Round table "Fashion-retail in crisis conditions"
How to live and what to do - anti-crisis measures were sought by retailers at the round table “FASHION retail in a crisis. Search for ways to reduce costs and maintain profit ”, held in early November as part of the Economic Forum of the Fashion Industry in St. Petersburg
The round table was organized by the Association of Fashion Industry Enterprises (APRIM) and the Farexpo exhibition association. The presenters are APRIM CEO Maria Smorchkova, co-owner and CEO of EDMINS, Evgeny Tsivin, and editor-in-chief of the Russian Trademarks information portal RUSTM.NET Andrei Magarik.
From optimism to reality
In the III quarter of 2008, the demand for clothes, shoes and other products of the fashion industry fell by an average of 15%, and, according to retail operators, this decline will continue at least until spring. In January-March, sales will be at a minimum level, and the most difficult season will be the summer of 2009.
For a long time, reports from various marketing agencies conducting desk studies based on expert estimates and data from the media and the Internet prevented a real assessment of the situation on the market. According to those, the annual apparel market has been growing at 20-25% for several years running. Maria Smorchkova draws attention to the fact that data from open sources (media, Internet and PR reports of companies on the dynamics of network development (in order to attract partners) and plans for the development of companies through new store openings) illustrate the speed of development of market leaders, but not the real dynamics of consumption . Networks are growing due to the opening of new stores, actually squeezing out the old retail formats (markets, small-format non-branded “cuts”) from the market. At the same time, the effectiveness of open stores, sales dynamics per square meter of retail space in the clothing market during the 2008 year significantly decreased. With increasing competition, increasing the number of shopping centers, eroding customer flows and rising costs (rent, salary, transportation, utilities, etc.), the profitability of retail falls. For the first time, APRIM openly talked about rising costs and lowering the profitability of retail in the spring at the conference “Presentation of network brand brands in a shopping center” as part of the Mall exhibition. The retail issues were discussed in more detail at the fall CPM exhibition. In the III quarter, the situation was aggravated by a decrease in sales, the first indicators of which came from the regions. Today, APRIM is not only talking about problems, but is developing a set of anti-crisis measures and brings together retail and service companies in search of solutions.
Labor is the goal of being and form. Money is his platform
Since Russian retail is deprived of any state regulation, the owners of chains and stores, by and large, have the only way to save profits - to reduce costs. Over the past 2 years, the growth of retail costs has been going mainly in two areas - rent and staff salaries.
Since 2002, non-budgetary salaries in the whole country have grown by 10% per year. In retail for 2007 only, they grew by 15-17%. Given the speed of network development, the seller’s profession has become the most scarce. But even the increase in salaries in the total cost is not so noticeable in comparison with the increase in rents. Eugene Tsivin, co-owner and CEO of EDMINS network (accessories and luggage), provided comparative data on the share of rental and salary costs in total retail costs using the example of own stores in Russia and abroad.
|
|
Moscow |
Regions of Russia |
Prague |
Helsinki |
|
Amount of operating expenses per month (euro / sq. M) |
250 - 450 |
120 - 180 |
100 - 200 |
250 - 350 |
|
Rent (in% of turnover) |
55-80% |
Until 80% |
20-35% |
25-35% |
|
Salary (% of turnover) |
35-40% |
20-50% |
50-70% |
50-65% |
The increase in rental costs today does not match the parameters of effective retail. The fact that the retail real estate market is overheating, experts say for a year and a half. The article “The boom of square meters, or Bubble for Alice”, published a year ago on the website www.rustm.net, made a lot of noise in professional circles. The key idea of the article: “If all the announced projects for the construction of shopping centers are still implemented, then at the projected growth rates of retail sales by the end of 2012 (the deadline for commissioning all projects), revenue from 1 sq. m will be commensurate with the cost of maintaining this area. ” That is, you can forget about buying new collections, sellers' salaries and your own profit.
A year has passed, and we still live in the landlord's market. He dictates his conditions, and often the retail concepts of brands are adapted to one or another format of the shopping center, only to get to its area. According to Maria Smorchkova, “in the face of a decline in sales, network flagships, which were created to demonstrate success, will suffer the most in order to increase wholesale turnover by attracting franchisees in the regions, as well as those that opened with a view to payback in the distant future. Downward demand with rising costs will decide the fate of such formats within six months. ”
For incomplete 2008, rental rates increased by 15% in Moscow and St. Petersburg (up to $ 2500 per sq. M per year), by 40% in the regions (up to $ 1500). For comparison - in the most expensive area of New York, Manhattan, renting a storeroom costs $ 3400 per square meter. m per year, in Paris on the Champs Elysees you can find premises for 720 euros per year, in Stockholm - for 840, in Prague - for 660. Do not forget about the purchasing power in these countries. Today on Tverskaya in Moscow is cheaper than $ 8000 per square meter. m per year, it is impossible to rent a room. Economically poorly educated franchisees, seeing that the shops on Tverskaya are still trading, decide that they will be profitable in their own city even at a rental rate of $ 1500. However, according to the results of the season, it appears that retail does not reach the planned indicators. As a result, many franchisees think about leaving the business. Some hastily refuse this model and go directly to European suppliers, independently open multi-brand stores.
Why is the rental price so high in the regions? Several factors influenced this - the forecast of purchasing power growth in the regions and competition in the capitals. This applies to both networks and companies that manage commercial real estate. The active construction of the shopping center was positively received by the retail chains, which increase, first of all, the turnover due to the opening of new stores based on franchising. Federal retail chains operating in the medium-low segment with a low margin began to open stores in the regions independently, based on profit from turnover. At the same time, metropolitan consultants and brokers rushed to the regions, feeling the fullness of the consulting services market and the impossibility of the previous growth in the capitals. The appearance of consultants in the regions and the opened opportunities to attract additional investments for enlarging facilities have become virtually a common regional trend in recent years. The consolidated position of Moscow management companies to increase rental rates in new shopping centers and purchased in management dictated the possibility, and in some cases the need to increase rents, to owners of regional shopping centers. However, according to retail operators, there is no economic justification for this.
Today, tenants manage to agree on acceptable rental conditions in shopping centers only with the direct owners. The occupancy rate of shopping centers has significantly decreased over the past year, and the risk of parting with existing tenants is quite high.
In St. Petersburg, for example, in Cosmopolis shopping center, 40% of the space was not leased, 5 stores on the ground floor were empty at Rodeo Drive, and only 50% of the space was leased at Atlantic City. And at the same time in St. Petersburg, the construction of 65 shopping centers has been announced. According to Yevgeny Tsivin, a major problem for retail is the unsystematic construction of shopping centers, the uncontrolled concentration and location in the city.
I feel like a target in the dash
In addition to the difficulties with renting, store owners have several other reasons for headaches. In a competitive market, promotion costs are rising. At the same time, only last year the cost of advertising in glossy publications increased by 17%, on radio - by 40%, on television - by 100%. Outdoor advertising went up by an average of 5%, online advertising cost by 3%, but by the price of the effective volume of placement by 20%. Not only the cinema advertising has not risen in price. From the spring of 2006 to the spring of 2008, advertising costs for retail operators actually quadrupled. Mandatory participation of tenants in the formation of the marketing budgets of the shopping center, which has become a mandatory cost item for retail in the shopping center, is, in fact, a veiled increase in rent. Moreover, in international practice, once a quarter, the management company reports to the cooperative of tenants on the effectiveness of activities and the expenditure of the collective marketing budget on attracting visitors. Nobody can evaluate where and with what efficiency the marketing budget of a typical Russian shopping center is spent.
The decrease in profitability in retail is also due to higher prices for products, primarily due to the increase in the cost of production of the main international factory - China. The priorities of the authorities of the most developed provinces (raised primarily due to the textile sector) have changed. In addition to salary growth, the adjustment of VAT for various companies by the authorities of the Middle Kingdom forces light industry enterprises from traditional textile provinces to relocate to depressed areas. Investors change their profile, and companies either move or lay increased costs in the cost of production. In this situation, Russian customers can only more carefully choose suppliers, focusing primarily on quality and logistics schemes. At the same time, the situation for importers of ready-made clothing (overwhelmingly for Russian companies producing goods abroad due to the impossibility of producing them domestically) became even more complicated after the list of instructions of the president to the Russian government to support the Russian light industry and the fight against counterfeiting appeared. In July, three law enforcement agencies (the Federal Customs Service, the Ministry of Internal Affairs and the Federal Antimonopoly Service) were instructed to undertake a more thorough inspection of textile goods when crossing the border. As a result, this resulted in an inspection of virtually every container and lengthened the customs clearance time by almost 4 times.
Not competition, but the union owns a beautiful tomorrow
In this situation, retail can have two options - the search for alternative trading formats and access to small cities that are not yet interesting to large chains. By alternative formats we mean specialized fashion malls and street retail, in which a decrease in the traffic of non-target visitors will be replaced by a stream of target customers. Opening stores in fashion malls is advantageous in that tenants in this case do not have to maintain “anchors” - food supermarkets, cinemas and food courts, as is happening today in shopping and entertainment complexes. The rental rate, according to clothing retailers, should not exceed 12% of the turnover, for shoe stores and accessories - 15%. In the meantime, tenants cannot agree on 30%. Developers do not believe in the transparency of the retail, and some sellers are afraid of a situation where the new interest "for all" will be higher than the existing rates for the "chosen ones".
Yevgeny Tsivin especially dwelled on the small but meeting position of some network retailers who took a wait-and-see attitude: do not enter into any alliances, count costs, wait for the first wave of closures of competitors' outlets to take place, hoping that after that the rates will decrease and there will be a chance finally get up to where they were not allowed before. Unfortunately, the effectiveness of retail is now increasingly dependent on real demand, and in this sense, all retail companies are equally vulnerable.
To discuss the mechanisms and the effectiveness of implementing cost-cutting programs, including the results of negotiations with retail real estate developers, an open forum of the anti-crisis club of Russian retailers, www.clubretail.ru, has been created on the Internet. By registering on the forum, everyone can directly participate in the discussion of current anti-crisis measures, as well as offer their own. By the end of the year, APRIM compiles a rating of shopping centers based on the operational efficiency of retail operators and tenants of shopping centers. The openness and accessibility of information for each specialist is today an unprecedented example of business consolidation in the pre-crisis period.
Positive trends of the 2008 fashion market of the year
- Improving management at retail companies
- Awareness of the importance of development strategies and the role of marketing
- Attracting investments from other industries
- The exit of Russian retail chains outside the country
- Improving the franchising market through the audit of existing franchises and the creation of new
Fashion industry statistics in Russia
Number of customers - no significant changes
Average volume of purchases - no significant changes
Average Costs - 10% Growth
The total cost of buyers for the purchase of clothing - an increase of 14%
Average annual turnover of TOP20 companies -; 90-93 mln
Turnover of medium-sized operators - $ 25-30 million
In the next three years, market growth will decline to 5-8% per year
The share of the shadow sector in the economy is 50-60% of the total
Share of Russian manufacturers - 3,4-3,7%
Source: Discovery Research Group
Retail Risks
Profit reduction
Failure to fulfill the sales plan
Untimely replenishment of working capital
Distributor Risks
Decrease collection orders
Refusal of ordered goods
Developer Risks
Untimely receipt of rental payments
Closing a store in a shopping center
Difficulty filling up vacated rooms
Risks of service companies (clothing manufacture, equipment supply, IT, logistics, transport)
Reducing the volume of orders and work
Negative trends in the fashion market
|
|
Moscow |
Regions of Russia |
Prague |
Helsinki |
|
Amount of operating expenses per month (euro / sq. M) |
250 - 450 |
120 - 180 |
100 - 200 |
250 - 350 |
|
Rent (in% of turnover) |
55-80% |
Until 80% |
20-35% |
25-35% |
|
Salary (% of turnover) |
35-40% |
20-50% |
50-70% |
50-65% |
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