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Made In Rostov
Gateway 2 Russia, Russia -
May 20 2004
To make create the kind of "footwear region" found in China or Italy,
Rostov shoe manufacturers need to expand their range of products,
create brands, and improve distribution
Maxim Borisov
If you take a look at Russian men's shoes, you will see many of them
wear boots made in Rostov Province. Although these boots are not the
height of fashion, they are comfortable, made of natural leather with
a high-quality sole, and last for several seasons.
Men's footwear manufacturing has been developing rapidly in Rostov
Province for the last several years. Factories and workshops number
over a thousand, the demand for footwear specialists has long exceeded
the supply, and they receive the highest salaries in the industry.
Footwear production in Rostov-on-Don increases yearly. The rapidly
growing Rostov manufacturers have taken the local market for inputs
and components to a new level. The soles and heels made in Rostov
are of better quality than those made in China. The Rostov region
is being dubbed Russia's "footwear province." However, it is still
a long way from China's Guanzhou or Italy's Marka.
Footwear city
There are a number of explanations for the Rostov "footwear miracle."
Rostov Province is one of the most southern Russian regions. Rostov
is home to an extensive Armenian diaspora, and Armenians are famous
for their footwear traditions.
The footwear industry in Rostov Province developed rapidly in
the Soviet era. After the collapse of the USSR, Rostov's shoe
factories, like the entire industry, were in crisis. At many factories
production ground to a halt and personnel fell by half. As a result,
many shoemakers found themselves on the street. "In the early to
mid-1990s, Rostov shoe factories faced serious problems," says Andrei
Grekov. "But as soon as people with a different mentality replaced
the old directors, the Rostov footwear boom began."
The most active changes began after the 1998 crisis. "Before the
crisis, we had very low profitability," Expert heard at Nine Lines,
one of the largest Rostov companies to date. "Only after the August
1998 crisis, we had an opportunity to increase profitability and
develop production. At that time, there were as few as three lasts
at the factory and two or three models were being produced on each
of them. But demand was huge. The shoes we made in one week would
sell out like hot cakes, in one day."
Unemployed Rostov shoemakers began to return to the footwear business,
and small workshops developed rapidly. "I started my business with one
sewing machine; today, 30 to 50 people - depending on the season - work
at my enterprise. In four years, my company has attained high enough
production volumes that we have begun to participate in exhibitions,"
Tatyana Kokurina, General Director and owner of Astrum Shoe Company
told Expert. And there are hundreds of enterprises like Astrum in
Rostov Province.
Men are easier
Nobody knows exactly how many shoe enterprises operate in Rostov,
nor does anybody know what their turnover is, since along with large
companies and small legally operating enterprises, a multitude of
nameless factories and workshops sew shoes in the province. Many
manufacturers prefer not to come out from under the table, as they
don't pay taxes, and only wholesale buyers of Rostov footwear are
aware of the existence of these clandestine manufacturers.
A distinctive feature of the Rostov footwear region is that its
companies specialize exclusively in men's shoes. "The man hours for
women's and men's footwear are incommensurable. Today, we are not
ready to take on women's shoes, neither morally nor technologically.
Rostov is only strong in men's footwear for the time being," says
Kokurina. The companies sew popular classical models, mainly in black
leather. Rostov shoemakers don't conceal the fact they adopt design
from others. Over the last few years, they have started to play a
significant role on the Russian market. In their price and model
group, they are putting pressure on other Russian manufacturers and
Chinese shoes. "All Rostov manufacturers focus on the same single
target audience. They make similar models and operate in the same
price niche. Of course, this can't help but affect the market," says
Anastasia Tatulova, Marketing Director at Belka Company (makers of
Ralf Ringer brand shoes). "We consider them our rivals in the casual
and classic shoe segment. However, the classic models made by Rostov
shoemakers compete to a greater extent with Chinese manufacturers of
formal footwear."
The China syndrome
Rostov shoemakers have managed to gain a significant position on the
market due to a number of factors, the same factors that caused the
Chinese footwear boom. First, the folks in Rostov promptly respond to
demand. "If a model hasn't sold well, we change it within a few days,"
says Grekov. "As soon as I learn that a model is selling poorly,
we immediately stop cutting it on my call. Since we sew quickly, the
number of already cut shoes is rather small. It takes us one week to
develop a new model, from concept to realization." The specialization
in men's footwear allows for efficiency and enables Rostov shoemakers
to outstrip companies that order shoes from Chinese manufacturers. For
importers, the logistic cycle can last as long as a few months.
Secondly, a stable components market has been established in
Rostov Province. Numerous small companies bring leather, soles, and
accessories to the province. In 2003, local manufacturers of soles
meeting European quality requirements, and not just Chinese ones,
emerged in Rostov.
Many specialists explain the success achieved by Rostov Province's
shoemakers also by the fact that most of them don't pay taxes. They
greatly underreport their production volume or operate completely
illegally. "In Rostov, you can now see what would have happened to
the Russian footwear industry if it had been exempt from taxes or
if taxes had been reduced to 10-15%," says Sergei Donskoi, Marketing
Director at M. Shoe Company. "Regrettably, it is only profitable to
produce shoes in Russia illegally now."
Women are harder
Still, one should bear in mind that Rostov's shoemakers have achieved
their success based on small workshops making a technologically simple
product that meets basic market requirements in terms of price and
quality. Increasing competition is now forcing manufacturers to move
to a new technological level. If this doesn't happen, the rapid growth
of the footwear province will swiftly come to an end.
The problem is that Rostov shoemakers make men's footwear exclusively;
that different factories' products are virtually indistinguishable;
and that these factories only compete with each other by lowering
their prices. They are beginning, however, to think about brands that
would distinguish their shoes from the general mass.
Specialists are of the opinion that Rostov shoemakers should abandon
price competition in order to get a second wind. This means that they
should make more diverse collections, use materials of better quality,
and expand distribution.
Many companies are ready to widen their range of products right now.
This would enable them to target different market niches. Some
factories would focus on men's casual shoes, some on the "classics",
some on athletic shoes, and some might even venture into women's
footwear. So far, none of the Rostov shoemakers have attempted this.
"It's more difficult to predict demand for women's shoes than men's.
Moreover, no one had to, because everybody made a decent amount of
money on men's boots," says Vladimir Kazaryan. Women's footwear
requires new lasts, more diverse materials of better quality,
and a greater emphasis on design. However, notwithstanding all
the difficulties, many manufacturers are either developing women's
collections now or planning to do so soon. The competition on the
women's footwear market is much tougher, though, and the Rostov
shoemakers will immediately confront Moscow and Chinese manufacturers
in this segment. The Chinese have a firm grip on the greater part of
the women's footwear market.
Rostov shoemakers will be able to compete with them only if they
develop a distribution system, and their system lags far behind at
the moment. "Over the years, Rostov shoemakers have focused only on
making shoes and selling it to intermediaries. They have paid no
attention to the further fate of their footwear," Expert was told
at Legre Company. "Only recently have we begun to sell our shoes
ourselves. We understood at once how much of our profits had gone to
middlemen. All Rostov shoemakers used to work this way, and now they
have realized their mistake. If we had worked without intermediaries
from the very outset, we would have made greater progress in terms of
output and quality. We would have had enough money for both advertising
and new equipment."
Gateway 2 Russia, Russia -
May 20 2004
To make create the kind of "footwear region" found in China or Italy,
Rostov shoe manufacturers need to expand their range of products,
create brands, and improve distribution
Maxim Borisov
If you take a look at Russian men's shoes, you will see many of them
wear boots made in Rostov Province. Although these boots are not the
height of fashion, they are comfortable, made of natural leather with
a high-quality sole, and last for several seasons.
Men's footwear manufacturing has been developing rapidly in Rostov
Province for the last several years. Factories and workshops number
over a thousand, the demand for footwear specialists has long exceeded
the supply, and they receive the highest salaries in the industry.
Footwear production in Rostov-on-Don increases yearly. The rapidly
growing Rostov manufacturers have taken the local market for inputs
and components to a new level. The soles and heels made in Rostov
are of better quality than those made in China. The Rostov region
is being dubbed Russia's "footwear province." However, it is still
a long way from China's Guanzhou or Italy's Marka.
Footwear city
There are a number of explanations for the Rostov "footwear miracle."
Rostov Province is one of the most southern Russian regions. Rostov
is home to an extensive Armenian diaspora, and Armenians are famous
for their footwear traditions.
The footwear industry in Rostov Province developed rapidly in
the Soviet era. After the collapse of the USSR, Rostov's shoe
factories, like the entire industry, were in crisis. At many factories
production ground to a halt and personnel fell by half. As a result,
many shoemakers found themselves on the street. "In the early to
mid-1990s, Rostov shoe factories faced serious problems," says Andrei
Grekov. "But as soon as people with a different mentality replaced
the old directors, the Rostov footwear boom began."
The most active changes began after the 1998 crisis. "Before the
crisis, we had very low profitability," Expert heard at Nine Lines,
one of the largest Rostov companies to date. "Only after the August
1998 crisis, we had an opportunity to increase profitability and
develop production. At that time, there were as few as three lasts
at the factory and two or three models were being produced on each
of them. But demand was huge. The shoes we made in one week would
sell out like hot cakes, in one day."
Unemployed Rostov shoemakers began to return to the footwear business,
and small workshops developed rapidly. "I started my business with one
sewing machine; today, 30 to 50 people - depending on the season - work
at my enterprise. In four years, my company has attained high enough
production volumes that we have begun to participate in exhibitions,"
Tatyana Kokurina, General Director and owner of Astrum Shoe Company
told Expert. And there are hundreds of enterprises like Astrum in
Rostov Province.
Men are easier
Nobody knows exactly how many shoe enterprises operate in Rostov,
nor does anybody know what their turnover is, since along with large
companies and small legally operating enterprises, a multitude of
nameless factories and workshops sew shoes in the province. Many
manufacturers prefer not to come out from under the table, as they
don't pay taxes, and only wholesale buyers of Rostov footwear are
aware of the existence of these clandestine manufacturers.
A distinctive feature of the Rostov footwear region is that its
companies specialize exclusively in men's shoes. "The man hours for
women's and men's footwear are incommensurable. Today, we are not
ready to take on women's shoes, neither morally nor technologically.
Rostov is only strong in men's footwear for the time being," says
Kokurina. The companies sew popular classical models, mainly in black
leather. Rostov shoemakers don't conceal the fact they adopt design
from others. Over the last few years, they have started to play a
significant role on the Russian market. In their price and model
group, they are putting pressure on other Russian manufacturers and
Chinese shoes. "All Rostov manufacturers focus on the same single
target audience. They make similar models and operate in the same
price niche. Of course, this can't help but affect the market," says
Anastasia Tatulova, Marketing Director at Belka Company (makers of
Ralf Ringer brand shoes). "We consider them our rivals in the casual
and classic shoe segment. However, the classic models made by Rostov
shoemakers compete to a greater extent with Chinese manufacturers of
formal footwear."
The China syndrome
Rostov shoemakers have managed to gain a significant position on the
market due to a number of factors, the same factors that caused the
Chinese footwear boom. First, the folks in Rostov promptly respond to
demand. "If a model hasn't sold well, we change it within a few days,"
says Grekov. "As soon as I learn that a model is selling poorly,
we immediately stop cutting it on my call. Since we sew quickly, the
number of already cut shoes is rather small. It takes us one week to
develop a new model, from concept to realization." The specialization
in men's footwear allows for efficiency and enables Rostov shoemakers
to outstrip companies that order shoes from Chinese manufacturers. For
importers, the logistic cycle can last as long as a few months.
Secondly, a stable components market has been established in
Rostov Province. Numerous small companies bring leather, soles, and
accessories to the province. In 2003, local manufacturers of soles
meeting European quality requirements, and not just Chinese ones,
emerged in Rostov.
Many specialists explain the success achieved by Rostov Province's
shoemakers also by the fact that most of them don't pay taxes. They
greatly underreport their production volume or operate completely
illegally. "In Rostov, you can now see what would have happened to
the Russian footwear industry if it had been exempt from taxes or
if taxes had been reduced to 10-15%," says Sergei Donskoi, Marketing
Director at M. Shoe Company. "Regrettably, it is only profitable to
produce shoes in Russia illegally now."
Women are harder
Still, one should bear in mind that Rostov's shoemakers have achieved
their success based on small workshops making a technologically simple
product that meets basic market requirements in terms of price and
quality. Increasing competition is now forcing manufacturers to move
to a new technological level. If this doesn't happen, the rapid growth
of the footwear province will swiftly come to an end.
The problem is that Rostov shoemakers make men's footwear exclusively;
that different factories' products are virtually indistinguishable;
and that these factories only compete with each other by lowering
their prices. They are beginning, however, to think about brands that
would distinguish their shoes from the general mass.
Specialists are of the opinion that Rostov shoemakers should abandon
price competition in order to get a second wind. This means that they
should make more diverse collections, use materials of better quality,
and expand distribution.
Many companies are ready to widen their range of products right now.
This would enable them to target different market niches. Some
factories would focus on men's casual shoes, some on the "classics",
some on athletic shoes, and some might even venture into women's
footwear. So far, none of the Rostov shoemakers have attempted this.
"It's more difficult to predict demand for women's shoes than men's.
Moreover, no one had to, because everybody made a decent amount of
money on men's boots," says Vladimir Kazaryan. Women's footwear
requires new lasts, more diverse materials of better quality,
and a greater emphasis on design. However, notwithstanding all
the difficulties, many manufacturers are either developing women's
collections now or planning to do so soon. The competition on the
women's footwear market is much tougher, though, and the Rostov
shoemakers will immediately confront Moscow and Chinese manufacturers
in this segment. The Chinese have a firm grip on the greater part of
the women's footwear market.
Rostov shoemakers will be able to compete with them only if they
develop a distribution system, and their system lags far behind at
the moment. "Over the years, Rostov shoemakers have focused only on
making shoes and selling it to intermediaries. They have paid no
attention to the further fate of their footwear," Expert was told
at Legre Company. "Only recently have we begun to sell our shoes
ourselves. We understood at once how much of our profits had gone to
middlemen. All Rostov shoemakers used to work this way, and now they
have realized their mistake. If we had worked without intermediaries
from the very outset, we would have made greater progress in terms of
output and quality. We would have had enough money for both advertising
and new equipment."