Daily Routine of the Fashion Industry
The situation in the knitwear and garment industries has long been “complicated”. The reasons are well- known: a great number of lossmaking companies and low profits. Domestic producers hear a lot of criticism from consumers. Sometimes this criticism is fair, but sometimes it is driven by long-standing prejudice against the Belarusian clothing industry. Despite the existing problems, it is still too early to put up a white flag. Stumbling Block
The majority of recognizable Belarusian clothing brands makes part of the Bellegprom Concern. The light industry concern represents the interests of 12 knitwear producers and 20 garment companies. Over the past yearIn 2015 their output totaled Br5.1 trillion. These companies had to operate in a very difficult economic environment. One of the reasons was the fall in the purchasing power of people.
“Today consumers prefer lowermid-range to mid-range price segments; the demand for longuse products is falling. This has brought about a shrinking supply of the major groups of light industry products. More than that, customers are turning their attention to second-hand products,” the concern said.
Other factors impeding the development of light industry companies include high interest rates on loans and high rental fees for shopping space, heavy spending on electric energy and gas, delays in payout on the part of retailers.
“Retail outlets hold off returning their proceeds to manufacturers. It is very hard to get money back even for the merchandise they have already sold. At the same time, producers do not shy off from discounts and sales; they provide retailers with their own shopping and advertising equipment and send merchandisers to work at retail outlets,” Deputy Director for Commerce at OAO Kupalinka Olga Okostko said.
Needless to say that domestic clothing industry has to compete with cheap imported knitwear, mostly from China and Turkey. In 2015 the import of clothing was estimated at $164.3 million, which was less than in 2014. The reduction was attributed to the lower cost of imported garments.
As is known, Decree No. 222 eventually came into force on 1 January. Now entrepreneurs need to have documents confirming the purchase of all the products they sell. Most entrepreneurs have accepted the new rules and keep working. People who buy their products are attracted by price, rather than brand.
“Today customers are very price-conscious. Therefore, we make sure that our prices are not higher than that of our competitors, at a minimumleast. We regularly hold discount events at the stores of our retail chain and other outlets that sell our products. We try to find cheaper raw materials without compromising the quality. For example, the yarn for knitted fabrics produced in Uzbekistan is not inferior to Indian yarn and is 20% cheaper. We also optimize our staff, and automate the production processes,” Olga Okostko said.
Some market participants have another opinion on the price policy. They believe that there is no need to look back at Asian rivals.
“We do not need to compete with Turkey and China in terms of price. Our products must be of higher quality, and therefore, more expensive. We need to focus more on design rather than on saving raw materials. By the way, Belarusian knitwear is not inferior to European apparel in terms of quality,” Deputy Director for Commerce at OAO Svitanak Svetlana Samstyko said.
Actually, it is not that easy to keep up with the prices offered by Asian manufacturers. Domestic enterprises do use Belarusian raw materials but still import a lot from abroad. According to Bellegprom, domestic fabrics account for 34.2% of the total raw materials used by garment companies. Half of cotton and blended yarn is purchased from Bellegprom textile enterprises (OAO Gronitex, OAO Baranovichi Cotton Production Amalgamation, ZAO joint venture Sopotex). Asian rivals produce raw materials themselves. Labor is also cheaper for them.
“Now global brands are redeploying their production operations to Southeast Asia, because it is very difficult to manufacture a competitive product
in the countries where a sewer is paid over $100. In order to have more competitive prices our manufacturers will have to operate almost with a negative profitability. This is obvious,” Olga Okostko said.
However, despite numerous difficulties in the past year, Bellegprom knitwear and garment companies did not resort to government assistance. 22 Twentytwo companies out of 32 posted profits. In general, Bellegrpom received Br831.2 billion in sales profit, with net profit at Br402.2 billion.
Quality Product… But Out of Trend?
If there are many obstacles to having a price advantage, then why wouldn’t the Belarusians concentrate on design? In fact, we can often hear: “Our products are of high quality but out of fashion”. Meanwhile, Bellegprom says that the product range is refreshed by 70% a year. Five brands, namely Milavitsa, Conte Spa, Kupalinka, Svitanak and Elema have been often included into Top 100 Belarusian Brands by MPP Consulting.
The manufacturers assure they keep up with fashion trends because otherwise they will not be able to survive. Specialists attend foreign and national exposhibitions, take part in fashion seminars and master classes. They also optimize product lines through using new fabrics and fittings and by developing new products. For instance, in January 2016 the Zhodino-based Svitanak started selling a new product – women’s leggings. Today, the company is working on a twill-woven fabric with a “denim” visual effect. The fabric will be used to produce children’s and women’s leggings and pants. Taking into account growing popularity of fitness in the country, Svitanak has developed a collection of sports apparel.
“The installation of a new rotary screen printing machine was a great help in our effort to refresh the assortment. The new equipment helped the company widen the color palette, improve the quality of printing and diversify effects, including finer lines and raster patterns,” Svetlana Samstyko said.
Lineup expansion and the launch of new products are the pillars of import substitution
The Gomel-based company 8 Marta has installed a rhinestone applicator and also an embroidery machine to decorate products with sequins, laces, beads and embroidery patterns. This year the company is busy developing sports and dance collections for children, which is a new line of business for the company.
The companies, however, would like to see retailers taking a more active part in tracking customers’ needs.
“Retailers often say that producers fail to do it properly. Hence a low demand. Why do they not get involved and make suggestions on the assortment? No, we are doing this alone, at our own risk. For this reason the relations between the producer and the seller reminds me of a one-sided game,” said Olga Okostko.
Export Twists and Turns
Bellegprom Concern exports a big part of the output. Last year the exports accounted for 61.8% of the output. The EEU countries account for 81.9% of the Bellegprom exports, with the Russian Federation holding a 78.7% share ($174.6 million). The focus on the Russian market looks fully justified. The Russian market is close and familiar. Specialists do not, however, forecast any sharp increases in the sales to the neighboring country due to considerable changes after Russia joined the WTO. It would be great for Bellegprom to diversify risks and break into new sales markets. But where to start?
“It is very unlikely that we will be able to carve out a big share on European markets in the near future. They are ‘“closed”” for now, at least, by import duties. For instance, when we planned to enter the market of one of the neighboring countries it turned out that our women’s knitted tunics would go up 30% at once only because of import duties, not considering all other costs. A complex import process and import documentation procedures is are another major constraint. In a highly competitive environment local authorities do their best to protect national producers as much as possible,” said Olga Okostko.
Belarusian garment and knitwear companies, however, are not pessimistic. For instance, Kupalinka currently exports its products to Kazakhstan, Moldova, Estonia and is eyeing the market of Israel. The high-income economies of Iran, the United Arab Emirates and Qatar are also of interest to the company.
As for Svitanak, it is focused on the countries of Central and Northern Europe. The company’s products are quite popular in the Baltic countries, mainly with senior citizens. Svitanak also manufactures goods for Estonian, Lithuanian and German customers on a give-and-take basis. Today it views Kazakhstan as another promising market.
“We are working hard to attract new trading partners from this region. In January-March 2016, our exports to Kazakhstan rose by 14% as against the same period last year. Of equal importance is the fact that the company managed to restore its ties with Ukrainian partners and certify products in this country in Q1 2016, after quite a long period of inactivity in the Ukrainian market. Our key trading partner in Ukraine is a large retail chain with more than 200 drogerie-type outlets,” Svetlana Samstyko explained.
As for the export of garment and knitwear goods on a give-and-take basis, specialists say this is a double-edged sword. On the one hand, such cooperation helps companies survive off-season when prices go down. On the other hand, it makes these companies dependent on the customer who can, at any moment, choose to do business with other manufacturers offering a better price. By the way, Bellegprom estimates that last year it sold $22.1 million worth of products to the EU
member states, which makes up 10% of its total exports, and $18.1 million (8.1 %) to other countries. All in all, last year Bellegprom exported products to 36 countries.
Keeping Up with Time and Fashion
Specialists suggest improving the situation in the light industry by manufacturing in-demand goods whose assortment can be easily refreshed. In 2016-2020, Bellegprom will make focused effort to offer new generation products for a wide variety of applications, including basic goods, creative designs and organic clothing for babies and children.
“The range of women’s, men’s and children’s apparel will be expanded keeping in sync with modern fashion trends and achieving the highest design standards. We will install new high-efficiency manufacturing equipment as part of comprehensive automation of the production process and will further develop information technologies,” Bellegprom Concern representatives said.
The company 8 Marta, for example, has plans to use digital inkjet printing of textile fabrics for youth designs and launch a collection of organic undergarments containing linen yarn. Besides, it will design and produce capsule collections. Kupalinka wants to produce seamless shapewear. These two enterprises as well as Svitanak will use modern 3D printing technologies in the entire lineup. Another ambitious manufacturer Elema plans to design a range of corporate workwear for big companies and government agencies, and to produce maternity outwear. The joint venture Milavitsa is designing a sports bra, and the garment factory Eliz will launch a collection of men’s smart casual shirts Velikan with body length 1 and 4.
Lineup expansion and the launch of new products are the pillars of import substitution. But of course it is impossible to have only Belarusian products on the market. International integration is unavoidable because no country can make and sell absolutely everything.
The development of specialty retail chains is another important tool for promoting Belarusian products. By the way, such companies as Komintern, Polesye, 8 Marta, Eliz, Kalinka, Svitanak, Kupalinka, Milavitsaand Milavitsa are now doing their best to expand their chains. As of today, knitwear and garment companies of Belarus’ Bellegprom Concern operate 290 retail stores. Eight shops were opened in January-April 2016, including five by garment factories and three by knitwear enterprises.
“Obviously, we will continue working on this. Large manufacturers and retail networks have a competitive edge and will expand their presence on the market squeezing out small wholesale and retail vendors. Changes in retail will be driven by the enlargement of companies’ own retail network and by franchising,” according to Bellegprom Concern.
Specialists also advise to bolster cooperation with self-employed businessmen. It seems that certain progress has been made in this field as small enterprises now show more interest in buying Belarusian-made clothes.
Our manufacturers should also take into account the growing popularity of online shopping. Therefore, Belarusian companies should continue optimizing their sales channels. By the way, Bellegprom enterprises Nadex, Areola, Conte Spa, and Lona have started selling online via Bellegprom’s website. Plans have been made to open two or three new online shops by the end of the year. Products of 20 knitwear and garment companies of Bellegprom are available online, on the website of the Belarusian post service Belpochta (www.shop.belpost.byshop.belpost.by).
It is common knowledge that effective marketing is key to brand success. Specialists are convinced that manufacturers still have to do a lot in this area to make headway.