Supply System and Supplier Relations

One of the Group’s key business priorities is to build a long-term strategic partnership and mutually beneficial relations with suppliers in order to maintain the stability of its business and sustainable market development.

Oleg Muraviev, Commercial Director of M.Video–Eldorado Group said: “It’s important for us to see suppliers as partners focused on long-term relationships and development. The quality of our offer for customers depends on the kind of relationship we build with our counterparties. Therefore, we strive for mutually beneficial cooperation that both the Group and all its suppliers can benefit from.”

In 2018, during the merger of M.Video and Eldorado, the Group centralised the commercial function of both retail chains. Both Group brands enjoy the advantages of combined commercial purchases, and suppliers have the opportunity to work with a larger player that is able to position their product in all market segments and for all audiences, to provide full geographic coverage in the Russian market. For many manufacturers, M.Video–Eldorado Group is the main channel of entry into the Russian market, since it can ensure the availability of goods for consumers throughout Russia, while also offering advice, service and after-sales support, as well as marketing tools. Thus, the M.Video network has become one of the first major retailers of Russian equipment made by Bork and products produced by the Chinese company Haier, having become a reliable long-term partner for the young brands.

The Group’s regular suppliers number about 300 companies. Its largest vendors include global leaders in the household appliances and consumer electronics sector, such as Samsung, Apple, LG, Sony, Huawei, Bosch and others. About 75% of the Group’s commercial purchases take place through direct contracts with manufacturers, and the Group buys part of its product range through distributors. As of the end of 2018, the 10 largest suppliers accounted for about 63% of commercial purchases.

The Commercial Division is constantly identifying promising new trademarks and products that could be of interest to Russian consumers and putting the Group in a profitable position in the market. For example, M.Video was the first nationwide retail chain to launch sales in the new fashion category of smart watches, and it is developing the categories of electric vehicles, drones and gadgets for smart homes.

Together with suppliers, the Group carries out dozens of promotions and projects every day. Joint projects are an important element in the development of the ecosystem approach to retail, in which the Group, in addition to its range of products, offers its clients a chance to take part in promotions and events, additional services, accessories and content, thus greatly expanding the customer experience. In 2018, for example, M.Video became the first chain in Russia, in addition to its Apple shops, to open authorised Apple service centres in stores. The service centres use certified equipment, as well as hardware and spare parts received directly from Apple. In 2018, there were more than 100 Apple shops in M.Video stores, and M.Video–Eldorado Group had become the largest seller of Apple smartphones in Russia by the end of the year.

M.Video–Eldorado Group is also developing its sales of niche and rare items through the Vendor Catalog in its online resources and in stores. The retailer’s partners can exhibit their product offers through the store’s online storefront. In this case, the Group does not purchase these goods but can arrange their sale, delivery and all related services for buyers. This approach enables the Group’s customers to order any model of equipment, including rare or exclusive items; the retailer can thus expand its product range without additional risks to its working capital, and the manufacturer increases sales and can test customer demand for experimental models. Sales through the Vendor Catalog increased by 2.8 times in 2018.

Choice of suppliers

In order to minimise customs, tax and other types of risks, the Group conducts an internal audit of all suppliers. Auditors from the Finance Division, the Corporate and Legal Relations Division and the Security Division take part in the audit of every counterparty. As part of the creation of the consolidated M.Video–Eldorado Group in 2018, the Company conducted an audit of all of LLC ELDORADO’s counterparties.

In assessing the business practices of counterparties, the following factors are analysed, among others:

• the justification for selecting the counterparty (including an assessment of the terms of the transaction);
• business reputation, when the counterparty was established as a legal entity, the frequency of rotation of legal entities that were previously counterparties of Group companies;
• the absence of evidence that the counterparty is artificially reducing its tax liabilities;
• the availability of qualified personnel;
• the availability of production capacity for business purposes (warehouse, office, fixed assets, etc.);
• chain of suppliers from the manufacturer/importer, price changes;
• payment of tax obligations;
• a financial sustainability assessment (no losses for three years);
• correctness of customs declarations.

Contracts with audited suppliers are concluded for a term of not more than three years.

The Group has a Committee for the Accreditation of Counterparties for Commercial Procurement that reviews difficult cases and approves important counterparties for which there are discrepancies in the auditors’ reports.