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14.05.2020 14:44:00

Success story of Bembi, a Ukrainian manufacturer of children’s clothing

Success story of Bembi, a Ukrainian manufacturer of children’s clothing

Success story of Bembi, a Ukrainian manufacturer and retailer of children’s clothing, began in 1998. According to Victoria Khitruk, owner and CEO of the company, the first investment in overlock sewing machine and two rolls of fabric amounted to $100. The first product range comprised of diapers and children’s undershirts, and the first sales channel was the local market in the city of Khmelnytskyi. “At that time I was receiving a second education, and I was so inspired by the words of the teacher on enterprise economics that I decided to take a risk and start my own business”, remembers Victoria.

According to her, the first attempts at business were quite successful, and Bembi received some positive reviews. This gave impetus to further development: the company became more systematic, gradually expanding the range of clothing and increasing its production capacity. Going beyond Khmelnitsky was in 2003 thanks to participation in Baby Expo trade fair, where Bembi found the first regular customers, many of which cooperate with it until now. Since then, the company has grown significantly, becoming one of the largest Ukrainian manufacturers of children’s clothing, and has also built an extensive chain of stores under Bembi TM. Mrs. Khitruk explained how the company had managed to establish itself in Ukraine and enter EU markets, how Bembi was going through the quarantine and decline in sales, and how it planned to improve its position during the crisis.

From Ukraine to Europe

— What is Bembi? Where are its facilities located? What products are manufactured there? What is the total amount invested?

— Now Bembi is the largest children’s clothing factory in Ukraine. Production facilities located in the city of Khmelnytskyi are endowed with modern equipment and occupy about 7,250 sq. m. Our range covers the age from 0 to 9 years and comprises about 5,000 SKUs. Bembi stores offer all kinds of children’s clothing, from underwear to outerwear.

During 21 years of operation, about $6.5 million was invested in production facilities. Now we manufacture 2.5 million clothing items per year.

We position our products as the gold standard of children’s clothing made in Ukraine. We are constantly developing, following global trends, taking into account the specifics of local markets.

— What sales channels do you use? What is a share of each channel?

— Since 2008, we have started to develop our own network of brand stores. We also have established a regional distribution network covering the whole country. Sales structure now includes distribution (60%) and retail (40%). Bembi products are sold in more than 1,000 partner stores in Ukraine. The highest coverage is in Poltava, Cherkasy, Kherson, Khmelnytskyi and Zaporizhia regions. Many of large partners have been working with us for 10 to 15 years, and this is proof that we’re going about it the right way.

— Do you export abroad and to which countries? How difficult was it to enter international markets?

— In 2014 we opened an office in Poland. It is still our outpost for conquest of Europe. From there we ship products to Belgium, France, Germany, and Baltic countries.

The European market is quite structured and thick, so, despite high-quality products, it is difficult for us to compete with local brands.

It takes time to earn credibility with a particular target group. Since Bembi is one of the most famous brands in the Ukrainian market, it is a little unusual for us to be one in a hundred or thousand. But the more we study the features of each country (for instance, how Poland’s children’s clothing market differs from German’s one), the more we develop.

— What other difficulties can a Ukrainian company face in EU markets?

— For businesses that are entering EU markets for the first time, it means new worries and expenses. From rebranding and changing corporate style to switching to Latin alphabet, to difficulties in going through such barriers as bureaucracy and customs procedures.

— What does recognizing of Bembi TM in Ukraine and abroad mean for you?

— I have always been motivated by the desire to make children’s clothing made in Ukraine a global brand, behind which will be the trust, admiration and loyalty of the most demanding consumers. As it happens, there is a stereotype in Ukraine, which we fight all the time from the foundation of our company: Ukrainian products are not of good quality, not of good style. This biased view is sometimes paradoxical: while foreign brands are forgiven any mistakes, Ukrainian brands should be both of mega-quality and mega-price.

For me, recognizing of Bembi TM is recognizing that products made in Ukraine are cool. We invest very much in making it not just words: high quality standards, following the latest trends, sensitivity to market needs.

From manufacture to retail trade

— How is Bembi’s retail direction developed? How many stores you have? What are their main features? How much do you invest in their opening?

— Bembi retail chain has 36 brand stores located in almost all regional centers except Poltava and Mykolaiv.

All Bembi stores have a single design, which is adapted to the location. We select an area of at least 80 sq. m. Opening of such a store costs an average of $500 per sq. m.

As for the range, 75% of the products offered at the stores are manufactures by Bembi. There are also products by other manufacturers, which are not similar to ours, to complement the range.

— Do you develop franchised outlets? What are the terms of the franchise?

— Yes, 23 of our brand stores are partner ones. The terms of the franchise are quite standard: a lump-sum payment, adherence to corporate style in everything from merchandising to staff work style. There are also room and equipment requirements. There is no royalty.

There must be no products of other brands whose range is similar to ours in the stores. 20–25% of their range can be additional, such as shoes or toys by other TMs. The range is agreed with Bembi individually. The margins are determined on the basis of market analysis and sales strategy in a given region.

— Are you developing an online sales channel? What would you say about the dynamics of online trade under the quarantine?

— Having a very extensive distribution system, we have never emphasized the development of online commerce at full capacity. After analyzing sales volumes of our online store and e-commerce partners (Rozetka, Garnamama and others), we saw small increases and small shares compared to our offline sales. We also understood that the costs for this channel development were quite significant, and since the margin in the segment was small, it was not as effective to enter this market alone.

Our own online platform has existed since 2014. We have made its redesign and restart just before the crisis.

Now we improve delivery and payment services, so that customers have more possibilities to purchase clothing by Bembi TM. After the introduction of quarantine, the number of online orders increased significantly compared to the same period of last year. Basic clothing, underwear, spring jackets, and pajamas are well sold. Sales on our partners’ websites have also increased. However, this does not offset the overall decline in sales.

— What plans did you have for 2020 and how did you adjust them due to the quarantine in Ukraine?

— The plans for 2020 were to strengthen positions in the European market, to find new partners, to develop the existing relations. Before the quarantine, we successfully participated in two large-scale trade fairs of children’s products in Poland and Germany, and found clients interested in cooperation. There plans also were to expand the chain of brand stores in Ukraine, i.e. to cover smaller cities in order to be more accessible.

As for the product range, we have planned to develop new product categories, expanding to the teenage age. After analyzing the demand, we realized that teenagers’ clothing is a special category that is bypassed by most Ukrainian manufacturers. Now the demand is met by foreign brands that very often do not comply with the standards and requirements for children’s clothing.

In 2019 we launched a school wear line. As for the coming season, we will offer an updated collection with improved models and an inclination to casual style and convenience.

Because of the quarantine, all long-term plans have been put on hold. Now we are focusing on operational control.

Crisis as an opportunity

— How did the quarantine affect your work?

— We have been operating for 21 years, and this is not the first crisis we have experienced. Therefore we have developed ‘immunity’. Thanks to our extensive experience, we can be stable and flexible at the same time.

As a result of the quarantine, operational activities of children’s clothing companies in Ukraine are 80% stopped. They all work in the mode of performing urgent orders using raw materials currently being in stock or in the country.

— What measures do you take to minimize negative impacts?

— All manufacturers of our segment, who have ‘reoriented’ themselves, make protective facemasks and overalls. During the quarantine, we received the state order for newborn clothing within Baby Box project, which gives us the opportunity to cover at least part of the fixed costs.

We believe that market-oriented companies, which manufacture only the products in public demand, will surely survive.

We think the demand for expensive things will drop, but high-quality basic clothing, underwear, pajamas, tracksuits, jackets will always be needed by children.

So, from the very beginning of the quarantine, we stopped parts of the collections from being sewn in order to change priorities and focus on what to do first and what can wait. We hope that the quarantine will not last long, and that we will be able to prepare ourselves well for the fall season.

— How does the company optimize its costs?

— There are some rather complex issues, such as dealing with landlords. These are not always mutually beneficial solutions; some partners are not ready to cancel rent for the quarantine time. For us, these are also important markers that show all sides of the partnership and help make decisions for the future.

— How do you deal with the staff during the quarantine? Do you pay salaries during downtime?

— Crisis management is now primarily focused on team-building exercises to ensure that all middle- and senior-level managers are able to make effective decisions. The main task of the management is to reduce fear and give people support, because many of them are really frightened by the situation.

We are reviewing all business processes very carefully now to retain the team, because it is our main resource. We didn’t fire anyone. Some employees are transferred on a part-time basis, some of them work at home.

It is very difficult to predict the sales of the coming season. We may have to delay the payment of salaries in May. But we are optimistic in general and will do everything we can to maintain our market position and retain staff. It was very pleasant to feel the backing when, for example, some staff members took up non-standard work. As part of the staff (due to age, place of residence, etc.) cannot come to the facilities, their work is performed by other staff members currently having much less working tasks.

— What kind of support, in your view, can the state provide in this difficult period?

— During the current crisis, the state must support not only small and medium-sized businesses but also large ones. These are mostly businesses with a continuous production cycle. And any interruption could result in that business will recover for a long time or never recover.

To ensure smooth-running operation, people must be allowed for working. If people are not allowed for working, they don’t get paid, they don’t buy products, etc.

It is very important to simplify, and better to cancel wage taxes for the quarantine time. This will make life much easier for companies having large wage bills.

People who lost their jobs because of the quarantine should receive financial support from the state. In addition, it would be helpful if enterprises that had ceased operations because of the quarantine would receive support from the state in the form of credits.

— In your opinion, what are the threats to the market of children’s products in Ukraine caused by the coronavirus epidemic and the crisis?

— I see this difficult period as a time of change and new prospects for Bembi. Despite the strong light industry in Ukraine, the market of children’s clothing is not well developed.

We always compete not only with Ukrainian manufacturers, but also with grey trafficking from China or Turkey, which fill markets and small stores.

Cheap dollar, black cash ‘kill’ Ukrainian manufacturers. Now, during the quarantine, while the borders are closed, our manufacturers have a much better chance of asserting themselves. Yes, imported raw materials will definitely increase in price. But the cost of fabrics and accessories is about 40% of the cost of the product, so this will not have a disastrous impact on the retail price.

I think the audience will now become more loyal to the Ukrainian manufacturer. The crisis accelerates the trend, and we will continue to prove by our actions that buying our products is not just patriotism; it is profitable and safe; and it is a great contribution to the Ukraine’s economy. In fact, considering that everyone is now sitting at home, we expect the birth-rate boom by December and prepare to dress a large number of newborn Ukrainians.

Source: RAU

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