Sergey Sarkisov: “Any crisis gives new opportunities for development to society and man”

 Sergey Yakovlevich, how you rate the situation on shoe the market?

- This is a situation of expectation - we are waiting for the financial crisis to reach consumers or not. This is the first thing. Second, we are trying to understand how it will be reflected in different regions and different segments. Because it is clear that the crisis will affect the market unevenly: not all regions will react in the same way to the economic downturn and not all segments will be in the same position.

As possible risks, we identified: a decrease in consumer demand, a decrease in profitability, a decrease in lending opportunities (the issue is important for those who had a large loan portfolio), exchange rate risks (our shoes are mostly imported, so all currency fluctuations will affect purchases ), the risks of developers (whether a shopping center will be completed or not), the risks of increasing supplier prices, a possible increase in the deadlines for reaching the breakeven point and cancellation of UTII.

But at the same time, the crisis must be treated dualistly - this is not only a problem, it is also an opportunity for the development of the company. For example, through the redemption of the business of those firms that leave the market or the purchase of places in shopping centers, as well as by reducing rental and advertising costs, cooling the overheated labor market and improving the image of financial service providers (if the company has financial discipline )

One of the most important questions for us is how will consumer behavior change in a crisis? Will people buy cheaper shoes or will they shop less? To answer these questions, you need to constantly monitor consumer behavior - in the current environment, at least once a month.

We will approve our business plan for next year as optimistic - with several fallback scenarios of actions, depending on how the market will develop. At this stage, it is very important to have flexibility, which is precisely manifested in the presence of several possible options for internal development that are adequate to the external environment.

 What are the possibilities for combining shoe business community you are now see?

- Business consolidation will certainly take place. Now, due to the crisis, these processes may accelerate. At least we have a platform that can become the center of this process - I'm talking about the National Shoe Union. It has already started its work, and it would be right if all interested participants in the footwear market took an active part in its activities. At the individual level, a regular exchange of views has already begun. The Union can act as a platform for discussing anti-crisis measures of companies, because the development of the Russian shoe market is one of the stated goals.

 Will it affect crisis at the exhibition segment? For the last year he has changed enough strongly - side-by-side with key exhibitions, where orders are made by non-chain retailers, many presentations are held as in MoscowSo and in the suburbs and abroad. how Do you thinkhow is this explained?

- First, the market structure is changing. Let's take a look at what happened before. Consumer demand shifted away from clothing markets towards specialized retail. The consequence of this change was the rapid development of new retail players. On the other hand, companies that traded in the marketplace switched to wholesale. And they began to show demand for exhibition space, due to which the exhibitions grew.

Secondly, foreign manufacturers, having heard about the consumer boom in Russia, are looking for an opportunity to present their products with us. To do this, they either find a local partner, or try to enter the market on their own - again through exhibitions.

What will happen to this segment during the crisis? I think it will narrow, arbitrarily or involuntarily. Each of these exhibitions will have its own specialization. And to find it, each exhibition must be clearly different from the rest. Either by the fact that companies from a separate segment will be present at it, or by the fact that a set of pools of participants from certain countries will be assembled at the exhibition. How this happens is difficult to say now.

 To your look, so many exhibitions and presentations will lead to erosion audience visitors or open up new opportunities for market development?

- I would not call it erosion of the audience, it is segmentation of exhibition activities. The chain will shrink from consumption: as it grew along with the increase in consumer demand, it will shrink in the same way.

 Some experts expect the market in it and next years will be enlarged at the expense of mergers and acquisitions networks. How likely is such a forecast? Is planning Econika expand at the expense of buying regional networks?

- As a strategy, we see growth through mergers and acquisitions. At this stage, we mean for ourselves the opportunity to carry out such transactions, first of all, in separate regions or even cities. Over the past two or three years, we have already carried out several similar deals in cities with a population of one million with our former franchise clients. As an example, I can cite the strengthening of our positions in Yekaterinburg, Perm, Novosibirsk, Kemerovo. In times of crisis, we are ready to consider such proposals not only from franchise partners.

If we talk about federal networks that are comparable in scale with us, then we see opportunities for creating alliances in the field of procurement or consolidating development efforts.

In general, the market has matured to the stage of consolidation, and the crisis will only spur these processes. It must be understood that the processes of market consolidation are lengthy. On the one hand, we say that such transactions will occur. And on the other hand, I do not forecast such large transactions, because I do not see a large number of buyers in the shoe market. Not sellers, namely buyers.

Over the past few years, quite a lot of retail shoe companies have invested heavily in development, and they have done this, creating large "leverage". At the time of the crisis, it is these companies that are most vulnerable. Several scenarios are possible for them: selling a company or merging with one of the players, the emergence of a new portfolio investor within the company, the search for internal forces and opportunities to continue its development in the market. I would exclude the scenario of company bankruptcy - neither the companies themselves nor other participants and market players are interested in this.

If we are talking about the first option - selling, then the question immediately arises of potential buyers. Most likely, it can be either a foreign player (this is possible, but the process will be long, and we must remember that liquidity is narrowing abroad), or Russian, but not from the shoe world (such an investor will appear only if there is a large discount when purchase).

Why do potential Russian portfolio investors have a weak interest in the shoe market? Typically, such investors operate in markets where some consolidation has already taken place. There are no obvious leaders on the Russian footwear market yet, no one has a market share greater than 2 – 3%. And for investors, this means potential risk. They prefer to invest in sheer market leaders. And when it is not clear who is the best, they prefer to stay away. And the second reason is the very lack of transparency of the market for the investor: the lack of audited reporting by companies, a well-functioning system and management structure, as well as potential tax risks. There are many reasons, and the market in this sense has much to develop.

 Speaking about medium prospects you predict the emergence of networks which will be more than 10%?

- Yes, in the medium term, Russian footwear retail will consolidate to a level where several large chains will have a market share of 8-10%. I do not see any prerequisites for a leader with more than 30%. In addition, the market will be more clearly segmented by price and stylistic niches.

 Deutsche Bank experts offer Russia and China as one of the ways inflation restraint retail price reduction for import goods. Is this a utopian idea?

- If we talk about clothes and shoes imported from countries pegged to the dollar, then a slight decrease in prices would be possible in the context of a weakening dollar. But today the dollar is strengthening, and in fact, in imported goods, the cost of the product itself accounts for no more than 15–20%. The main burden in the growth of production costs falls on the rent and salaries of staff. Both rent and wages are still growing, so there is no reason to reduce retail prices.

 Many Russian retail chains, which recently had big development plans, are reviewing them because difficulties with creditrental growth and salaries. Econika somehow adjusted their plans due with changed the situation in economics?

- We made a long-term forecast until 2012. There, a higher level of development for 2008 was set. However, even last year we adjusted our plans for 2008 and laid down a decrease in dynamics. This was done for quite pragmatic reasons - by lowering growth rates, improving the quality of work.

In a sense, we succeeded. We closed part of the franchised outlets and instead opened our own stores. The number of stores in the network as a whole did not increase, but at the same time, the turnover grew by 30%, that is, from the same number of points in the network, we received a big return. In addition, after rebranding, our average check increased at 20 – 25%.

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In 2009 we plan to open 24 stores. We have not adjusted these plans yet. We have an optimistic baseline scenario, and there are 1–2 more scenarios in which we anticipate possible market changes. But even in the baseline scenario, we take into account the risks of reducing the payback period and will focus only on objects with a high payback rate. Nothing dramatic will happen if we cannot find a sufficient number of objects that satisfy this criterion, which is very important for us.

Measurements, which we will conduct regularly, will show whether we need to change only tactics or strategy too.

 To a question about rebranding - as you rate his success?

- It is successful both quantitatively and qualitatively. Most of the properties after rebranding give a 30% increase in sales. A very important change for us - after the rebranding, we noticed a qualitative change in our visitors, their rejuvenation took place. And the preferences of our customers began to change towards a more fashionable product. Another result that pleases us is that the number of regular customers is growing. Now our active base exceeds 350 thousand people. This is one of the metrics we measure monthly.

 Who applies to permanent to buyers?

- Cardholders and people who have made at least one card purchase during the year.

 But as you are working with this base?

- It should be borne in mind that the price of communication with the end customer is also growing. Therefore, the data on the base allows us to decide, for example, whether to send a brochure with a new collection to a client, invite him to some kind of promotion or not.

 How to you relate to the idea development one companies of networks of different formats oriented to different price segments and different audience? What are the pros and cons offers such strategies?

- In principle, the idea is not bad, but in the Russian footwear market very few people have managed to successfully implement it. This is a question of immaturity, unpreparedness of market players to implement such a strategy. They cannot fully calculate the resources, and most importantly, they do not always understand what set of skills and competencies the management of companies needs to successfully implement the strategy. At the first stage, you can get a good return, but then sooner or later the question of high-quality management of networks of different formats will arise. As a result, it turns out that companies are not always able to properly structure their business, because it is clear that networks should be different structures. Only some common functions can combine them. Although I see very few such functions, because even marketing for each network will still have its own.

In the world, in principle, there are few such players who were able to cope with managing networks of various formats - for example, Inditex (ZARA, Berchka networks, etc.), luxury holdings LVMH and PPR.

In Russia, at one time, there were also attempts to build multi-format networks - for example, at TJ. They created three from one network. TJ was reformatted into a store of the medium + segment with an assortment of clothes + shoes. Chester only has mid-range shoes. Carnaby originally occupied the youth shoe niche. What have we got as a result today? The most successful project was Chester. Whether Carnaby exists now in the form in which it was conceived, I don't even know. But stores of all three formats can have each other's brands in the assortment - this suggests that the idea did not work in its pure form.

Today, Obuv Rossii has taken the same step. I assume that this project will also have difficulties. Information has already appeared in the press that the stores of the Emilia Estra chain will change their signs to Westfalika.

May God help Alba, which is trying to implement the same idea (in parallel with the Alba brand, they launched their own franchise project Svetski). We will see. The main thing is that there is enough strength and resources - not only financial, but also managerial.

 How successful can a franchise sale be? multi-brandwhat is doing now for exampleRostov Zali casa?

- Success is possible. I see two main risks here. When franchisees work not with their own brand of a trading network, but with independent trade marks, at some stage they begin to think: “Well, I myself cannot work with these brands?” The second risk: if the franchisor does not receive a significant discount from Italians in relation to other buyers, then his franchisees will not receive a margin that will be adequate to the costs. A significant discount should be at 40%. I do not know of such Italians who would be able to discount their products to such a level. So the idea is good, but I foresee big risks.

 What reserves of growth do you have? Econics - human, technological, organizational?

- A unique atmosphere has been created in Econika. If people who are really thinking, active come to us, then they feel comfortable here. And in this sense, we attach great importance to corporate culture. We see common goals, and we are united by common values. This allows us to create the personnel potential that provides us with growth reserves.

- The results are obvious - we can congratulate you on the fact that three managers of the Econika corporation were included in the rating of the “top 1000 Russian managers”.

- We understand that it is the personnel that are the main capital of the company, and we invest heavily in training and development. There is a direct relationship here: when employees grow, the company's potential also grows, I would call it a strategy for the organic growth of the company's structural potential. It is from this environment that those emerge who are then included in the rating of Russian top managers.

 Today, generally, seemingly conditions are created in order to open a business would easier than before. By least young people wanting to become entrepreneurs are becoming less and less. Why it happens?

- I do not quite agree that there is less of it. It is my deep conviction that the conditions for entrepreneurship have been, are and will be at all times. Otherwise, new companies would not appear.

The question is that there are more administrative barriers. But this is already secondary, it is not only in them.

The first level of discussion should cover basic things. What is the level of education in the country? What is the mentality of society: is it a society of consumers or is it a society that is ready to take and give? This is partly a spiritual issue. What kind of freedom, imaginary or explicit, do we have as members of this society?

When you discuss entrepreneurship from higher levels, you understand that the source of the emergence of young, talented, purposeful, liberated is the environment: the way we appear; the environment in which we grow; what we are brought up on.

Therefore, on the one hand, basic things must be affirmed in society - education, values, level of openness, level of freedom. And on the other hand, we must really deal with the creation of conditions for business.

Any crisis gives new opportunities for development to society and people. It is possible that some new players will come to shoe retail on this wave.
Although it is clear that in any society no more than 3-5% of the population becomes entrepreneurs. And when we talk about the nature of entrepreneurship, we must remember that there is one essential element in it - the motive for which a person opens a business. And often the motive is not only to make money. There are still many other motives - to create something new, grow, preserve and leave behind. If these motives prevail, then the entrepreneur is successful.