatively large number of high-quality retail square that you can occupy there are in Kiev and big cities while. Although, the vacancy rate is reduced in it. It is known that H&M usually does not pay a fixed rent, and it enter in the terms of turnover percent, as a rule.

The request of the consumer for high-quality and inexpensive product

The buyer in Ukraine have not disappeared, but he changed significantly the shopping scenario. He’s trying to save, prioritizes, defines a new shopping places and just changing. He is interested in the satisfaction of their needs primarily. If it speak about purchase of clothes, now it is the need to acquire high-quality, convenient, and desirable, fashionable products at a lower price. The entrance of relatively inexpensive H&M in Ukraine will provide quick recognition already recognizable brand in this situation.

An organizational issues simple solution

Ukraine is a WIA member, there are signed the Association agreement with the EU. This means for H&M that it is not necessary to obtain additional documents, certificates and permits for the goods import into the territory of Ukraine. It paid customs payments on the invoices and the goods are already in the country.

Moreover, Ukraine is located close as to the European H&M warehouses, and also to Russian warehouses from a logistics standpoint.

Relatively low competition

Competition in the market remains relatively low, despite the fact that every year in Ukraine there are more foreign retailer’s. According to CBRE Ukraine information, there are in Kiev only around 30% of world brands. Other major cities of the country – Dnipro, Kharkov, Lviv and Odessa – even less filled and these also have significant potential.

The recovery of purchasing power

The main indicator is the purchasing power of the population, on that draws attention to the company when entering a new market. This figure is, in fact — the sales volume, on which H&M can count at the entrance and the subsequent development of the brand in Ukraine. Experts predict the recovery beginning of Ukrainians purchasing power now – despite the fact that in recent year’s its was decreasing. The increase of the minimum salary under budget 2017 should affect on the growth of purchasing power. This will be stimulated salary increase on economy in whole.

H&M profit can reach $120,000 – 150,000 per month, that based on the experience of similar stores operating in the same price segment. Only time will tell, these figures will be sufficient for the Swedish brand.

Author: Dmytro Kosse, managing partner Kosse.net comsulting company

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