bne IntelliNews – Rivals are motivation, lockdowns are a chance

The pandemic was a difficult time for the style business worldwide. 

As big swathes of the worldwide inhabitants went into lockdown, many retailers confronted heavy losses. The developments growing earlier than the pandemic picked up tempo, with on-line buying and sustainable manufacturing gaining traction. Whereas some established gamers misplaced floor in consequence, appreciable alternatives have been out there to these agile sufficient to adapt shortly to the shifting client calls for.

In Russia, a convergence of burgeoning e-commerce gross sales of which style represents a 21% share and a booming retail sector wherein home-grown gamers are gaining market share has created a fertile surroundings for some distributors, despite the pandemic’s opposed results. Melon Style Group’s revenues have been up 66% within the first 9 months of 2021 because it elevated on-line gross sales whereas additionally including extra retailers to its chain already the largest in Russia inside its section. In an unique interview with bne IntelliNews, Mikhail Urzhumtsev, CEO of Russia’s Melon Style Group, talked in regards to the developments driving this progress and the way the corporate hopes to maintain it sooner or later.                                                                      (Picture: Melon Style Group)

Style retail in Russia

“Once we began our Melon operations in 2005, we had 74 shops. As of the tip of Q3, we’ve got 815”, Urzhumtsev mentioned. “Final 12 months, despite all of the disruptions and the mess created by COVID, we opened greater than 70 new shops. And we’ve got opened nearly 70 up to now this 12 months, with extra to come back in November and December.”

How is that this potential? Urzhumtsev explains that it’s right down to the peculiarities of Russia and its market dynamic. The Russian attire market is extra fragmented than its European or American counterparts, with the ten largest gamers accounting for simply 17% of the sector, in opposition to 30% in developed nations, so market leaders have loads of room for progress. Melon Style Group has benefitted from this with two M&As during the last 12 years, most just lately buying Sela in 2019 in presumably the largest deal within the native attire market.

Social components have helped Melon Style Group too. Branded garments have retained a sure glamour within the minds of many Russians who bear in mind the Soviet period, after they have been seen because the protect of an elite.

For style retailers, this mix of fortuitous components has meant the power to proceed rising despite the opposed results of the coronavirus (COVID-19) pandemic. “For the final 5 years, our annual progress price of income averaged 19%. We now have ambitions to proceed this progress, and imagine that there’s large potential for us in the marketplace,” Urzhumtsev mentioned.

For retailers, the flipside to Russia’s typically beneficial socio-economic surroundings is a specific amount of dependence on Russian revenue dynamics. Increased inflation and slowing actual wage progress are sure to have an effect on companies of all descriptions. Urzhumtsev appeared unfazed. “We see large potential for progress, whatever the financial surroundings,” he mentioned. “We now have 4 manufacturers in three worth niches low, medium, and excessive and with totally different style developments – some are extra fashionable, some are extra fundamental. The truth that we are able to present a variety of assortments in several worth brackets notably helps us when formally incomes are usually not rising.”

Melon Style Group’s 4 manufacturers – befree, ZARINA, LOVE REPUBLIC, and sela – cater to quite a lot of demographics, from younger fashionistas to moms with younger youngsters. For Urzhumtsev, this number of goal audiences is among the firm’s key strengths, and a useful asset in a altering market: “All 4 manufacturers have their very own distinct audiences. And I don’t know of some other Russian style firm which has such a diversified portfolio.”

(Picture: Melon Style Group)

 

Outfit refresh

The flourishing on-line section was one other key driver of progress by means of the pandemic, and continues to play an ever higher function. Russian e-commerce has loved 40-50% progress 12 months on 12 months for the final two years, and style was the second-biggest beneficiary after client electronics. Melon Style Group has leaned into this pattern, closely listed in digital channels like Amazon, Aliexpress, and Wildberries – Russia’s main market, on which it’s the preferred style retailer.

On-line gross sales have been of specific significance to Russian style retailers through the spate of lockdowns in 2020-21. These assorted area by area, however usually noticed non-essential shops, together with attire, closed. Urzhumtsev, talking to bne IntelliNews simply after Moscow’s most up-to-date lockdown had completed, emphasised the simultaneous spike in on-line gross sales: “Our shops have been closed for 10 days and this actually had an affect. Whether or not it will likely be important… we’ll see. However our on-line presence has significantly helped us. It’s usually an enormous proportion of gross sales anyway, when bodily retail areas have been closed, it acted much more like a balancing power.”

Certainly, Melon Style Group’s share of gross sales that are made on-line is 30% higher than the ratios of Spain’s Inditex, Sweden’s H&M or Russian youngsters’s items retailer Detsky Mir. This has raised one other query: given how sturdy Melon Style Group’s on-line efficiency is, why not do away with the bricks-and-mortar format?

“We will’t be 100% certain, as a result of the pace of modifications on this planet is kind of quick, however we imagine that the offline expertise will at all times have an essential function in the marketplace,” Urzhumtsev postulated. “We’re people, we wish to buy groceries, to have that have of trying, touching, making an attempt garments on. I believe we nonetheless have years forward the place offline might be of utmost significance. In any case, in numerous Russian cities the shopping center is the principle place you go on weekends or after work.”

 

(Picture: Melon Style Group)

Nonetheless, Urzhumtsev recognised the centrality of digital codecs in future fashions of style retail. As Russians are shortly getting used to purchasing garments on-line, on-line gross sales in style are set to develop by 37% to RUB335bn ($4.5bn) in 2021, and to exceed RUB1 trillion ($14bn) by 2025, based on Style Consulting Group.

“Plenty of our shops assist an omni philosophy. The borders between on-line and offline have gotten blurred – many shoppers wish to order on-line and choose up in retailer. We embraced this omni mannequin two years in the past, and it’s going to be an essential one,” mentioned Urzhumtsev.

 

Competitors: good friend or foe?

For all its many virtues, the style sector is a really aggressive market. Manufacturers need to work more and more arduous to set themselves aside as new gamers enter the fray. “Whenever you go to the buying malls, you see numerous style retailers, and all of them have the potential to battle for our clients and to open their wallets,” Urzhumtsev admitted. “We now have the mindset that the competitors within the style business will not be a risk for us. Quite the opposite, we see it as a driving power to be higher, to enhance our providing, and to arrange and fulfil new, extra formidable targets. Competitors and rivals are good issues.”

One issue which might distinguish socially aware gamers from the remainder of the pack is their ESG providing, notably in an business like style, the place unsustainable producers can have an enormous environmental footprint. At Melon Style Group, Urzhumtsev mentioned the shareholders have been demanding more and more impactful company governance and sustainability measures: “This has develop into part of our firm philosophy and we’re investing an increasing number of in sustainability processes. Our workplace in China, the place our principal manufacturing is, checks the social and environmental traits of all our suppliers together with high quality measures. Along with the “Spasibo” & “Second breath” foundations, we’re amassing previous garments in our shops for recycling and reusing. However after all, crucial factor is our provide chain. We’ve already began an investigation of our provide chain, in addition to audits. Subsequent 12 months we plan to implement the outcomes, and arrange our targets to make the corporate much more sustainable.”

The historical past of Melon Group’s headquarters itself represents a putting instance of the resilience which the corporate is so happy with. The group’s base in St Petersburg began off as a handicraft college for women based by Empress Maria Fedorovna. Within the time of the Soviet Union, the constructing was reworked into an industrial-scale stitching manufacturing unit. The newest chapter for this clothes palace started within the Nineties, when Swedish businessman David Kellermann visited the manufacturing unit and met Galina Sintsova and Mikhail Urzhumtsev, two diligent style lovers concerned with the present garments manufacturing. Now the CEO, Urzhumtsev sees exactly this storied previous as one in every of Melon Style Group’s best belongings: “What I really feel units us aside from most gamers on the Russian retail market is a really lengthy historical past. Our roots return to 1882, so subsequent 12 months we’ll have fun the one hundred and fortieth anniversary of our specific imaginative and prescient of the style business, which was born within the time of the tsars.”

Seeking to the long run, it will have been an oversight to not ask Urzhumtsev if Melon Style Group was planning to go public. “The corporate’s sturdy progress is supported by the steady money circulation that the enterprise generates. On the identical time, like several profitable firm, MFG considers numerous strategic choices for future progress, together with alternatives within the capital markets, however it’s too early to speak about any particular plans.”

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