Made in Italy
— What was your job back home?
— For the last seven years, I managed a busy wine bar in the centre of Sorrento. I enjoyed it: I was around people the whole time, and I am a sociable kind of person. But I realised that it didn’t have any prospects. And I wanted something more, my own business of sorts.
— Is that what brought you to Moscow?
— I wasn’t thinking about Moscow at that time: it was too far away. But then, circumstances, of what I would call an economic and personal nature, coincided. First of all, the financial crisis hit the south of Italy much harder than the other regions. I realised that my bar might not last much longer. It was time to turn thoughts into actions regarding safeguarding my future. And the personal circumstances were that, a few years earlier, a woman from Russia appeared on one of the local internet forums. She announced that she was learning Italian. We struck up a correspondence via the internet and, in February of 2008, I decided to make the trip to Moscow in order to speak to my “correspondent” in person. The Russian winter, of course, was off-putting as a prospect, but, for us, February is the deadest month for tourism, and so it wasn’t difficult to leave the bar for a couple of weeks.
About Modabella’s suppliers
Founded in 2009, Massimo Galano’s company trades in women’s clothing and accessories from Italian producers. These goods are bought from the Centro Ingrosso e Sviluppo Campania (“The Campania Wholesale Trade and Development Centre”). It is the largest wholesale trade complex in Europe for goods produced locally to the Campania and other southern regions of Italy and is situated in the small town of Nola, 25 km from Naples. Opened in 1986, it covers an area of 100 hectares, and is home to the offices and warehouses of over 300 trading companies. The centre’s main aim is to promote local goods to, primarily, foreign markets including Russia.
Then she came over to Italy, and it became clear that we had the same kind of plans as regards marriage, as well as having other things in common. She too was considering going into business for herself having worked for over ten years as chief accountant in a Moscow firm.
We quickly came to the conclusion that for us to start our own business in Italy was unrealistic. Our savings were not huge, and finding an investor or getting a loan on favourable terms was extremely difficult too. And so we decided to launch a startup in Moscow.
— Did you know already what kind of venture you were going to embark upon?
— The general idea was to start a tourism business: I had had some kind of experience with that. But when we first got to know the Moscow tourism market, it turned out that there were not only a lot of players engaged in the popular Italian side of such things, but powerful ones too. Going into that business required large investments, which I didn’t have. So we turned instead to the Italian clothing trade. Italian fashion has always been well appreciated in Russia, and 15 million people in Moscow are a huge market.
— But there was already plenty of Italian clothing in Moscow too…
— We had to find our own niche. And that’s what we did. We offered young Muscovites without the greatest of income the chance to wear quality clothing stitched in Italy. They are not, of course, world-renowned brands, but rather the product of relatively small companies, of which, in Italy, there are very many. This is clothing of fine Italian quality and, most importantly, it is not expensive. That is the main thing for us. I mean, often inexpensive Italian clothing is sold in Moscow for four times the purchase price.
Italian fashion has always been well appreciated in Russia, and 15 million people in Moscow are a huge market.
The niche which we chose also made the task of attracting suppliers a lot simpler. Let’s be honest: in Italy there is still the idea of the modern Russian as someone who is extremely wealthy, spending money without a second thought, and only in expensive boutiques. Which is why small producers look upon the Russian market as something remote and unattainable. We decided to change that situation.
— How did you come across your suppliers?
— I went off to Nola, a small town not far from Naples, on the advice of some acquaintances. A huge “Wholesale Trading Centre” had opened up there with over 300 companies offering goods made in the Campania region. The centre was set up specifically to stimulate exports of local products, so it was tailor-made for me. Negotiations were drawn out and complicated, despite the fact that almost everybody expressed an interest in the Russian market. But you have to know how midsized Italian business people are: they are very cautious, even more so when market conditions are poor. They would rather bide their time until they are certain that a new business is reliable and offers more profits than risks. Eventually, our business came into the world like a baby does: small, naked, virtually helpless. We rented a tiny room near to Novokuznetskaya metro with barely any heating. We kept our first samples there, which we had brought over from Italy. We received our first clients there too.
Natalia Balova, founder of an internet store for contact lenses and articles for their care: www.linzmart.ru:
— For most Russians, the concepts “Italian clothes” and “cheap clothes” are incompatible, and the internet mostly sells Chinese mass-produced goods. But now there is clothing of European quality at prices acceptable to most Russian women, the more so since, thanks to the internet store, it is not only Moscow women who can get them.
When we speak of internet trade in Russia, we usually mean a business with no offline shop. Sometimes it doesn’t even need an office. Of course you can go into that sort of business now if you have roughly 20,000 roubles. That will be enough for a very simple website with a free engine and initial investments in advertising. Against this background, Signor Galano’s investments seem unacceptably high. For comparison, my internet business cost me 200,000 roubles in 2008. On the other hand, Signor Galano has a showroom in the centre of Moscow, i.e. in effect a normal trading post, a wholesale retail shop for women’s clothes. Signor Galano is quite right to concentrate on the regions. Their purchasing power is not comparable with Moscow’s, but the competition is very much less. I think it is precisely the regional consumers, including wholesalers, who will soon be bringing the shop a considerable income.
— What kind of outlay was there: on the room and other things?
— Launching the business cost us about 30,000 euros.
— What were the kind of organisational problems you encountered?
— I don’t recall any organisational problems in particular. The goods we order arrive in 10-20 days with a freight forwarding company: they draw up and present all the necessary documentation to the customs service. My wife deals with the tax and accounting paperwork: as I already said, she is an experienced accountant. A web designer we know did our website for not much money. It’s true that we then redid it all when we consulted a specialist agency. They now service the site as well, updating the content, photographs etc. at our request.
— And how much do you pay them?
— 20,000 roubles a month, on average.
— Were you cooped up in that room for long?
— No, not really. We quickly rented an office and fitted out a showroom right in the centre of Moscow near to Kitay-Gorod metro. And now, we have an office a stone’s throw from Dobryninskaya metro. It has 20 square metres in all but we pay peanuts by Moscow standards: 17,000 roubles a month. We are aiming to minimise all our overheads so we can invest more in new collections, expand our range.
Not only in Moscow
— Many people in your shoes complain about the indomitable Russian bureaucracy…
— There is plenty of that, of course. But, as I see it, our countries are very similar in that way. Both in Italy, and in Russia, there is the tendency to complicate everything. But, at the end of the day, a solution can always be found, one way or another.
Both in Italy, and in Russia, there is the tendency to complicate everything. But, at the end of the day, a solution can always be found, one way or another.
— Does that include the use of bribes?
— No, we have managed without doing that so far. Although corruption does exist, of course. I will say, without giving out any names, that there was an incident when we had a completely unexpected and, I would say, groundless inspection thrust upon us. Fortunately, it all ended happily: we weren’t found to have broken any rules. But I found out later that this inspection had been “organised” in some way for one of our competitors. But, then again, the same kind of thing happens in Italy.
— On your site, there are photos of over 300 items of clothing: from coats and jackets to vests and T-shirts, as well as accessories. Are these all available now in Moscow?
— Anything which is shown on the site is, naturally, in stock, in varying quantities. And, Muscovites can not only order something over the internet and receive it by courier in one to two days, but they can also come to our showroom and, as they say, feel the goods for themselves. This is important for our wholesale clients too.
— Did you choose the internet as a sales platform out of economic considerations?
— Out of economic considerations as well. But the main reason is that the internet allows customers from almost every corner of Russia to find us.
Sergei Khitrov, senior analyst and head of research projects at RBK.research:
— Clothes, footwear and accessories are classical FMCG goods, and at the same time, these products are an important component of image building. Many people are willing to pay well over the odds for clothes, to spend time searching for interesting models and to make impulse purchases. There are several factors which have combined to bring about the success of Internet trading in clothes. Firstly, the significant investments and the intense desire of the players themselves to develop in such an interesting segment. Secondly, a most important reason for the popularity of the Internet is the very poor range of fashion products in the conventional offline retail trade, particularly in the regions. Thirdly and finally, the process of buying clothes in an Internet store has proved extremely convenient for the consumer.
RBK.research data show that in 2013, the volume of the fashion segment of internet trade reached 73.7 billion roubles (in the previous year it was 51.8 billion roubles). Moscow accounts for 24.6% of the total market, or 18.1 billion roubles. It is obvious that in conditions of such amazing growth, the Internet clothing trade market is extremely attractive to investors. Over the part year to eighteen months, about 200,000,000 dollars have been invested in the Lamoda Internet project alone. In 2012-2013, KupiVIP, on of the major players, was able to attract more than 60,000,000 dollars. In these conditions, the price of entry to the market for new players is higher. RBK.research estimates that at least 30-50 million dollars are required to enter the market successfully today, of which two thirds will go on setting up and perfecting the logistics system for delivering the goods from supplier to consumer. However, there is always an opportunity for niche projects, the budget for which can of course be much more modest.
— Do you have many customers in the regions?
— They tend to be living in Moscow, of course. But we get more and more orders from the regions: the south of Russia, Rostov, Sochi… We have customers in Samara, Novosibirsk, Ufa. It is still not as easy to get hold of Italian goods there as it is in Moscow.
— And how do regional customers receive their orders?
— By post. We send the goods by parcel post, first class, payment on receipt.
— But, what if there is a dress, for example, which doesn’t fit, or they simply don’t like it, I mean, they are buying it from a photo?
— That is no problem. One of our competitive advantages is that we are building a relationship with the customer in the Italian style, almost as if they were one of the family. If the goods are unsuitable, or they don’t like them, the customer can send them back within the stipulated timeframe, and we will immediately exchange them or refund the money. Therefore, even if the purchase is declined, more often than not, we retain the customer.
We are building a relationship with the customer in the Italian style, almost as if they were one of the family.
— So you are focusing on the regions more and more?
— It is a balanced process. Moscow is a massive market, but highly competitive. These days when I approach a potential client, I often hear this response from the shop owner: I’m sorry but you are already the tenth Italian to come to me with a similar proposal. I think that for us, representatives of small business, it is precisely the Russian regions which represent the greatest commercial interest. And one of my aims is to become an intermediary between Italian producers and Russian retail operators. We have found dozens of such traders over the last couple of years. They may not be huge, but they have their own outlets in Omsk, Novokuznetsk and other Russian cities. I would definitely like to expand this network. But to do so we need more active support from Italian suppliers. I am in constant negotiations with them but they are still extremely cautious with regard to more remote regions. Moscow, to them, is more comprehensible and convenient, even if only in terms of logistics.
— On what terms do you work with Russian wholesalers?
— We sort out a customised order for them. They pay 30% in advance and the rest on receipt. We deliver the order to them direct from Italy.
Not Your Typical Entrepreneur
— Does the experience you have amassed allow you to pass on some words of advice to those preparing to follow in your footsteps?
— I don’t consider myself to be your typical Italian businessman in Moscow: I am not backed up by a large company. There is no partner firm which would provide some kind of support on the local market. We operate completely independently. And I don’t hide the fact that I am proud that we succeeded having begun with nothing. So, as for those who would like to start their own business in Moscow, I would warn them straight away: there won’t be any easy times. You must believe that you will succeed, but never forget this: stand still, even for a minute, and you could lose everything.
We operate completely independently. And I don’t hide the fact that I am proud that we succeeded having begun with nothing.
— You have been in Moscow for four years now. How do you find it here?
— Completely comfortable. I like Moscow. I like the dynamism, the nightlife, the cultural heritage of the Russian capital. I like being able to squeeze my way out of an overcrowded metro and wander peacefully round some picturesque little corner. I love wandering around, for example, near the Novodevichy monastery: it’s not far from where I live.
— You travel around the city by metro?
— Both by metro and by car. Trips by car around Moscow are always a big adventure. You never know what is going to happen. According to my own personal experience, and that of people I know, I can venture to say that driving is not far off being the most stressful thing for Italians living here.
— Excuse me, but in Naples, you also have serious congestion…
— But our drivers do at least usually observe some kind of rules. It is the case that I got used to the Moscow style of driving some time ago. I try to keep my sense of humour when I am behind the wheel.
— And what else here is not to your liking?
— I dare say the outrageous cost of living. I’m from a place where the average family with an income of 1,000 euros can allow itself to eat tasty and reasonably high quality food, not only at home, but also, if only once a week, at a pizzeria with friends. It is one of life’s many little pleasures, which provide solace and enliven everyday life. You cannot allow yourself that in Moscow with such money. You have to earn more than that here.
— Do you miss your home country?
— I go to Italy so often! Clothing collections change rapidly. I have to keep up with them, make choices, come to arrangements. Occasionally I have to photograph samples myself so they can be put into our catalogue or brochure straight away. Sometimes I have to bring them over here. A quick turnover of goods is vital for us. Storing items which will take a long time to sell is an inexcusable luxury.
— What plans do you have for the immediate future?
— If, by spring 2014, we have been able to maintain our rate of growth, we will try to expand our range in the upper price bracket and introduce new brands into the collection. Our aim is to constantly strengthen and expand our business. And, so far, we are succeeding.