What are the possible strategies of Russian shoe manufacturers in conditions a changing economy? Do they predict are they demand reduction? What will they do with production and human resources? With these issues we turned to the general Director of the Ralf Ringer shoe company, Andrei Berezhnoy.
Text: Galina Kuznetsova
— Andrei Alexandrovich, how you rate the situation in shoe sector?
- To begin with, the weakest link in the production-wholesale-retail chain is retail. The fact that retail has had a hard time in recent years has already been said many times. Another question - could it be otherwise? I think it could not, because retail is becoming more and more ineffective - primarily in terms of income per square meter. And it is ineffective for two reasons - rent in shopping centers is too high and too many shoe stores are already open.
— You know, we compared rental rates in shopping centers and in street retail. Despite on sharp rental growth in shopping centers street retail still more expensive. That is alternatives shoe makers no.
- Yes, I don’t think that leaving to street retail will radically change the situation. World experience shows that trade is concentrated in large commercial centers. The right shopping center not only provides a flow of customers, theoretically you can choose the area in the center that will be effective for you. For us, for example, street retail stores are usually more than necessary.
So there really is no alternative. Another question is that it is possible to work with the owners of shopping centers, seeking adequate rental rates. I think that a reasonable level of rent is $ 1000-1200 per sq. m per year.
But high rent is only one important point that worsens the situation of retail. The second point is the excess of stores. The total number of buyers should be consolidated on fewer areas, then trade will be more efficient. Our shoes are already sold on every corner. Why so much? Meaning?
— Buyers demand a choice.
- Yes, not a question, the choice is the choice. Only everything has to be paid. The more choices, the lower the circulation per model. The lower the circulation of the model, the higher its cost. Accordingly, the price tag is high.
The difficulty is that in shoe retail the level of consolidation is less than in other sectors of trade. Hypothetical situation: there are 3 – 4 large retailers and 10 – 15 large suppliers who say, “OK, it has become difficult.” They sit down at a round table and agree on how to work with them. And in our market there are not 60 major players, but 6000 - it is unrealistic to agree.
— All the same some ways to consolidate business community you see?
- We need a higher density of sales per square meter, this should happen either through unification or through dying. That is, there should be fewer retailers, they should be larger.
In the current situation and with the existing Russian thinking, I do not see any opportunities for consolidation. We cannot agree on simple things. Maybe now this process will begin. In fact, nothing bad happens: a young, not very professional market, when difficulties arise and in the absence of accumulated experience, gets sick. It is natural.
However, developed markets also have their own diseases. What is happening now in Europe, I would call a crisis of the economic idea itself. How did the Western world develop? Due to the idea of building a consumer society, where everyone lives well. They worked hard, long and hard for this: everyone should have a good job, a good car, children should receive a good education, people should be treated in good hospitals. They built it, built it, and finally built it. And now they must answer the question: and what to do now? It turned out that there was nothing to do - and Europeans began to work less. Meanwhile, social obligations are growing.
Do you know what domestic debt Italy has? About 20 thousand euros per person. If we subtract the non-working population, it turns out that each working Italian owes about 60 thousand euros. And most importantly, this load is constantly increasing, because the level of social guarantees is very high. And you have to pay for it, but only those who work can pay. Therefore, the situation is actually really very difficult. The world will no longer be what it was. Something global will happen, but in what terms, when - I don’t know.
Let's look the other way - to Asia. The Nikkei index jumped after China announced the allocation of $ 586 billion to stimulate the domestic economy: developing transport networks, improving information technology, supporting agriculture, building low-cost housing, improving the environment, restoring and developing disaster areas. Can you imagine what will happen when China starts spending this money ?!
It seems to me that the world will come to some kind of construction when states are united in EU-type blocks in which the quantity of goods consumed in relation to the quantity of goods produced within the block will have a certain safety factor. For example, 80% of what we consume is produced by ourselves, and 20% is spent on something new, something we don’t have.
— Another of trends world economics - many countries pursuing liberal policies are moving to protectionist. how you to this concern?
- In my view, for a developing country, such as ours, there can be no other policy than reasonable protectionism.
— How You will adapt the work of your company to the changed conditions?
- We proceed from several premises. The first one. We have more competitive advantages than competitive disadvantages. Significantly more. And we hope that we can use it.
The second one. In a crisis, a person buying shoes is less likely to experiment. In this sense, our fame and reputation should play into our hands.
The third. The whole value chain is in our hands. That is, if tomorrow the market says: “We do not need shoes for three thousand rubles per pair in retail, but two thousand,” we will immediately do this.
Fourth. The company has invested a lot in recent years, and today we do not need investments. Our task now is to use all this clearly and correctly.
Fifth. The inevitable fall in wages in times of crisis will reduce the cost of our products.
I can add that we do not plan to reduce the development program of the branded retail network. We have already taken practical steps related to lower rents, and some results are already there, because the economic model of our store is effective. Organizationally and financially, we are ready to occupy vacant retail spaces with our own network.
We have been seriously engaged in production for a long time, built a system of relationships with suppliers of raw materials and supplies, became independent of the import of parts, and mastered a lot of new products. We told retailers: “Look, we can offer you this, both.” To which they replied: "Yes, we will bring a little worse from China now, but cheaper." Now the situation has changed - try to bring it if you do not know the sales forecast. In this situation, it is better to bet on the local manufacturer, because all issues with the delivery of goods, the ability to make an additional order, if some model “shot”, it is easier to decide when the production is inside the country.
In general, our anti-crisis plan is to preserve as much as possible all existing competencies and support the existing distribution. Another question is that we do not yet understand how to do this, because we do not know what the solvency of the population will be.
Recently, I received the first swallow: one of the major distributors asked to reduce the prepayment in the season. What to answer - I don’t know yet. To say yes is to increase our risks. To say no is a high probability of rejecting the order.
What all companies can and should do is to reduce costs, increase manageability, work harder, consider carefully, and do everything better. That’s the whole way out of the crisis.
— How critical is a change in lending conditions for you?
- Critically. Heavy. Banks are well aware that the key parameters of business plans - sales volumes and sales prices - are unstable, and accordingly increase interest rates and collateral requirements. These are objective requirements, nothing can be done about them. In this sense, we are better than trading companies, because we have a reliable guarantee in the form of equipment and real estate.
— How will your marketing policy change in the next year?
- We proceed from the fact that it’s pointless for us to work on brand recognition now, because the brand is already recognizable enough. We now have another task - to attract a new target audience, for example, middle managers. Advertising cannot achieve these goals, other tools are needed here, and now we are trying to do it. We started an interesting project “Gloss” when we appear in men's magazines, “Penthouse”, “Autopilot” and others, with photo shoots of famous people shod in Ralf Ringer.
There was another task - we wanted to use another way of promotion, sponsorship. We have almost already agreed on a contract with a leading football club, but so far we have decided to slow down this project because it is not clear what the real demand of people will be.
— If everything is so incomprehensible in demand, can speak at least about some development?
- Development will be unambiguous, it is based on an unshakable axiom: people need shoes every day, shoes wear out. We live in a northern country, and without good shoes we can’t live here. And in the end, people will understand that you need to buy the right, reliable shoes. Society will understand that it must buy what it produces.
— It will lead to to isolation.
- No. I am not saying that we should consume only what we ourselves produce. I say that consumer spending should not be stimulated by oil revenues. The state had a simple chance to do this long and quickly - through a devaluation that was smooth, calm, but this did not happen. And now, for the salary of a seamstress, you can buy five pairs of women's boots. This is a lot, there must be two pairs. And so that the security guard sitting in the entrance would receive not 20 thousand rubles a month, but three. Because now he does not produce anything and only takes advantage of the fact that he lives in Russia and the fact that we have oil. It is not right.
— By the way, coming back To a question about demand. But as you yourself will you predict it? Do polls? To handle to external to experts?
“Now is not the time.” But in fact, we have our own retail, thanks to which we have an idea of what people buy. We assume that the consumption of Ralf Ringer shoes should not be reduced, because our customers only come to the store when they wear out.
Plus, we launched two managed projects with network retailers this season. We have from them fairly detailed information about what is being sold, when is being sold, and in what competitive environment. We will follow this very clearly.
— Will there be change assortment?
- In recent years, we have been trying to offer our regular audience new products that they could buy in addition. I emphasize - additionally. For example, the person who wore Real Ralf could decide that he needed classic shoes and buy it. We offered our customers more beautiful sports shoes. We learned how to sew first-class classic shoes comparable to Italian. Believe me, it was not easy.
Now our assortment is so wide that we can exist without any major changes for a year or two at least, managing what we have: these are the parts of the bottom, and the park of blocks, and the accumulated materials. With such a base, we can support a diverse offer. Another question is that we ourselves cannot sell all this at retail, so it is very important that retailers competently approach the order.
— That means - competently?
- In terms of the formation of the assortment matrix, the retailer should have two key parameters - the number of models in the store and the number of pairs per model. Until now, retailers have worked, increasing the number of models, counting on the fact that the more models there are in the range, the more sales will be. This is the wrong logic. Firstly, an endless increase in assortment makes it unmanageable. Secondly, the wider and extravagant assortment, the less profit per couple.
Accordingly, now the main task facing retail is to save the sales volume in value terms and reduce the number of models. Because the consumption of retail for half a place, the amount of balances, the number of suppliers, the ability to manage the marriage depends on this parameter. And when they reduce the number of models, then the joy will be everything. Because retailers will reduce costs, and manufacturers and suppliers - cost.
— Of your partners you this learn?
- We proceed from the fact that the competencies and the opportunities that Ralf Ringer gives to retail allow us to count on the growth in sales of our shoes.
For the first time this season, we introduced a tool called the “Mandatory Assortment Matrix”. How it works? 500 pairs to the store, we laid out on 20 models, indicating which items must be in the order. Now we are waiting for the results. In our retail, I can say that expectations are met.
Another question is that retailers, having achieved a serious volume of sales, strive to go into wholesale, hoping to buy shoes on their own and often, without even thinking about the fact that other risks arise in the wholesale - customs and logistics. Although they could well be engaged in what they are strong in, and could become even stronger if they tried to build strategic relationships with 20 – 30 suppliers, the right assortment matrix, and after that they would develop together together. I hope that the mentality of our sellers will still change in this direction.
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