Interview with Anton Titov

How big is the footwear market in Russia? At what rate is it growing?

The Russian footwear market is among the biggest consumer markets in the country. In 2018, it was more than 1.37 trillion RUB (or more than $21.7 billion) in value terms and more than 320 million pairs in volume terms, according to thinktank Discovery Research Group. In 2019, the market has been growing: in the first half, it increased by 10.9 per cent in value terms and by 8.7 per cent in volume terms. In the mid-run, the market will show an upward trend which will be supported by growing disposable income and consumption. As for consumption, it is still not very high in Russia-a little bit more than two pairs per capita per annum. In this respect, we lag behind European countries and the US and we have great potential for growth in the next 3-5 years. The normal level of consumption for Russia is 3-4 pairs since we have all four seasons and a rather cold winter.

What kind of footwear innovations is the R&D team at Obuv Rossii working on?

You are among the first in the Russian retail to introduce blockchain in your business. How has it helped you?

Due to blockchain, we tackle the task of personal data protection which is very important for our company as we offer our clients a range of financial services like instalments payments, cash loans, etc. The base of clients using these services has been increasing and now makes up more than 1.3 million people. Meanwhile, our retail chain is growing too, and we need to provide data protection and its integrity as employees in our stores in regions all over Russia are involved in the process of providing services and constituting agreements with our clients. 

Thanks to blockchain, we guarantee that the information about all the transactions is unchangeable. We exclude a possibility of any unauthorised changes which may be a result of both external and internal interferences. The task to organise control at the local level has also become simpler. The company uses a two-level encryption system and stores data on transactions in a distributed manner in three data processing centres-in Novosibirsk (Siberia), Khabarovsk (Far East) and Moscow (Central Russia). One more result is worth mentioning: we have tested new technology and now we consider replicating it in other business processes such as loyalty programme and accounting. 

You were the first company to be listed in the Russian shoe and fashion market in 2017. How has the growth been?

What are the latest footwear market trends in Russia?

Many trends like materials, styles, etc, come from sports footwear to everyday shoes. One of the main trends is the increasing popularity of casual style footwear like sneakers, slip-ons, canvas shoes, etc. For the last several seasons, the share of high heels in women's collection has been declining, and at the same time the share of casual style, comfort flat shoes has been growing. It characterises not only spring-summer collections but also autumn-winter ones. Now it is widespread practice to combine classical suits and elegant dresses with sneakers. In mainland Europe, footwear made of synthetic leather and other materials is in high demand. We do not have the same trend in Russia since there is a rather cold winter and people still prefer footwear manufactured of natural leather and fur.

Regarding women's shoes, boots with thick, massive wedges are among the hottest trends. Heels are still popular, but they should be comfortable and attractive. So, different forms of heels are fashionable, for example, wedge heels, V-shaped, four-square, globeshaped. Ugg boots of bright colours with fur and other décor are still appealing.  Animalistic and reptilian prints are among must-haves of each collection. 

As for men's collections, sneakers are very popular, not only for summer but also winter. Cold-proof sneakers with natural and synthetic fur are included into the range of goods of Russian footwear stores. Men have started paying more attention to fashion trends. So, their footwear is not so conservative and dull as it was 10 or 15 years ago. In addition to classic black and brown colours, blue and mustard ones attract attention of male consumers. Accessories such as buckles, bright lace or straps is a common element of various men's shoe models. 

What is your production capacity?

Where do you source raw materials and parts for footwear?

Which price points are the most preferred by Russian consumers?

What kind of challenges threaten the growth of the Russian footwear industry?

One of the main challenges is not very high purchasing power of potential customers. The fact is that in Russia real disposable incomes have been declining for five years in a row. This year it is expected to tick up, in the next 3-5 years the pace of growth is likely to speed up. To cope with the situation our company is diversifying its assortment, and developing new lines like apparel. Due to these measures, we have managed not only to maintain but also to increase our like-for-like sales. One more instrument is the development of financial services like instalment payments which enhance the purchasing opportunities of our clients and enable them to buy more. So, for retailers to succeed in the situation of sluggish consumer spending, it is necessary to be rather creative, introduce new approaches, develop new retail formats and invent new services, which result in a loyal customer base growth. 

Another challenge is a big shift in the market when the share of online sales is growing pretty fast. The main obstacle for development of online sales in Russia is logistics because it is a big country. There are a lot of remote areas which do not have good access to transportation. However, big players in the e-commerce market and logistic operators have done a lot to overcome these hurdles and have been building a network of pick-up points all over Russia cooperating with traditional retailers as well. For example, as I mentioned, we have been expanding the project of pick-up points for third party online stores since October 2018. 

To adapt to new conditions, footwear retailers and manufacturers are launching their own online stores as well as cooperating with marketplaces. To be successful, it is necessary to develop different sales channels for synergy. As we see, many people demonstrate ROPO behaviour (research online purchase offline), especially in the footwear sector where a consumer first tries on and then buys. For example, more than 90 per cent of our online store clients prefer to pick up their orders in our brick-and-mortar stores so that they can try on and, if a pair does not fit, choose another one. Therefore, for any brand it is vital to be present both online and offline.  

If we talk about footwear production, there are two challenges. The first is lack of domestic materials and footwear components, most of which domestic manufacturers must import, and which in turn leads to an increase in the cost of production. It is necessary to develop our in-home supply chains of raw materials and build an infrastructure for the footwear industry. For this, we need time, investments and government programmes for industrial development. The second challenge is the limited access for small and mid-size companies to source finance. To start a manufacturing project, you need longterm investments, but it is not so easy in Russia to get those from banks unless you are big enough. (HO)