Our company managed to find out what top managers of the leading Russian retail networks of different market spheres ( first of all, we were of course interested in the fashion industry representatives) think about the issue of the day – financial crisis in Russia. See our article for details.
As an information partner of two business forums “Retail Business Festival”, that was organized by SERVICEMAN Training & Consulting, and “Retail Technologies” summit, held by BBCG, we got a chance to talk to top managers of several companies, who eagerly spoke about the crisis and shared their recipes of survival in the new business environment. Within the framework of the events we heard presentations of managers from Enrof (Mexx, CK, Topshop...), footwear network Ecco, group of companies “Obuv Rossii”, Quiksilver Russia, Expeditsia, network of department stores Vesch!, Glance and many others.
Cause of the crisis
Strangely enough, our retailers were full of self-criticism in regards to what led to if not the crisis, than definitely very difficult situation in the industry. “Depravity” related to the use of easily accessible and not always non-risky credit funds, not-well-thought-out and unclaimed projects of the trade centres, in which developers were involving the retailers, boding access to “marketable” spaces, over-indulgence of growth combined with outrageous ineffectiveness. In short, the crisis was inevitable even without collapse of financial and credit markets. The latter only speeded up the course of events. “It is all our fault” – concluded the majority.
What is going on
The list of those who suffered as a result of the crisis, apart from banks and investment funds – is large network retail, forced to urgently change development plans, developers of the trade centres, who found themselves on one hand without queue of potential tenants, and financing – on the other hand, the majority of the markets, providing services to retailers: projects on training, modernization, construction and design of new stores are getting frozen till better times. The worst thing has not happened yet – the demand is not falling down, seasonal sales are more or less successful, without obvious failures. Should we expect the decrease of demand in the future, for example, for luxury apparel, or we will see the rich switching to middle segment or the middle segment converting to mass market – there are different opinions on this account. One thing is unambiguous- negative scenario is not excluded at all, if the crisis affects the level of income of the most vulnerable middle class, whose pocket will grow thin, sales of apparel (at least, not the casual one) will go down, after the sale of apartments and cars. The majority is getting ready for that, forecasting bad season already next spring.
Some networks feel instability of supplies, as the crisis did not pass by the manufacturers as well, while the retailer’s funds deficiency leads to frustrations of the purchases.
It was much spoken about the labor market as well. Staff deficit, particularly low level personnel, that has already become the talk of the town, is not overpassed yet, however the crisis causes appearance of new offers in the market. The majority of specialists have already initiated a passive job search against a background of worried expectations – they do not intend to leave straight away, but decided to evaluate the possibilities of job placement to be on the safe side. The number of vacancies has significantly reduced. Ambitions of top managers for astronomic compensations, that are even exceeding the European level, will obviously have to be lowered. All the above leads to gradual transfer from “market of employee” to “market of employer”, however good specialists in different spheres will be still difficult to find.
Order to survive
Our managers, who have already gone through not the first crisis situation in the market, should not be taught how to survive. Armed with past experiences, the companies started the “crisis management”. What is undertaken:
Extraordinary regular meetings of the management
Stopping or cutting down development programs
Closing down unprofitable trade outlets
Reduction of the staff (dismissal, revision of salaries and forced leaves)
New kpi – related to costs and accounts receivable
Revision of relationships with renters.
The retailers, having taken advantage of the change of current situation, are planning to win back indulgences from the developers of the trade centres, who were pretty often imposing extremely unprofitable contracts on them. At the present moment the power in the market has changed, and it is now retailers who demand to decrease the rents or switch to flexible rent rates (% of the turnover instead of the fixed rate), to abolish insurance deposits, index the rent rates as not more than 5% per year, calculate the rates in rubles, lease maximum ready-to-use spaces, that will include fire-prevention and ventilation systems, as well as the flooring. According to the retailers, as a result, the majority of developers had to sit down at the negotiations table.
Prospection
The picture looks not particularly encouraging. Against a background of inevitable recession competition will be increasing and the weakest players will go away from the market. It is expected that there will be a range of loud “collapses” – some networks have already up to one third of the so called problematic stores that are on the verge of getting closed. Strategy of costs reduction and struggle for effectiveness replace the strategy of quick growth. “This is not bad”, managers assure, - “there came a time to start thinking about effectiveness, and there are quite a few things to be improved – logistics, assortment management, staff etc.” Truly professional and strong retailers have nothing to fear, they will be able to survive and, taking advantage of the situation, will take away the share from weaker competitors.
The majority forecast serious changes in the demand structure, and its spilling over from luxury products and entertainment to products, covering the basic needs. People will switch to economical rational model of consumption.
Summing up the preliminary results
Despite of obvious “worried expectations”, some common denominator of all the presentations is somehow optimistic - “If there had been no crisis, it should have been invented”. “The market should go through period of shock, in order to depurate and get improved”.
