DOING BUSINESS: PROBLEMS AND POSSIBILITIES

Byline: Jim Ostroff

WASHINGTON — Ask any number of experts about Russia’s apparel trade, and you’re almost sure to get the same assessment: enormous potential.
But whether Russia’s market booms or remains a backwater is an open question.
“On the production side, you have 150 million literate people and a wage scale of $1.50 a day for [apparel] makers on average, and on the consumption side, there are 25 million to 30 million people who can and want to buy [foreign brands],” said Irving Vigdor, president of Redwood Associates, a North Merrick, N.Y., textile trade consulting firm.
No one will deny that sales of designer apparel by Valentino and Escada have been robust in major Russian cities; that nation’s likely entry into the World Trade Organization within a year or so, along with a major World Bank cash infusion to stabilize its currency and build infrastructure, could make Russia a top consumer market, as well as a significant exporter of apparel and textiles. And the low wage structure makes it an appealing place for American and European manufacturers looking for new sources of low-cost production.
But analysts warn that foreign apparel and textile makers — as well as importers — should not stampede to convert their dollars, pounds, lire or francs to rubles — at least not yet.
There are problems within the Russian manufacturing industry. Textile and apparel production continues to slide, in many cases toward oblivion, reported Vigdor, a 48-year veteran of the textile export business who has worked as a consultant in Russia to an apparel maker and thread mill, and for an American maker selling there. Russian workers might be universally well-educated, but, said other analysts, they often retain their Soviet-era work ethic: “We pretend to work, and they pretend to pay us.” In the last year, however, the government has been unable to pay many workers for months on end.
“At the recent International Apparel Federation annual meeting in Turkey, a Russian textile official reported that of its 3,000 apparel plants, which employ 50,000 workers, about half are working at 50 percent of their capacity and probably only 20 to 25 percent of the 3,000 will survive,” said Kitty Dickerson, professor of textile and apparel management and department chair at the University of Missouri, Columbia, Mo.
What’s more, there are few centralized wholesale-retail distribution systems in Russia, and scant demographic data. Tales abound of criminals who prey on business people, and the Yeltsin government is about to begin the latest in a long series of new economic programs to create a market-based system.
Yet, analysts like Vigdor remain optimistic that Russia offers foreign apparel and textile firms opportunities for sales and investment there.
“A high-level Russian industry official just recently predicted that demand for apparel and textiles will rise 30 percent by 2004 over current levels,” he said.
Should Russia join the European Union by 1999 as expected, lowered import barriers will give its apparel makers access to the union’s 320 million consumers, who are considered “natural” customers for Russia’s wool and cotton apparel, said Vigdor, the author of several books on exporting fashion apparel and textiles.
That’s a two-way street. Russia’s joining the EU will give European brands easier access to its market. It would be likely to see more houses join such pioneers as Christian Dior, Nina Ricci, Valentino, Gianni Versace, Gianfranco Ferre, Escada and Hugo Boss, who already have businesses there.
Dickerson has a different take on Russia’s apparel and textile outlook, noting that apparel production there has declined, in part, because “products made under the old Soviet system had a reputation for very poor quality, and there is great demand for imported garments, especially branded ones.”
Russians want American-made apparel more than any other, said Patricia Huddleston, an associate professor of retailing at Michigan State University, East Lansing, Mich., describing the results of a study she and colleagues conducted there in 1994.
“We found Russian consumers had the most favorable impression of apparel labeled as made in the U.S., with the lowest perception for apparel labeled as made in China,” Huddleston said.
“After cosmetics, Russian women’s next purchase is apparel, followed by fashion accessories, such as scarves,” she said, noting this market has two distinct segments.
The top 1 or 2 percent of the population can afford to buy designer fashions. Apparel by Valentino, Escada and Levi Strauss & Co. “is selling hand-over-fist,” Huddleston said in a late June interview as she was preparing to head back to Russia to conduct a new retail survey.
Equally important for foreign makers and merchants is the fact that “there is a mass market in Russia for consumers who want quality at a price, particularly for well-made sportswear, dresses, many accessories and shoes,” she said, equating this to the U.S.’s mass market.
Vigdor estimated that up to 30 million Russian consumers could fall into this category, but good data is lacking. By comparison, he said, the entire Latin American/Caribbean consumer market for U.S. apparel is estimated at about 20 million people.
Foreign makers already are tapping this market in doors such as GUM, the giant Moscow department store; Moscovsky; two competing children’s wear chains, both named Detsky Mir; Gostiny Dvar, and Selfridges, the British retailer that leases space in Gostiny. One firm selling U.S.-branded apparel in Russia, whom Vigdor declined to identify, increased its volume, based on f.o.b. prices, from $125,000 in 1994 to $1 million last year.
Manufacturing there for the U.S. market may be a problem in the short run, based on the U.S. action last year that imposed quotas on imports of women’s wool coats, “which cut off their industry at the knees,” said Julia K. Hughes, a vice president and lobbyist here for the U.S. Association of Importers of Textiles and Apparel.
However, Hughes said, Russia’s admission to the World Trade Organization would greatly improve the prospects for importing Russian apparel and selling U.S. apparel there, explaining that membership would limit the U.S.’s ability to impose quotas and slash Russia’s high import duties. This move, coupled with World Bank loans, “should help to stabilize Russia economically and by providing jobs,” improve its consumers’ buying power, she said.
Though logistics still pose a challenge for nondomestic makers — there are thousands of small retailers spread across the vast nation — the proper marketing strategies could alleviate many headaches. Huddleston noted that most of its consumers live close to urban centers — most notably Moscow, with 9.5 million people, and St. Petersburg, with about 3 million.
Vigdor said “partnering is vital” with the handful of retailers whose trade area encompasses the lion’s share of Russia’s consumers. “With the right partners — say, its four largest department stores — you can access 70 percent of the market with your apparel,” he said.

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