The first reaction was that everyone froze: Foxtrot CEO tells how foreign suppliers reacted to a full-scale war

At the beginning of the large-scale invasion, Ukrainian businesses faced a number of problems that needed to be addressed quickly. The retail sector, which was heavily dependent on imported goods, was no exception

Especially when it comes to the electronics and home appliances industry, as 95% of such goods in Ukraine are imported from abroad. Therefore, foreign suppliers play an important role in the work of Ukrainian appliance stores. 

Most of them temporarily paused their cooperation with Ukraine when the full-scale war began. And after gradual resumption of work, they temporarily changed the terms of cooperation.

In an exclusive interview, Oleksiy Zozulya, CEO of Foxtrot, a chain of electronics stores, told us how he had to deal with the situation and what is happening now in the market of appliances and electronics.  

• How did foreign suppliers react to the start of the full-scale invasion?

The first reaction was that everyone "froze" and paused the supply of goods, temporarily suspended lending. But gradually, we began to restore normal working conditions. The main challenge that Foxtrot faced was risk insurance with banks, which we successfully managed. We have been operating as usual for the last 2 years.

• Did Western suppliers make any concessions? If so, which ones?

Most of the suppliers we work with have joined our charitable mission to support the Ukrainian Armed Forces and civilian Ukrainians. In particular, many of the world's leading manufacturers among our partners have expressed a desire to partially or fully compensate for the equipment provided. We would also like to note that on our own initiative, we have terminated cooperation with those suppliers who were directly or indirectly related to the aggressor country.

• Have you had to restructure debts to foreign suppliers for goods delivered? Or is it possible to prove force majeure in courts?

Yes, we managed to reach an agreement on mutually beneficial terms.  No one went to court.

• Have the requirements to work with foreign suppliers changed due to the hostilities in Ukraine? What exactly has changed?

Before the war, foreign partner companies obtained risk insurance from international insurance companies such as Coface or Atradius. After the outbreak of full-scale war, they stopped insuring receivables for goods that crossed the Ukrainian border. This imposed restrictions and additional costs on finding alternatives here in Ukraine. The issue was positively resolved in 2023.

Also, at the beginning of the war, we had a problem with the warehouses of foreign suppliers in the form of a ban on storing goods in Ukraine. But gradually we returned to sufficient warehouse volumes to ensure turnover. 

• Of course, the outbreak of a full-scale war has had a significant impact on business in Ukraine, and the retail sector has not been spared. What is the current situation in the household appliances market?

The market for household appliances and electronics has recovered to pre-war levels. In the first quarter of 2024, its year-on-year growth was about 19%. 

At the same time, Foxtrot is significantly ahead of the market: in the first three months, the company's total turnover showed an increase of +35% compared to the same period last year. 

The largest growth was in large household appliances (+51%) and small household goods (+44%). The category of audio equipment, in particular TVs (+34%), is growing, which is a positive signal in the analysis of consumer sentiment.

In 2023-2024, we opened 11 new stores, expanding our network to 124 stores in Kyiv, Vinnytsia, Dnipro, Chernihiv, Odesa, Kryvyi Rih, and other cities. We restored the store in Dnipro in the Appolo shopping center that was destroyed by a rocket attack and the flagship store in Mykolaiv that was damaged by shelling. Most recently, we presented 2 renovated stores - in Kyiv in Lavina Mall and in Lviv (147 Zelena Street). This week -  reopening of the renovated store in Ocean Plaza shopping center.

It is worth noting certain complications in the labor market, as the number of qualified personnel is decreasing for objective reasons. Therefore, retaining both staff and customers is one of the most important tasks for Ukrainian retailers.

• What do Ukrainians buy the most now? What are the most popular products?

Since the end of March 2024, after another massive hostile attack on Ukrainian hydroelectric power plants, thermal power plants and other energy infrastructure, the demand for charging stations and other alternative sources has begun to grow sharply. For example, compared to the start and at the same time the peak of charging station sales in November-December 2022, we surpassed it by 110% in June 2024 alone.

This year, buyers prefer stations with the highest power (from 3000 kW), so that there is only one station and it can power the maximum number of appliances in the house. Their price starts from 100 thousand hryvnias. At the same time, there are 1.5-2 times more requests for powerful and capacious models than the supplier is ready to supply.

Similarly, sales of power banks are growing - 2.5 times since the beginning of the year, generators +200%, and autonomous lamps +34%. We have recently introduced solar panels to our assortment, and we are already seeing an increase in demand for them. Also, customers are interested in complex "balcony solutions" consisting of solar panels, a microinverter, a charging station and smart sockets. Previously, such solutions were considered only for residents of private houses. Now such technologies are available to apartment dwellers.

• What are the market challenges facing the electronics and home appliances industry in the third year of the full-scale war?

Despite the war, the shadow electronics market, the sale of smuggled goods (without paying VAT and import duties) or goods with reduced VAT, has significantly increased its position. Shadow market players are actively developing, with their share growing every month,

According to experts in our industry, the total annual volume of imported machinery into Ukraine without paying taxes or with significant understatements is about UAH 57 billion (over 20% of the market). This is more than UAH 11 billion in unpaid taxes.

The bulk of the market is made up of expensive and lightweight goods: smartphones, laptops, watches, headsets, premium small and large appliances.

For more than 10 years, Foxtrot has been defending the interests of white business, supporting the initiatives of the government and partners to de-shadow the electronics market. We were the first in the electronics market to use electronic fiscal receipts, demonstrating their effectiveness for the seller and convenience for the customer in times of blackouts. The fiscal e-check is currently the only tool that can "whitewash" the market and show sellers of "black" gadgets. All that is needed is the political will of the controlling authorities to stop the market from plunging into the shadows.

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Earlier, UNN journalists also talked to Vira Vitynska, CEO of the Eldorado electronics and home appliances supermarket chain, who said that many foreign suppliers were reluctant to make concessions to Ukrainian retailers after the full-scale invasion began.

Read more at link.