To stay afloat, Russian clothing manufacturers need to learn not only to create high-quality products and develop retail outlets, but also to look for exclusive niches

Liliya Moskalenko

“We have given up on the Turkish-Chinese approach to clothing industry development when factories operate using tolling schemes,” Vladimir Mikheyev, General Director of FOSP Company believes. “The Russian clothing industry’s future belongs to companies able to create competitive products on their own.”
Today, Russian brands make up at most 3-4% of the clothing market (in the budget and medium-priced segment) but they are aggressively expanding their market share, opening dozens of shops, both their own and under franchising terms, and increasing turnover by 1.5-2 times a year. They have now outpaced even Asian manufacturers on the Russian market in terms of growth. Just a few years ago, no one would have expected Russian companies to achieve such productivity. In the 1990s, the majority of Russian clothes manufacturers operated in the lowest-priced market segment producing cheap, unbranded garments. Moreover, their production output declined by 3-5% every year and they were under extreme pressure from companies in Turkey, China and Vietnam, which were attracted to the rapid growth rates of the Russian clothing market (about 25% a year). Poorly equipped and insolated from the fashion industry, Russian factories were unable to compete with Asian manufacturers in terms of costs and quality, let alone design and trends. Only tolling schemes were left to many Russian garment factories, to fill the orders of foreign companies using their materials and patterns.
However, in the late 1990s, some enterprises took a different strategy: they focused on production of clothes carrying brand names. They had to abandon the practice of working “for the warehouse” typical for Russian factories and had to build a business model according to Western standards. This meant establishing contacts with foreign fabric suppliers, paying regular visits to international textile factories and fashion weeks, and most importantly creating commercial collections of fashionable clothes and promoting them correctly.

The business of speed

Despite the fact that both mass-market and more expensive Russian clothing companies succeeded in mastering the required business technology and in fitting themselves into the market environment quite quickly, experts believe that it will be rather difficult for them to occupy a dominant position on the market in the long term. “So far, they have operated under favorable conditions. Their rapid growth was partly due to the overall expansion of the Russian apparel market. Today, any company can find a place if it wants,” says Rimma Chainikova, an expert at BKG Consulting Company. However, according to Chainikova, in 2-3 years competition on the Russian clothing market will be extremely tough. The market share of foreign, transnational, and Asian companies is increasing by 3-5% a year, and this indicator, according to experts, will only continue to grow in the near future. The Russian apparel market is one of the most attractive markets today. According to the survey “Lifestyles of the Middle Class” conducted by Expert RA, it amounts to about $23-25 billion with growth rates of about 25% a year.
Will Russian garment manufacturers be able to withstand the anticipated severe competition?
The hard times are in store for companies in the mass-market segment. This is exactly where transnational companies such as H&M, Zara, and MEXX want to be. Numerous Asian manufacturers of little-known brands or without any attempt at branding at all are also concentrated in this segment.
The first challenge facing Russian mass manufacturers is keeping up with modern production technologies. “We need to learn to sew properly,” says Vladimir Melnikov, General Director of Gloria Jeans Company. “Branding is secondary. Why do we sew Levis for a relatively small amount of money at our facilities now when our volumes are so large? Because the main thing for us is to improve quality.” The second challenge is improving logistics. Given that the overwhelming majority of fabrics and accessories are purchased abroad, the rate of response to market demand becomes a key issue. “Logistics is the hardest thing for us to get. This is where domestic manufacturers lag behind Western companies most,” says Mr. Urzhumtsev from Pervomaiskaya Zarya. Because of this, Russian companies often are unable to respond in a timely way to demand, to identify the trends important now to mass consumers and quickly introduce them into production. Now and then, they offer fashions that are already “out.” Some clothes manufacturers try to cope with the situation by making a standard range of “classic” clothes. In this case, however, their products inevitably lose to up-to-date and changing collections by transnational companies.
And finally, the third task is to organize retail sales and merchandising properly. “Russian companies haven’t learned to pay proper attention to the pre-sales preparation of clothes and packaging. Therefore, their products on the hanger can’t compare with Western ones in terms of appearance,” says Andrei Grigoriev, Head of Benetton’s Representative Office in Russia.
“Domestic companies in the mass segment need to learn merchandising from their Western counterparts. Drop into a shop of any western company and there is always a play of colors and shapes that complement each other. Russian companies make their collections hurriedly, without a clear concept. That’s why they look dull,” Mrs. Vassa believes. Since mass production needs large volumes, mass clothing companies need to have a reliable link with retail. There are no systematic retail operators. Therefore, to have a link with the market, garment manufacturers have to develop a network of shops under their own names. Besides, the retail for them is more than just distribution; it also means advertising.  “In fact, there is only one way to develop brands left for Russian companies, which don’t have advertising budgets comparable to those of transnational companies. They have to continuously produce copies of their own retail outlet,” says Chainikova. All garment companies are in the process of retail expansion to a greater or lesser extent. The lion’s share of their profits has been allocated to opening new shops. Over the last year, Russian clothing chains have expanded by a third on average and Pervomaiskaya Zarya has even specially launched a new retail brand – Befree.

Where medium-priced companies should go

It’s hard for domestic companies to withstand the international clothing chain onslaught in the cheap mass segment. For this reason, they are concentrated in the medium-priced segment, which is narrower and more expensive. Russian manufacturers differ from foreigners in their superior knowledge of local demand and, consequently, more precise positioning.
However, the knowledge of consumer tastes will not guarantee success on the market. As is well known, to win in competition, a product has to be of high quality. The latter is made up of several components: high-quality fabrics (mainly, of European origin), more skilled tailoring and, finally, well-considered and really fashionable selection. In principle, it’s not that difficult to meet most of these requirements in Russia today. “By purchasing high-quality imported inputs and components, you acquire the techniques for using them as well,” explains Mr. Kostyukovich. And there are designers in Russia ready to create fashionable collections. “Just 4-5 years ago, all Russian designers dreamt of going abroad and making a name for themselves there,” says Mr. Yashchuk. “Today, they are looking for factories where they could do interesting things in Russia.”
However, there is one “but”. According to clothing manufacturers themselves, high-quality garment production is limited by the excessively high costs linked to the lack of inexpensive, quality fabrics in Russia. The continuous rise in payroll costs plays its part here as well. For example, a good designer’s salary is now comparable to that of specialists from Paris or Milan. As a result, making medium-priced clothes in Russia turns out to be not much cheaper than in Italy, and Russian manufacturers can maintain the required balance of price and quality only with difficulty at the moment. Many companies consider government support as the only way out of the established situation. In the first place, this means changes in customs policy, such as the reduction of duties on inputs, equipment, and components.
Manufacturers are more or less comfortable in niches where there is no major pressure from foreigners, for example men’s suits. Back in the Soviet era, menswear factories producing suits and coats had a fairly high level of quality, and they learned to operate in the market environment faster than other garment manufacturers. In addition, inputs for suits – high-quality woolen fabrics – can now be purchased in Russia.
Other clothing companies have no choice but to focus their efforts on the expansion of their market segment by reducing costs or to look for free niches. Some of them, for example, are now considering the entry to the luxury segment where there is more value added. These companies believe that despite the abundance of brands (naturally, Western ones), the assortment in the Russian luxury segment is rather monotonous. “What suppliers of expensive clothes currently offer in Russia is, mainly, intense glamour. But this trend cannot last long,” Mr. Vassa thinks. According to her, there are lots of much more promising, underdeveloped niches in the luxury segment of the Russian clothes market – for example, clothing for professional women.
The niche approach to development promises to work best for Russian clothing companies creating medium-priced clothing. The preconditions are already in place, as companies say that in competing with transnational companies, they have managed to form a circle of loyal customers. And this means that they are more than ready to craft a unique line of products.

Elena Krom assisted in the preparation of this article.  

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