The devaluation of the ruble, which occurred in the country in 2014, led to the impoverishment of the population, but promised hope for a revival of the domestic shoe industry. The boom in orders pushed factories to invest in development, but the economic environment has changed again, not in favor of the Russian manufacturer.
Shoes Report spoke with founder and owner of MakFine company Armen Avetisyan about the situation in the industry
Armen Valerievich, we met with you a year ago, when in connection with the devaluation of the ruble, the market talked about the possibility of import substitution and the renaissance of the Russian footwear industry. Now the situation in the economy has changed, hopes for the development of shoe production have sunk into oblivion?
The market situation is such that our government has set a course to keep inflation at the level of 4%. As a result, with a stable oil price, the strengthening of the ruble is inevitable and will be supported by the influx of speculative capital from abroad. The cost of money abroad reaches 2%; today on the interbank market you can place funds at 10% or higher, add to this the strengthening of the ruble - you get good conditions for placement for foreign speculators. I believe that inflation can reach up to 10%, provided that the purchasing power of the population is maintained. Additional emission will allow to “disperse” the economy and index the salaries of state employees and pensions under the same “frightening” 10%.
But the rise in inflation will provoke even greater appreciation of goods?
Inflation above 4% has already happened. The incomes of the population did not grow, but life went up, and people have less and less “free” money. I repeat, the current ruble appreciation is speculative. A new crisis will follow (all this temporary money will “run away” from the Russian market in a matter of days at the first sign of instability).
At the same time, the idea of import substitution was very good, and if the ruble exchange rate was artificially kept weak, Russian production would certainly benefit (artificially weakening the ruble is much easier than artificially keeping the exchange rate). Last year, with the low ruble exchange rate, the domestic footwear industry experienced a real boom, so not even all the factories coped with the orders they had, including mine.
What do you think about the introduction of tax benefits for Russian manufacturers, can this help import substitution?
Support programs for Russian production exist. We are also trying to take cheap loans, to receive subsidies, subsidies, compensation. All these tools are, and we strive to use them. To cancel taxes from a Russian manufacturer is unrealistic. And due to the fact that Russia is part of the WTO, import duties have recently been reduced again. Now they are minimal, especially for shoes made of artificial materials. I think the most dramatic thing that can help the Russian manufacturer in this situation is to clear the market of a huge amount of smuggled Chinese shoes.
Recently, Unichel appealed to the Ministry of Industry and Trade in a letter, where it even indicated a list of stores with gray imports. Can it somehow affect the situation?
Indeed, the state has recently taken steps towards whitewashing the market. An example of this is the labeling initiative. By the way, I proposed my factory as an experimental site for a shoe labeling project. The marking of the fur coats showed a good result, although it was still not possible to solve the problem on 100%, so far you can still find fur coats without tags on any clothing market.
But the fight against smuggling is necessary. If you solve this problem, a business that honestly pays all taxes will be much easier to live on and tax revenues will increase. In the market, everyone should have equal conditions. It must be understood that there is no “secret underground passage" through which gray imports enter the country. All goods pass through customs, so the task of the state is simply to restore order. Moreover, after the EurAsEC was organized and five countries had common customs, smuggling can enter our country and across the border of friendly countries of the union.
Back to production - you invested in its expansion, hired additional staff, but demand fell and in this regard, your factory is underloaded?
Today, the equipment in our factory in Taldom is capable of producing up to 20 thousand pairs of shoes per day. We produce - five thousand. If we try to increase the volume, we begin to “crumble” - this is a growth problem. In Taldom low-price segment shoes are produced. In the case of importing such goods from Asia, the logistics costs in the cost of these shoes can be a significant percentage, so we can easily compete with China for this range.
For example, now we are at the stage of signing a contract with a French retailer, who considers us as a supplier for one reason - we make a quality product from quality raw materials. To produce such a product in China is more expensive. In China, recycling is very developed, and on the secondary they can give a very low price tag, but shoes cannot be made from this secondary! PVC sneakers, which are sold at our clothing markets, I do not recommend even bringing home, they are made from raw materials that are really toxic. The issue of certification of such goods is a separate issue, and here, as in the case of the dominance of our market for smuggled products, it is necessary to restore order. And the Chinese cannot send such goods to Europe, since they will destroy it even at the border.
In the end, what are your thoughts on this year - how will the company develop?
We have purchased equipment, sharply increased the number of employees, now we are not training young specialists anywhere, so training takes place at our factory. Someone learns easily, while others do not. In principle, every fourth remains to work in the factory, and every tenth in complex areas.
But for myself, I decided that during this year we will not grow anymore. The plan is to optimize and systematize our work, to produce as many pairs as we can “service” in a quality manner.
The fact is that when production volumes change sharply, everything changes - logistics, labor organization. We managed to painlessly transfer the factory to work two in two, on a twelve-hour working day, seven days a week. Interruptions in supply periodically occur, some non-essential components are not delivered to the factory on time, because of this production suffers.
Today, we do not work as planned, the organization of labor is not up to the mark, and when we deal with this problem, we will solve the growth problem.
Most of your company's product range is cheap shoes. Can footwear production in the low-price segment be called the lot of the Russian manufacturer?
It is difficult to produce expensive good shoes in Russia. We produce shoes of the middle and low price segment. The currency component in an expensive product occupies a rather substantial share.
In the segment of low prices - we have more opportunities. Such goods can be produced in large quantities, and in this case you are already trading not in shoes, but in price. Comfortable shoes can also be produced in Russia, and it will be inexpensive, for now. With the strengthening of the ruble, the advantage of the Russian manufacturer is melting before our eyes. If the rate is 50 rubles per dollar, for Russian production it will be like death. In this situation, it remains only to survive, it will not work to earn. But our market is large enough, and I am convinced that clothes and shoes should be produced domestically. This is an industry that does not require sophisticated high technology ...
Do you regret investing in the expansion of production capacities?
No, moreover, they launched the production of PVC, and I hope that there will come a time when it will again have to expand and increase production capacity.
And how is your retail development?
Demand for shoes has fallen dramatically. Although according to RBC with reference to the Federal State Statistics Service, the decline in retail sales has stopped. In fact, with us and all our customers, sales fell by more than 20%. It seems to me that the introduction of online cash registers is the reason for these imaginary indicators.
Interviewed by Marina Shumilina
More about MakFine - by link
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