Interior and exterior shots of a Gloria Jeans store, Russia's largest jean producer.

Blue denim was almost as good as hard currency here during the days of the Soviet Union and there is no sign that Eastern Europe's love affair with jeans is about to blow over.

KIEV, Ukraine — Blue denim was almost as good as hard currency here during the days of the Soviet Union and there is no sign that Eastern Europe’s love affair with jeans is about to blow over.

Lilia Klimenko, a finance professional in her late 30s, shopping at Arena City, an upscale mall in central Kiev, remembers when jeans were an exotic commodity.

“When I was in my teens, you could only purchase smart jeans on the black market,” said Klimenko. “Or you had to queue up for hours on end to get shoddy, domestic copies.”

Nowadays, there is no shortage of jeans. International brands such as Levi Strauss, Lee Cooper and Diesel are prominently on display at Arena City, and elsewhere on high streets throughout the major Russian and Ukrainian cities. But an ever-expanding range of home-grown brands is challenging the large international players in a rapidly evolving market.

“We’re seeing growth of 15 to 20 percent a year, and I think that reflects broader market growth,” said a manager with a Western brand in Kiev who did not want to be identified.

All observers agree that the Russian and Ukrainian markets — home to some 200 million people — are growing at a fast clip, but precise figures are hard to come by. In Russia alone, total clothing market volume is estimated at more than $25 billion a year, according to Moscow consultant Symbol-Marketing. Analysts estimate that jeans and casualwear account for 10 percent of that, or around $2.5 billion annually.

The lion’s share of the market still consists of gray and black imports, mostly from Asia.

“The Russian market is very attractive for importers of inexpensive, mass-produced jeans from Turkey, China, Indonesia, Vietnam and Korea,” said Svetlana Zhuravlyova, a brand manager for denim products with Russian textile holding Yakolevsky. “Together with run-of-the-mill products from unbranded Russian producers, they dominate, leaving only 15 percent of the market for branded clothing from Russian and international companies.”

The head of Russia’s largest jeans producer, Gloria Jeans, said he sees black market importers as the biggest challenge to the industry.

“When the enemy is known, there’s always a chance to fight it and defeat it,” said Vladimir Melnikov, Gloria Jeans’ chief executive officer.

This story first appeared in the May 25, 2006 issue of WWD. Subscribe Today.

Catering to the consumer wasn’t much of a priority during the Soviet period. Despite huge demand, there were only three factories producing jeanswear for the country. The demise of the Soviet Union in 1991, however, opened the floodgates for imports and sent the existing plants reeling, wholly unprepared for tough competition.

It took the industry the better part of a decade to recover, but within the past three to four years the tables have started turning. Western technologies and marketing approaches have trickled down to local companies and they have begun clawing to recover market share.

Gloria Jeans has had sales growth of more than 25 percent annually for several years in a row. The company, based in Rostov in southern Russia, reports that its sales hit $170 million in 2005. Industry observers attribute this success to a combination of Western-style management of production and marketing and the company’s low cost base. Constant pressure from cheap imports, however, means that profitability in the industry as a whole is very low, and many companies operate at margins of 2.5 to 3 percent.

Gloria, with an estimated market share of 50 percent among Russian brands, has been a trailblazer in building up local production in Russia, which offers a higher degree of flexibility compared with outsourcing to Asian factories. The company is also now moving into Ukraine, where it’s investing in both manufacturing and retailing.

“The marketplaces in the Commonwealth of Independent States are very promising — Ukraine, for instance,” said Melnikov.

So far, Gloria is the only Russian player with the muscle to play for the mass market. Most of the other Russian producers, including brands Extra, Morozoni and Urbano, are focusing on jeans aimed at the mid-market segment, which are typically priced $35 and up. In many respects, this part of the market had been underserved.

“Until recently, there were no midprice offerings in the market, even though a growing number of people wanted to buy branded jeans of good quality at an affordable price,” said Nikolai Bezborodko, director for Jeans.ru, a Russian brand.

The next challenge for the new Russian brands is improving their presence at retail. So far, only Gloria has any major proprietary retail operation. The company presently has more than 200 outlets, and expects to open new shops at a rate of around 20 per month throughout 2006.

“The corporation is planning to extend its chain to up to 600 stores,” Melnikov added.