Nadezhdin Konstantin Yurievich General Director surname. We will live - and, I really hope, no worse than this year. How to build partnerships with brands
The network of off-price Familia stores is a very large enterprise. Today it is more than two hundred outlets throughout Russia. On a large scale, the Familia concept can even be called somewhat sustainable - the network presents the unsold remnants of the collections of different brands. We spoke with Familia CEO Konstantin Nadezhdin about how the network functions.
Konstantin Nadezhdin,
Familia CEO
Your network includes more than 210 stores located in more than 80 cities. How do you choose where to open, and is it always a shopping center? How is the content of the store related to its location?
We prefer to open stores in the largest shopping and entertainment centers in the region. The choice in favor of the mall is not accidental: today people come there not only for shopping, but also for leisure.
In the selection process, we strive to analyze the city and its characteristics. We look at the area, then - a specific shopping center, then - the location where exactly the department store will be located. We study the competitive environment and the portrait of the buyer, comprehensively evaluate the site. We strive to adapt the assortment to the buyer in each individual region.
How popular is the off-price format in the regions?
The demand for the format is indicated by the scale and growth rate of our stores network. Familia is the first federal network of off-price stores in Russia. Today it has more than 210 stores in 80 cities of Russia. Last year alone, Familia opened 44 new stores, with over 64 million visitors in total. At the same time, the number of store visitors increased by 43% compared to last year.
The customer always comes to our store looking for the brand of their dreams. This is real gambling shopping. People spend at least an hour in our stores and buy several things in one visit. The success of trading in this format is based on the specific behavior of buyers. Different mechanisms work here than with spontaneous purchase. Our client is motivated to visit Familia stores frequently in anticipation of new products: they arrive daily.
How does the assortment differ in stores and do consumer preferences influence the assortment? How is the assortment formed? Do the stores have buyers or someone like that?
As soon as the season ends (and sometimes even earlier), we receive unsold goods from partners. One delivery can contain units, or maybe up to a million different things. Remains are formed always and for everyone, because no artificial intelligence can accurately predict the demand for a particular model. It depends on many factors: weather, exchange rates, offers from competitors, and so on.
The functionality and approach of Familia buyers are very different from the duties of regular retail buyers. Our buyer is an entrepreneur and owner of his category. He has his own budget and independence in decision-making. He decides which brands will be in our stores next season and at what price, what discount will be after the repricing. He classifies the range of clothes by colors, length, materials, price segments.
How is cooperation with brands built?
The goods in Familia are supplied by retailers, distributors, and manufacturers. Someone has a portfolio of brands, while someone works with only one. Someone makes things for a whole range of brands of clothing and shoes, and he has leftovers that he can dispose of. It is fundamentally important for us that the supplier has permission from the brand to sell his goods.
We work with more than 4 thousand brands. And we have exclusive contracts with some giants. Large suppliers understand that we do not harm their business and are willing to develop cooperation.
How is the crisis affecting off-price stores? Are there more or less consumers? Does the offer change?
There is a misconception that off-price stores are popular only in times of crisis, but this is not true. After the global crisis of 2008, the demand in this format did not decrease at all in the world. Smart shopping has become a major trend. Price is one of the main criteria for a Russian buyer, but for a Familia buyer, the brand of goods is also of great importance. However, the main advantage of Familia is not specific brands, but the breadth of the offer with a benefit reaching 85%.
He spoke about the generation that chooses the off-price format, about the brands that are presented in Familia stores, about the technologies the company works with. Konstantin Nadezhdin, network CEO Familia within the XV annual conference Retail in Russia. The path to the consumer organized by the Vedomosti newspaper.
"The target audience is getting younger"
“We noticed that our target audience is getting younger, these are people under 34 and even up to 24. The buyers who come to us are young “smart shoppers” who are interested in receiving a quality offer and finding the benefits that the off -price offers the market. These people come and their check goes up. For two years, our depth of the check, the depth of positions in the check has increased by 10%. This suggests that our offer falls on demand and gives an increase that we are proud of - said the head of the company. - We understand that customers are becoming more casual, ie. we see a shift towards this style of clothing. There is an increase in demand for designer brands. And we understand that it is stylish clothes, bright images that many young buyers share with their friends on the Internet that increase return traffic, this word of mouth brings us an ever larger audience.”
Off-price - unpredictable
“The off-price format is a branded offer, it is a lot of brands at a very favorable price. And this is a high degree of unpredictability - up to 80%. It is very difficult to guess what goods will be accumulated by our suppliers, what exactly they will be able to offer us tomorrow, next week, etc. High technologies that are developing in the world are being improved. We have to keep up with the times and technology. Our network includes more than 6 thousand brands, more than 2 thousand suppliers from 40 countries of the world. Working active assortment - 2 million SKU. As a result, we have 240 stores and 86 cities. The most remote stores are located at a distance of 4 thousand km from each other. According to our estimates, 10 million buyers have made purchases in our network since the beginning of the year. If you multiply the number of entry and exit points, this is half a million routes. We connect 2,000 suppliers with 240 stores.”
Keep up with the times and technology
“The technology we work with is protected by a patent. It allows you to identify, analyze, assign a price to it in 2.4 seconds, determine the store to which it will be distributed, form a price tag, and reflect on the price tag all the parameters that are necessary for delivery: box number, pallet number, date, store number . This system also allows us to regularly re-evaluate in the store, which takes place almost every month - this is also the highlight of the format,”- said the CEO of Familia.
According to the speaker, the turnover of goods in the Familia chain should normally be 60 days. Technology enables the distribution center to operate with high efficiency.
“If the volume of commodity mass entering our stores would not be identified, digitized, systematized and pre-distributed to certain regions and groups, to certain clusters of cities, then this commodity mass would simply cover us with a stream. But because we understand that we have to work with the amount of uncertainty, these technologies allow us to process up to 300 thousand units per day. The turnover of our warehouse is 1.7 days. Since the beginning of the year, we have processed 50 million SKUs. On average, we have 18 incoming (from suppliers) and 40 outgoing deliveries (cars sent to stores) daily. At the time when the introduction of this technology began, our warehouse turnover was five days, and the network was three to four times less, ”- added Konstantin Nadezhdin, CEO, Familia.
According to him, since the beginning of the year, the company has collectively delivered cargo over a distance of 13 million km (34 distances from the Earth to the Moon), cargo transportation amounted to 62 thousand tons (as if transporting 13 thousand elephants). The network was able to achieve these indicators, among other things, thanks to technologization and work with big data. “For the last three years, Familia has become a member of the 50 Fastest Growing Companies in Russia rating and opens 40-50 new stores annually. 3 million loyalty card holders are our loyal audience that regularly comes to us. Someone comes daily, someone twice a week - on average, about one or two times a season.- summed up the speaker.
Before heading the Familia network, I worked in retail for over a quarter of a century - in Western and Russian companies. In his previous position, in the largest operator in the beauty segment, he went from commercial director to first vice president. With my participation, the network grew from 200 to 900 stores, and I gained experience in implementing the most advanced IT technologies with a team of great professionals.
Of course, I learned a lot over the years of work, but when I came to Familia, I realized that it is better to temporarily hold my expertise in retail: first of all, you need to understand the specifics of this business. Because the off-price format works according to completely different laws. Here we have different retail, different logistics, different supply, different marketing, and even different HR technologies. This is a business of the highest speeds, the specificity of which is in the constant updating of the offer.
I am a doctor by education, so my main principle as a leader is do no harm. Only when I was sure that some ideas that worked in regular retail could be applied here, I suggested adapting them. And not immediately, but gradually: some of them are still under development. You need to transfer your experience selectively, copy-paste in retail will never work.
Business at speed
The entire logistics of our network is built on technologies that can only be found in food retail. Like the food industry, our goods are “perishable” and must turn around quickly. Familia's central distribution warehouse spends only 2.4 days on average, a turnover achieved thanks to state-of-the-art operational processes. The batch is processed in a few minutes, and the deliveries are distributed to all stores in the chain. In which of our 200 stores this or that thing will get, only the robot knows. He decides in three seconds where to send something, since he has all the information from the box office. We have implemented everywhere SAP, and now we are moving to the latest version of Microsoft-Axapta ERP.
Logistics and IT is the lifeblood that distributes and delivers goods just in time. Everything happens instantly and flawlessly. The machine forms an offer in such a way that in each store the buyer sees a constant rotation of the assortment. This is the specificity of off-price, and this is what distinguishes us from regular retail, where one (sometimes two or three) collections are sewn, which arrive in stores during the season. And Familia has customers who come every week, if not more often. Our buyer is very sensitive to the price, and we sell him original branded goods with serious discounts. Visitors know that there will be something interesting in every delivery. No item stays in the back room for more than a few hours, and if an item doesn't sell for two months, the repricing machine turns on automatically. The new supply is formed taking into account the price elasticity of demand.
The margin of the off-price business is not as high as, say, beauty, but we benefit from speed: we quickly sell a very large volume of goods. Last year, store revenue rose 9% in LFL (like for like - comparison of sales in the current and previous period), although prices remained at the same level. This means that Familia's growth is not only extensive - due to the opening of new stores, but also due to an increase in turnover per square meter of store space. Now the situation in the markets is such that retailers are dreaming that LFL will grow at least a fraction of a percent, and someone would even be happy to remain at the same level.
Familia is growing faster than any fashion chain. There is a misconception that off-price stores are popular only in times of crisis, but this is not true. After the global crisis of 2008, the demand in this format did not decrease at all in the world. Smart shopping has become a major trend.
There are now 6,000 off-price stores in the US alone. The first was opened in Boston in the 1950s by Alfred Marshall, founder of the TJ Maxx, TK Maxx, Marshall's chains. According to Moody's, in the US off-price turnover is 10-12% of all fashion retail. The prospects for this format in Russia are huge, and knowing this, we are expanding our network: last year we added 44 stores and in the future we plan to open 40-50 stores a year.
Our company did not choose the off-price format immediately: it gradually, starting from 2013-2014, evolved from sales department stores with cheap goods to a chain selling well-known brands. This self-determination of the network was evolutionary, but it led to fundamental changes in all areas, in all business processes and, first of all, in the procurement system.
Work with providers
Why do we know that new stores will be filled with quality branded items, and where does the confidence come from that we will always have someone to buy from? We trade in unsold surplus. The goods in Familia are supplied by retailers, distributors, and manufacturers. Someone has a portfolio of brands, while someone works with only one. Someone makes things for a whole range of brands of clothing and shoes, and he has leftovers that he can dispose of. It is fundamentally important for us that the supplier has permission from the brand to sell his goods. As soon as the season ends (and sometimes even earlier), we receive unsold goods from partners. One delivery can contain units, or maybe up to a million different things. Remains are formed always and for everyone, because no artificial intelligence can accurately predict the demand for a particular model. It depends on many factors: weather, exchange rates, offers from competitors, and so on. For this reason, manufacturers set volumes about 10% higher than the amount of the confirmed order. This additional 10% of the product creates a safety stock, which is formed by manufacturers, distributors, and retailers who buy things. And we help partners mitigate the risks of overproduction and overordering because they know they can always sell surplus in our network.
Being a reliable partner of our suppliers is at the heart of our business model. And there is a simple rule: even if you have already agreed on prices and conditions, but the partner turned out to have more stock goods, then you must be ready to pick up an additional volume - for the sake of a strong relationship. This is how you show that you are not a temporary buyer, but a long-term player in this market.
Of course, it is more interesting for us to buy things in Russia: there are fewer problems with documents, the goods will get into our network faster, we can deliver in small batches. Last year, Russia accounted for about half of our purchases. Stock volume was high because the summer was too cold for good sales of summer collections. But in general, the shares of different countries in our purchases depend on the markets, and we find suppliers all over the world.
We keep our finger on the pulse of trading and evaluate the sales of different networks ourselves: this is a very complex expert system. Our buyers are constantly on the move, and when they go to some country to negotiate with one supplier, others often appear on his recommendation. New supply chains are constantly emerging. Our procurement is a huge and lively process in which it is impossible to plan everything in advance. There are statistics in global off-price retail: 15-20% is accounted for by spontaneous purchases. You can not refuse unexpected, but very profitable offers.
Consumer
The success of trading in this format is based on the specific behavior of buyers. It can be called "treasure hunt". Different mechanisms work here than with spontaneous purchase. Our client is motivated to visit Familia stores frequently in anticipation of new products: they arrive daily. That is why we basically do not have a division into brands and collections: we deliberately mix them in the layout so that the purchase turns into a kind of quest.
To be sure that the buyer will receive the goods at a price that he is psychologically ready to pay, you need to analyze the market very carefully. Our consumer is rapidly changing: they are no longer people with low incomes, but smart shoppers: middle and middle plus segments, mostly young women. All top managers of Familia periodically work in stores and communicate with visitors - each of us must have an accurate portrait of those for whom we work.
The price is still the main criterion for the Russian buyer, but for the Familia buyer, the brand of goods is also of great importance. Some brands, except for ours, have never been in Russia, and some were, but during the crisis they closed their branded stores: they continue to supply their things to Familia. But our main advantage is not specific brands, but the breadth of the offer at a total discount that reaches 85-90%. Jeans, which in the world cost, say, 15,000 rubles, can be sold here for 800 rubles after revaluation.
On the channel "Friday" there was a program "Dress like a star." They show a celebrity whose outfit costs, for example, 400 thousand rubles. Then they find a girl who looks like a star, take her around our hall and dress her in much the same way, but for 10 thousand rubles. It is unlikely that this is possible in another store. Shopaholics spend three hours with us to find what they need.
Staff
The company employs 4,200 people, but our growth requires an influx of qualified personnel all the time. We motivate people for a long-term career, including all positions in advanced training programs, from cashiers to sales floor managers. The career ladder is built, and you can climb it.
Individual and collective competition and gamification are present throughout the vertical. In the commercial department, buyers compete to see who will sign the most new contracts and who will have better sales. The success of one does not arouse the envy of colleagues. If you are negotiating in your product category, then the supplier most likely has others. Bayer will share information with colleagues to improve the collective result.
Stores also compete with each other: the one with the highest growth wins. Healthy competitiveness does not interfere, but helps, because thanks to it, everything in the company lives and rages. There are no off-price specialists on the market, they are not trained anywhere. Therefore, we are looking for people with drive and an interest in technology and immediately advise them to work in the store and warehouse. Only after completing the training, you will understand that everything here is arranged differently than in ordinary retail. If a person is energetic and communicates well, he will learn even without experience in the fashion industry. Each new team member has an adaptation plan, a training program and a mentor who has both material and non-material motivation to help a colleague join the team.
Employees are compensated based on the achievement of their KPIs. On average, the bonus is about half of the earnings, and the company always pays it honestly. But we can’t just “sit at work for a salary”: when the whole team is harnessed to a cart, the one who came to ride in it will not be accepted into the company.
Companies and investors
Our company - Maxima Group - was founded in 2000 by two Russian citizens. The founders are not involved in operational management - they determine the company's development strategy, participate in negotiations with the owners of shopping centers and major suppliers.
At the end of 2016, private equity fund Baring Vostok and Goldman Sachs bank entered the capital, they own a large minority stake. The deal was made not for the sake of selling the company or its part - the main goal was the development of the network. The founding shareholders proceeded from the fact that the business will grow and, therefore, new expertise and an independent assessment of efficiency, technology and management are needed.
In addition to financing, the company also received intangible benefits: the very reputation of the oldest and most famous investor in Russia works for us. Investment funds of this magnitude have vast knowledge of both retail and business in general. Before making a decision, investors very carefully analyzed our business and sent us experts from our industry. They were very experienced people, they delved into everything and gave us high marks.
The founders and investors help us define our strategy by evaluating our three and five year plans. As in any business, we are given goals for profitability and revenue, and we achieve them. We currently have two focus areas. Firstly, this is organic growth due to the improvement of the quality of business processes - we strive to increase revenue per square meter and the profitability of existing department stores, and, secondly, the continued development of the chain. In 2018, Familia plans to open at least 40 stores both in the cities where it operates and in new regions.
faith in the future
We are not looking for reasons why it did not work out - the corporate culture makes us find an opportunity: what and how to do in order to achieve a result.
In order to better understand this business, we not only traveled to the USA, but also invited specialists to Russia who had worked in off-price companies for more than 10 years. We searched for them for a long time and selectively, on the recommendations of other companies. We studied with gurus in Philadelphia and New York, and also invited them to Moscow, organized seminars with their participation, traveled to our stores together, invited us to negotiations, asked to note everything that we do right or wrong. Our youth listened to them with great enthusiasm, because these professionals from the US, Canada and the UK approach the matter with great drive. We have established friendly relations with them. They conveyed their passion to us and shared many subtleties of this business: they told how it works, spinning the off-price mechanism to the screw.
Our main credo: with extensive growth, we must not lose the quality of business processes. Often, during expansion, including regional expansion, the rearguard lags behind. The challenge in retail is balancing both extensive and intensive growth. You have to remember that when you open a new store, there is a certain amount of cannibalization, and you have to take steps to avoid it. Many companies, seeing success, quickly increase obligations, and then suddenly a crisis occurs. We are developing practically without loans, only at the expense of profit. And if we raise money, then it is short-term, and our liabilities in terms of value do not even come close to our assets.
Two years ago, when I joined, Familia had 109 stores, and now there are almost 200, and the economies of scale in purchasing and in everything else make a really significant contribution to efficiency. My task is to ensure that the movement is progressive and development is harmonious. And for this you need to bring all the instruments of business into an orchestra so that everyone plays correctly. That's the CEO's job: bring marketing and retail, purchasing, and HR together. For a top manager, the main thing is to find the ratio of strategy and operating system. A good leader should not only soar from above, like an eagle over a field, but also take care of a plowman with a plow that goes across this field.
Big mall. The stores that fill it are frighteningly empty: rarely in any of them you can see a lone buyer among the bored sales assistants. And only in Familia you begin to feel comfortable: hangers on the hangers tinkle - buyers slowly pick up their clothes; baskets rustle on the floor, gradually loaded with things; all fitting rooms - and there are about two dozen of them - are busy, and there is even a small queue for them.
It can be seen that there is a request for an offer from Familia. This is confirmed by the data on its growth. Familia is one of the fastest growing domestic companies, with revenue nearly quintupling between 2013 and 2017 (see graph). The growth rate in 2017 compared to the previous year was more than 40%. Such rates are typical for companies commonly referred to as "gazelles". About what exactly Familia offers to consumers and how it ensures its growth, the CEO of the network told Expert Konstantin Nadezhdin.
- What causes growth Familia - by the fact that during the crisis, consumers' incomes fell and they turned to cheaper segments like the format off - price to which the network belongs?
We are really growing. True, our share in the fashion market is still one percent (in global retail, the share of the segment is almost two percent), but in the Russian off-price (trade format that involves the sale in one store of a wide range of original goods of famous brands at prices significantly lower than in other places. - "Expert") we occupy 95 percent. And we did not grow because, as you say, the off-price format develops during the crisis years. Not! Look, the crisis in the West has long passed, and the off-price has been growing and growing. Even faster pace. Because the consumer has become more rational. He chooses thoughtfully, looks at the offers of retailers, and now he even has the opportunity to compare all the offers on the market via his smartphone. Yes, our customers receive, I'm not afraid of this word, fabulous benefits. On average 60-65 percent of the original price. But we do not sell cheap goods. There are other formats for this - markets, for example. We offer original well-known brands. Because we buy them all over the world, in more than forty countries. Some of them have not even come to Russia yet, but we already have them. Or take Esprit, Oasis, OVS, Tally Weijl, Desigual: they left Russia, but they will stay with us, because our market is still interesting to them. We represent over six thousand brands from more than two thousand suppliers.
Look, here are the brands that are in our designer brand corner: Armani, Harmont & Blaine, Roberto Cavalli, Bugatti, Pinko. We also bring some brands of Russian designers here. For example, Masha Tsigal, Akhmadullina Dreams, or Vika Smolyanitskaya, or Naumi - beautiful down jackets - sell very well. There were doubts whether we could sell their coats for 11 thousand with the first price of 38 thousand. Gone.
- How do you manage to set low prices if the product is so
In 2019, Familia will focus on quality growth and customer loyalty. Konstantin Nadezhdin, General Director of the federal off-price chain Familia, spoke about the state of the Russian fashion market and shared the company's plans for 2019 in an exclusive analytical article for FashionUnited.
We will live - and, I really hope, no worse than this year. According to our feelings, in general, the fashion market survived, not showing rapid growth, but not collapsing either. There are no serious grounds for a significant change in trends in the new year, and this is not bad for the market. Familia, for example, is focused on increasing its share, including by expanding its loyal audience, which recently reached the 4th million. Why is keeping the current vector not the worst scenario for the market? Because there are simply no sources of growth in consumer activity. Firstly, the population in the country is declining - and the preservation of market volumes means, after all, an increase in consumption volumes. Secondly, now Russia is passing through the narrowest place in the last 50 years in terms of the influx of a solvent audience: the number of young people aged 18-22 is the smallest in half a century, almost two times less than 10 years ago - a gradual increase in this audience will begin only two years later; working pensioners in the next couple of years, too, will not increase. Add to this both the forced and technologically justified optimization of Russian companies, the global political and economic situation, and the general mood of the consumer to save money - according to all calculations, the market size should decrease. But it remains the same.
According to our visitors, we see that many are ready to spend several hours in Familia alone, measuring 20, 30, and sometimes 50 things.
Of course, large chains ensure the preservation of market volumes. It will be a little easier for market leaders in the new year than for others, because they managed to grow and increase revenue by increasing the scale. A change in the VAT rate will inevitably lead to an increase in regular prices. Even if not by much and not immediately, retailers will not be able to restrain them: for the past few years, the market has been operating at a minimum margin, there is nowhere to roll back. Plus the upcoming introduction of a labeling system: process restructuring will still be required, as well as additional resources for change management. But there are still no grounds for a significant decrease in consumer activity, including offline: over the past 15-20 years, fashion has taught Russians that there should be a lot of clothes, that the wardrobe needs to be updated regularly, that you need to emphasize your individuality, and in primarily through clothing. Also, the perception of shopping as entertainment has strengthened among the consumer: it is no longer an urgent need, but a pleasant pastime. And since the pleasant is combined with the useful: you do not just spend money, but acquire some material goods - in the absence of the opportunity to acquire pure impressions (travel a lot, have fun), a lot of buyers still go shopping. From our visitors, we see that many are willing to spend several hours in Familia alone, measuring 20, 30, and sometimes 50 things. Kinesthetic needs have not been canceled: for many people it is important to touch the material, to find compatibility not only in colors, but also in textures of fabrics.
There is another nuance that works for retail stores in the fashion sector. The rationalization of consumption, which has dominated the country in recent years, is expressed not only in the desire of the buyer to purchase goods with the maximum benefit, but also in the need to obtain a guarantee. In exchange for his money, he wants to have a guaranteed product - of the quality, color and size that he suggests. Mass technologies have not yet advanced to such an extent that a buyer on the Internet can easily "try on" a product, assemble an image based on the texture of the material, and even more so "feel". There is also an error in color reproduction online. All this is to some extent holding back the online sales of clothing and footwear, although the segment will certainly grow. Its growth, I think, will make a certain contribution to maintaining the volume of the fashion market in the new year.
An important focus for us will be the development of CRM
We ourselves are focused primarily on qualitative growth: we will expand the range of products, especially in terms of categories that demonstrate the most positive dynamics - sports goods, children's goods, goods in the Home segment. We will continue to develop our brand portfolio, both in terms of Russian brands and foreign ones.
An important focus for us will also be the development of CRM. The other day we honored the owner of the three millionth Familia discount card, as well as the customer who opened the fourth million loyalty card holders. We gave everyone a Familia certificate for 30 thousand rubles, shopping with a cool stylist and a New Year's photo session. It is gratifying that a girl from Novosibirsk has become the three millionth owner of the card: Siberia is an important territory for us, we started active development there a year ago, and so far everything is working out. Despite the fact that the power of Chinese goods is strong there, as well as unscrupulous entrepreneurs selling cheap fakes under the guise of brands, Siberian buyers received us positively. And we expect, including through the development of CRM, to more accurately fall into the needs of the audience, primarily loyal ones. It was regular customers who allowed us to get a positive LfL value at the end of the year: over the past few years, we have seen an increase in their check, both in terms of money and depth. In two years, the growth of positions in the ticket exceeded 10%, which we regard as a very positive result in the current market conditions.
What would you like to wish colleagues? First of all, to maintain sales volumes and the assumed pace of development. The year will be uneven, but it just needs to be experienced - with love for your business, customers and life. With coming!