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What kind of footwear innovations is the R&D team at Obuv Rossii working on?
One of the flourishing areas are polymer materials, for example, EVA. We experiment with such materials since they enable us to improve consumer properties such as lightness, durability, frost-proof, etc. We also cooperate with Novosibirsk Technological Institute-it is one of the leading industrial research and educational institutions in Russia. We test new materials, develop new technologies like anti-slipping soles and record patents.
We also develop a lot of new models for special purposes and industrial footwear which endure extreme loads and can be exploited in special conditions. This year we issued a new model for the food and pharmaceutical industries. This group's own development fully complies with requirements of special purpose shoes. We developed this new model together with one of the biggest food holdings in Russia which enabled the group to carry out field tests for the new type of shoes in real production conditions and improve the model considering all the recommendations. Usually, we use modern materials for the sole and upper part; different construction peculiarities allow us to introduce innovative products which have no counterparts in our market.
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.
What is your production capacity?
The annual footwear production capacity of our units is 500,000 pairs. We mostly manufacture footwear of casual style for all seasons, special purpose and industrial footwear, and niche footwear for hunters and fishermen. We produce footwear with any type of sole attachment-cement, injection moulded and combined construction methods. We manufacture footwear made of natural leather, textile and polymer materials like EVA.
Where do you source raw materials and parts for footwear?
We cooperate with Russian manufacturers of leather, compounds and other materials as well as with foreign suppliers (from China, Italy and other countries).
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)
This interview was first published in the October 2019 edition of the print magazine.
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