Russia Grown out of "Gray" Waistcoats

07.09.2009 — Analysis

Euro and dollar becoming more expensive and the customs policies tightening have cut down the imports of knitwear from China, CIS, and Europe several fold. Russian factories could have taken the now vacant niches; however, the lack of working capital prevents them from using this chance. Fyodor Shelepov, the Director General of CJSC Multiteks - one of the largest Urals knitwear manufacturers - spoke on the specifics of the sewing business in this interview to RusBusinessNews.

- There is an opinion that there is no point in developing light industry in the Urals. Because, the reasoning goes, textiles manufacturing brings the lowest profits in the machine building and metallurgy region, and Chinese and European products will always be better quality and cheaper. Will your company be able to disprove this?

- In 2008 we manufactured 44 million roubles worth of products. Since the beginning of 2009 this figure is 29 million which is 16% more than the first half of the previous year. The production profitability is at the 12% level. We specialise in outer garments - cardigans, jumpers, sweaters, jackets, waistcoats. Most of our income is women’s clothes which is about 70% of our range. The rest is lines for men and teenagers.

The increase of volumes in monetary equivalent is mostly due to the increase of the cost of yarn. Electricity costs have grown too, the dollar exchange rate has jumped up while we buy the raw materials for out production mainly in Europe and the CIS countries. This resulted in the growth of the market price of our products and the company turnover. Physical volumes have not been growing for over two years now with all our machinery working under 100% load. This does take into account the fact that in the four recent years we have replaced more than two thirds of our equipment having spent 22 million roubles on Italian machines.

- Yarn from Europe, equipment from Italy… Why don’t you work with Russian suppliers of machines and raw materials?

- We do buy very little yarn from Moscow makers. Our worsted plants, however, simply do not make the special half-wool yarn for automatic knitting.

Just a few years ago we ordered our equipment from the neighbouring Nevyansk machine building plant. They liquidated this production in 2002 and this left us in the situation where there is no more equipment made in Russia that would satisfy our requirements. This is why having studied the global market prior to the large scale production upgrade we decided to buy the equipment from Italy.

- Judging by the fact that the factory is working at 100% capacity, the demand for your products is very high. Where are your sales markets?

- We sell our knitwear mainly through wholesalers who then distribute the products all over the Urals as well as to Novosibirsk and Saint Petersburg. On average we ship 100-200 thousand roubles worth of goods per client. Thus, our products are sold in more than 30 shops in Ekaterinburg, Tyumen, Chelyabinsk, Kurgan, Perm. We also have our own outlet here in Nevyansk.

- Do you have any plans to establish your own retail network?

- We have tried this. Our today's volumes will not justify it. Even in Ekaterinburg it would be extremely difficult to draw all our buyers to a single shop – would take a very high advertising spending. Now it is easier for us to ship the products to wholesalers and be present in tens of shops of the largest cities in the Urals.

- What is the local producers’ share in the knitwear market?

- I can only talk about the segment we work in - cardigans, jumpers, sweaters. Taking into account the fact that our factory is one of the largest manufacturers in the region (out nearest competition is from Udmurtia), out products accounted for only 0.3% of the Urals Federal District’s market prior to the middle of 2008. Starting in 2009 due to the growing currency exchange rates and the tightening of import duties as well as, indirectly, due to the closure of the Cherkizovsky market in Moscow (large amounts of "gray" commodities were going through it), much fewer Asian products are coming to the Urals and there are free niches in the market now.

Before, according to various estimates, around 80% of the Russian market was taken by foreign goods. Three quarters out of this was "gray" import. The domestic light industry working for the mass consumer has been practically cornered: imports were much cheaper.

This has been a stimulus for our development: improvements of quality, machinery upgrades, looking for ways of reducing costs. In the end the intense competition has played to our hand. We have arrived at the crisis very well prepared. We work on the state of the art equipment. We have learned to react quickly to rapid changes in demand (for instance if a summer is cold, we start up the production of warmer garments faster than the Chinese or Belarusians) The average price of our products is quite competitive at about 600 roubles. Moreover, we have developed very close contacts with wholesale companies and shops. Now, when the shares of Chinese and Russian goods in the retail outer garment knitwear market are almost equal, wholesalers who had left us and went to Turkey, China, CIS, Europe some years ago, are coming back and placing orders with us.

- And how can you increase your market share when your capacities are fully loaded?

- Before the crisis we had a project for the construction of two new factory buildings, to expand production. Having invested 120 million roubles we could increase our volumes 4 times. The market would take it, there is enough demand. It is the best time for the development now, the real estate prices are down, there are fewer imported goods in the market. There is no money, however; neither banks are prepared to issue loans, nor the Government funds can help us. It is a sheer catastrophe for us. Last year we had the money but no opportunity. Now we have all we need for growth, but no money.

- When increasing the production volumes are you planning to broaden the product range?

- Narrowin it would be more likely. We are wholesaler-oriented more than anything. We did try to experiment, to make designer collections. They do not sell well at all. Studios should be doing this kind of things, not factories Our goal is to provide our consumers with inexpensive good quality everyday knitwear.  

Prepared by Yevghenia Yeryomina