My impression of Russia was from postcards of Red Square
– How did you end up in Moscow?
– We had a phone call from the leading European investor Rocket Internet, proposing that we organise a company in Russia to deal in furniture.
– Did you think this was an attractive proposition?
– Certainly. Firstly, the economy has developed very well in Russia, and secondly, there were bigger turnovers in the furniture business. And thirdly, the investor had a good reputation.
About Manuela Stoll
She graduated from Goethe University in Frankfurt-am-Main in the year 2000. In 2006, she defended her doctoral thesis at the European Business School in Oestrich-Winkel. She worked in McKinsey & Company as an Associate Principal. In 2009, with Nino Ulsamer, she founded a company called Shopperella, selling goods for babies and young children. In 2011, Manuela and Nino Ulsamer set up the furniture internet shop Mebelrama.ru in Moscow.
– You hadn’t been to Moscow before this?
– No. My impression of Moscow was from postcards of Red Square. Before taking the final decision, we first came to look round, to understand and get a feel for the city and the country. We were bored on the road from the airport; all we could see from the windows was grey panel-built housing blocks and collapsed fences. But as we got closer to the centre, our mood improved. Moscow proved to be a very beautiful and completely European city.
– Didn’t your parents try to stop you moving to Moscow?
– Oh, my father has made acute turns in his own life more than once. First he studied theology and became a minister in the Baptist Church. Then he became interested in information technology and worked in this field for 30 years. Mum worked in the city administration, dealing with helping immigrants to adapt. Nothing would have surprised them. While working in McKinsey & Company, I had occasion to live in New York, Dubai and London. Now it was Moscow’s turn..
– What difficulties did you encounter in organising the company’s work?
–The investor had already created a legal entity, which wasn’t actually doing anything, but all the paperwork was in place. We were immediately faced with an urgent problem – finding good personnel. We started the site from nothing. We only had two months to find qualified specialists. And what we required of the candidates was quite specific. The point is that the furniture market in Russia looks quite different from in the West. You have many retail shops belonging to the producers themselves, such as “Shatura-mebel”. This does not exist in the West, where all makes are represented in big furniture shops. Our procurement specialist would have to know the furniture market, to have a good idea of which makes sell well and which do not, and understand how to set up a production line. People with experience of work in the furniture business, as a rule, knew only one producer – their former employer. They knew everything about that make, but had only a very superficial knowledge of the others. The candidate also had to be able to speak good English, which narrowed the field considerably. Our investor is a native English speaker. The computer software is also in English. We had to reject some very good candidates because they did not know this language.
Stanislav Zabotin, Managing Director of the “Nashe budushcheye” (Our Future) consultancy company.It has become easier in recent years to create production facilities or service companies for the internal market (and that is at least 140 million Russians and a further 100 million Russian-speaking citizens of the CIS). Russian customers are becoming more and more like Europeans, both in their everyday requirements and in their modes of behaviour. Foreign entrepreneurs no longer have to expend considerable resources on expensive market research. It is sufficient to look at the statistically-average German or Frenchman of four or five years ago – and that’s the Russian customer. This applies to the furniture market too.In principle, any foreigner wanting to open his own business in Russia requires a professional consultant. No doubt he could cope independently, but he would have all sorts of difficulties. One must admire the President’s programme for combating corruption, and for the active development of the use of electronic means in government. But for this, much time and resources have to be spent on studying the specifics of Russia, learning about the tax and labour laws and finding the people you need. Here it is important not to forget the language barriers (even in state statistics, not everything by any means is translated into English, unfortunately). This could take years. A professional consultancy company or a local partner with a share of a joint venture can considerably shorten this process and make it much less challenging.
The second problem was storage premises. Our partner company in Germany was already in a position to start making deliveries. But where could we store the furniture? It wasn’t easy to find good storage premises in Moscow at that time. And the prices shocked us, I must say.
Many internet companies lease storage capacity in Berlin for quite a low rate. Even other big cities such as Frankfurt-am-Main or Munich have lease rates 30-50% less than in Moscow.
– Can a foreigner organise a business in Russia independently, or can one not manage without the help of local specialists?
– I would not say it is absolutely essential for the Board of Directors to include Russian partners, but there is no doubt that you need a consultant – a local lawyer, who knows the nuances and specifics of Russian law.
– Have you invested your own money in the company?
– No, I haven’t invested anything.
– So you can come to Russia and do business with only a few dollars in your pocket?
– You have to realise that it is very expensive to lease office space, storage space and accommodation here. The personnel cost a lot too. The only thing that is cheap in Moscow is travel on the Metro. But if you have a good business idea, it isn’t hard to find an investor. There are many players here who are interested in the Russian market and want to find someone who knows where to put their money.
In Russia, they act on the principle:we’ll only pay when we see the goods
– How many people are working in your company now?
– About 150.
– What salaries do you pay?
– The minimum is 28,000 roubles a month. That’s what we pay to students working at various administrative jobs. The maximum is about 400,000 roubles.
– Where are you leasing your storage premises?
– In the Taganka district. Actually, we have already moved twice. We had quite a few problems with the first store. We didn’t have our own people there. Sales began to rise, we needed to shift the products quickly, we hadn’t had time to take on personnel. The furniture business is quite complicated from the storage logistics point of view. Unlike other products, where the goods can be packed in a single box, you stick a label on it and that’s it, in our case a flat-pack wardrobe might consist of six boxes, each requiring a separate label. This means that all the boxes must be grouped correctly to comprise one wardrobe. If any box is missing, the product is incomplete, you can’t sell it. The managers of our first store had problems with this. This caused us in turn to have problems with the Russian suppliers. To make it clear that this is one wardrobe, and this is a different one, we asked for the boxes coming to us to be marked in a certain way.
To make matters worse, the computerised accounting system at that store was very inadequate. The staff didn’t know what was on which shelf. When a batch of goods came in, they simply stacked the boxes in a corner and were happy to forget about them. We found a whole pile of boxes and had no idea who they’d come from or where they should they be sent. The store administration wasn’t flexible enough. They didn’t want to understand our situation. As a result, we had to leave there. I don’t want to imply that this is a purely Russian problem. We know people who have faced similar situations in other countries.
Get two or three of your own people into the store you are thinking of leasing, so that they can see what goes on there.
At our present store, some of the personnel are our own specialists and some are outsourced. I would like to give this advice to those whose business is concerned with storage premises and the storage of goods: if you can’t organise your own store independently, get two or three of your own people into the store you are thinking of leasing, so that they can see what goes on there.
– Do Russian customers differ from Western ones?
– In Russia, they act on the principle: “We’ll only pay when we see the goods”. But in the West, they often make a down payment, and pay for a purchase in an Internet shop by credit card or through an electronic wallet system. In Russia one still feels that there is a certain mistrust of internet shops. If an order is placed on a website, this does not mean that the purchase will take place. Sometimes we take an article somewhere, and when we get there, it turns out that the clients only want to look at it. And we can’t simply start legal proceedings to make them pay for the delivery. If they don’t like the goods, we don’t charge for delivery.
In the West, goods are delivered as they come in, in several batches. In Russia, everyone wants the goods to be made up into a complete batch and sent in a single delivery.
Another thing peculiar to Russia is the attitude to delivery. In the West, goods are delivered as they come in, in several batches. This is an option you have: if there are several articles in the basket, they will be delivered as they come in. But in Russia, everyone wants the goods to be made up into a complete batch and sent in a single delivery. It isn’t often acceptable here for goods to be delivered to an office. And if someone is waiting for an order, he has to ask for time off from work.
Denis Shapkarin, managing partner of the internet advertising company Nectarin.The pace of present-day life cannot fail to have an effect on business – more and more people are using online services at work or for their personal ends. Over the past few years, some parts of business have made a smooth transition to cyberspace, and people are able to earn money without leaving home. The Russian electronic commerce market is still only beginning to develop, and at present it is behind Europe or North America. But in the past six years, it has grown by a factor of about 3.5. The average rate of growth has reached 30%, and it is predicted that this rate will be maintained for the next five years. This statistic shows how good the business prospects are. The more rapidly the prosperity of Russians rises, the more rapidly internet commerce will develop. But it is already an excellent sales tool for any business, and it should be noted that its prospects are very good.
– What goods are in the greatest demand?
– We are tracking on the internet which goods are most frequently looked at by visitors to the website. Much attention is paid to settees, but they don’t sell nearly as well as we would like. It seems to me that a settee is such a major thing to buy that people want to feel it for themselves, sit on it, touch it and if applicable, see how conveniently it converts to a bed. This is not like a table, which it is sufficient to view on the website. Guest furniture sells very well: wardrobes and bedside tables with space for footwear. Of the larger articles, beds sell well, as do kitchen tables and chairs.
– Which furniture sells best? Foreign makes or Russian ones?
–It’s fifty-fifty. Ten percent of the turnover is furniture made in China specially to order. There are specific articles, e.g. a folding leaf table with built-in drawers, which are only made in Russia, this is something not known in the West. We sell a lot of them. There are many small apartments here. In Germany, for example, of all settees sold, only about 20% can be converted to beds, but in Russia it’s 90%, because it is important to Russians that a settee should also serve the function of a double bed.
– Do you work with the regions?
– At present, Mebelrama only operates in Moscow and St. Petersburg. The capital accounts for 80% of the orders, and St. Petersburg 20%. Our goods are bulky, and we have not so far made arrangements for deliveries to remote regions.
It’s no good relying on the police and the supervisory authorities
– Many foreigners fear that their Russian partners might swindle them. Have you had any such negative experience?
– On the whole, my impressions are positive; I can’t say that it’s dangerous to do business in Russia. There have been two cases of suppliers from whom we could not recover money which we considered was owing to us. But this is the exception rather than the rule.It is important for foreigners to know that if you get into some difficult situation with suppliers, or as in our case, with warehouse owners, it’s no good relying on quick help from the police or any of the state supervisory authorities.
We, for example, concluded a contract, but the other side did not carry it out. And when we tried to file complaints, they simply stopped replying to phone calls and refused to let us into their warehouse. They were holding our goods hostage. We had to deal with the conflict and sort out some sort of agreement ourselves. We couldn’t rely on any assistance from the Russian state authorities.
– How can you do business in Moscow if you don’t know Russian?
– You have to hire good people you can trust. For example, at meetings with suppliers, I often bring my Director of Operations and Director of Procurement with me – they understand me very well. In this way I am confident that the meeting will proceed as if I did know Russian.
– What would be different about the activities of a firm like yours if it were operating in Germany?
– Russia is a huge country, and from a logistical point of view, it is very difficult to work here. In Germany there are highly reputable suppliers of goods. There are many transport companies which will deliver goods on time to the remotest village for a reasonable price. If you don’t like the price, there are five other such companies in the market ready to fulfil the order for an acceptable price. But it would be more difficult to operate in Germany from a competition point of view. There are many more internet furniture shops there.
Russia is a huge country, and from a logistical point of view, it is very difficult to work here.
If we are talking about sale and purchase prices, the difference between them is greater in Russia. But all sorts of ancillary expenses come into it too. More money is spent on marketing and logistics, and the upshot is that the profit level is comparable to that in Germany.
– What can you say about your relations with the tax authorities?
– These relations can be quite difficult at times. In Germany, if an overpayment of VAT has to be returned, it’s all very simple: you send an application, it’s processed automatically and the sum is returned to you. But in Russia, you have to go to the tax inspectorate in person and engage in lengthy discussions with the inspector. Furthermore, it is not clear on what basis the VAT overpayment can be returned to you or withheld. An atmosphere of mistrust still makes itself felt in Russia. The tax authorities suspect companies of money laundering. A company may be making a loss on paper, but the profit goes to subsidiary organisations, and the state loses out.
– Have you had any problems with the Customs?
–Yes, at first. We have excellent relations with our suppliers. They let us have the goods at quite a low price, and when we put these goods through customs, some self-important type turned up with a price table, according to which one kilogram of settees from Germany should cost so much. But our prices were considerably lower. The customs officers badgered us in every possible way, although all our documents were in order. We were suspected of trying to evade customs duty by lowering the prices in the documents, and so on.
– You rent an apartment in Moscow. How much is the rent?
– In Moscow, it all depends on the location. I rent an apartment in the very centre, on Tverskaya Street. This region is extremely expensive because of its position. I don’t want to spend a lot of time travelling to work. I pay 80,000 roubles a month. And that’s for a small apartment of only 40 square metres! In Germany, such an apartment would cost me only a half or a third as much.
– Manuela, no doubt you are often told: “Oh, you look more like a model than a businesswoman!” Do you take such remarks as an insult or a compliment?
–It depends on what follows. If they continue by treating you like a real businesswoman, everything is OK. But if they start talking to you as if you were a beautiful but empty-headed doll, it is quite another matter. But on the whole, I like compliments.
Certainly the culture in Russia is different from that in the West, but not to such an extent that a European cannot adapt to it.
– Have you made any friends among the Muscovites?
– Yes, the people I work with. Outside work, I don’t socialise much with anyone. There just isn’t time.
– What would you say to foreigners wondering if it is worth coming to Moscow to do business?
– Of course it’s worth it! It is very good experience and a very good market. Certainly the culture in Russia is different from that in the West, but not to such an extent that a European cannot adapt to it.
Manuela Stoll and Nino Ulsamer have big plans. They want to become leaders in the furniture and household goods market in the Russian online sector. They expect to reach a turnover of 100,000,000 dollars in five years.