Money Growing: Sellers of emotions

Founders of such projects are prepared to defend their own ideas to the end. Owners of concept stores (a shopping format poorly developed in Moscow) also unanimously state that they sell not just clothes, footwear and other goods, but above all - emotions.

Different from others

Concept stores should not be confused with boutiques in which known brands are sold. According to the international classification of shopping premises in general there is no precise definition for a concept store, says Olga Kondaurova, a shopping real estate analyst at CB Richard Ellis.

However the founders of concept stores probably don’t know about this or are rarely guided by this. According to their owners, they are not just shops, but places with a special atmosphere and completed with a concept and certain philosophy. This philosophy is directed towards absolutely different people who are united by one aspiration which is to be different from others even just a little.

It would seem what could be easier? Now in Moscow more new shops are opening, selling clothes brands for all tastes and with a range of prices. But with the seeming abundance, dresses, blouses and other clothes are made absolutely the same and are simply copied from each other.

Designer items on sale in concept stores are impossible to buy elsewhere. Basically they are unknown consumer brands to the wide audience from Belgium, Australia, New Zealand, England, France, Italy, Germany and Japan. If among them there are some famous names they are clothes or footwear of a certain style, which have not been aimed at mass consumption. Such projects can be counted on your fingers: UK Style, Kix Box, Street, Cara Co, Traffic, Traffic+. They have existed for quite a long time and are developing well. Market experts connect this with a growth in consumption culture: several years ago the brand of clothes was important for a consumer, but now more attention is paid to individuality.

People who risk opening a concept store, as a rule, are creative people, with unusual thinking. They precisely imagine their audience and how to advance their product, says Natalia Oreshina, the director of the shopping real estate department at Cushman Wakefield / Stiles Riabokobylko. As a matter of fact, it is "for a limited number of people," she argues.

The number of buyers does not grow as quickly as in mass markets. And turnover is lower. And, of course, these projects are more subject to risks. For a known brand it is possible to calculate almost 100 per cent probability of profits from sales, increasing buyers, etc., but to predict what demand there will be for brands unknown to the majority of buyers is impossible, considers Oreshina. And the orientation of such shops is original. The goods on sale reveal not the social status of the consumer, but their features.

One more difficulty for owners of concept stores is that a share of the consumer audience is constantly growing out of having an unusual style, growing out of non-standard clothes. In no way do such clothes correspond to a certain age. Therefore for the designers creating "non-status" items, it is necessary to annually fight for new buyers, considers Oreshina.

As a result if there are investors for such projects, it will be only a few in a literal sense. For an investor counting on a fast payback, a concept store is uninteresting. And for anyone wanting to be engaged in such a business it is easier to create it from zero than to operate an existing one. It is possible to sell clothes and interior decorations, but it is impossible to sell or buy consumers and their loyalty. And a large part of the success of concept stores is that there is a certain “consumer club” that develops, sums up Oreshina.

If the owner of the business acts in the role of buyer, manager, and also knows all the consumers, as a business it is low cost (in trying to sell), considers Ilya Shershnev, director for development at Swiss Realty Group (Moscow). He says that such projects in Moscow are individual and are located outside of the main shopping streets. Everything is supported by continuous customers. Rent for such premises nevertheless will not be cheap, the expert says. According to him, now in Moscow it is hardly possible to find a shopping premises with a rate below $2,000 per sq.m a year. But in retail the concept "average price" does not exist, stipulates Shershnev.

"This business has a price, it is not an art project. Frequently, individual projects are worth more than mass ones," says Kondaurova. In her opinion, any such offer would have a buyer. She is sure that such shops even with two pairs of shoes can make a bigger profit than something from the mass market category.

Life matters

Andrei Kovalev, founder of the UK Style and Kix Box projects, says that his desire to be engaged in the fashion-business arose eight years ago. Initially he wanted to promote Russian designers, but having studied the market, he understood that something else was missing. There was already the Le Forms project which sold the clothes of avant-garde designers from Belgium and other countries. Then there was the idea to sell the clothes of UK designers. At that time Muscovites only knew the famous chequered Burberry as far as UK fashion was concerned. And the UK always strongly differed from the others, the businessman says. This country has given the world of fashion such names as John Galliano and Alexander Mcqueen.

"Fashion is not the most profitable business. It takes a long time to make money, especially by Russian business standards. But there are people with ideas, who see the future in a certain way, and they create such projects," says Kovalev. According to him, "projects such as UK Style, are a small subcultural island imparting their ideas and approach to life, and each detail of the shop down to the smallest detail is a part of its concept." If a brand is not famous, it by no means that it is not competitive, approves Kovalev.

The founder of the Cara Co project, Roza Kamenev, says that they created a concept store together with designer Alexei Oleshov who is still now its creative director. For her it is her first business experiment in Russia. Kamenev has lived in Australia for more than 20 years where she also owns a business. Previously she worked in large corporations as a programmer, interpreter, etc. "I always wanted to create a project that you would call "the dream of every girl " and to take pleasure from this business," Kamenev says. But she states that in Russia it is complex to do business. There are many bureaucratic obstacles for foreigners and an absolutely different culture of business management. "To some extent I am an idealist, otherwise I would have opened a multi-brand boutique with famous brands. It is difficult to give people what they are not ready for, but I am proud of the business," Kamenev shares.

Irina Rybachenko worked in the fashion-industry for many years before she opened her own business. She says that it was interesting for her to try her own thing and as her work was connected with fashion and she had not done anything else, opening a shop seemed quite logical. As the owner of Street it is important to be in the atmosphere she has created. "I have a child, but the shop is my second child and that is how I treat it," says Rybachenko.

"Clothes have been my passion since childhood. I always sewed and re-fashioned things," says Irina Kazakova, the owner of the Traffic and Traffic+ projects. She recollects that during Soviet times in Moscow there were big problems with clothes. To buy something which would be unlike what everybody else wore was possible, perhaps only in the Berezka shop and second hand stores.

Kazakova tried to get into the Plekhanov Russian Academy of Economics in the non-industrial goods faculty. But the children of trade employees generally studied here and the competition was too high. So she had to enroll at the bookkeeping faculty. Having graduated from the academy and having worked in that sphere for some time, she got married and then left work and brought up her children.

But times have changed. Kazakova often happened to go to Belgium. According to her, Antwerp was a real discovery. In this city she found a lot of things that were unknown in Russia and inexpensive designers who created clothes that were drastically different from what was on sale in Moscow. The desire to be involved in a clothes business only became stronger. "My business to me is a childhood dream that came true. It is so interesting for me, that I don’t consider it as work. Of course, there are formalities, but the process is very fascinating," shares Kazakova.

Meeting point

It took two years to find a premises for UK Style. A year was spent studying the market, and another year actually looking. Nikitsky blvd, on which the concept store is located, was chosen for a reason. This area has been occupied by well-off people for a long time. And the boulevard is quite a through-road, a lot of traffic passes by every day, says Kovalev. And unusually decorated shop windows draw attention.

The premises was previously a grocery shop, so Kovalev had to do the interior from zero. Considerable funds and three and a half months were spent on the renovations. Now the premises is divided into several zones in which it is possible to find both luxury style clothes and footwear, and so called street fashion.

Kovalev opened Kix Box in Evropeisky shopping and entertainment center for young and dynamic people. According to him, he wanted to give young guys and girls the opportunity to fulfill themselves through their appearance. The majority of brands sold in Kix Box, are not sold anywhere else in Moscow.

Kazakova had always wanted to be in fashion and enrolled in the fashion management faculty at Moscow State University where she studied for a year. There she became acquainted with two girls, and they have decided to open a shop. One more friend who had a small flower shop behind Smolensky passazh has helped out, agreeing to lease part of her premises to the young businesswomen.

Then she started looking for clothes which were not yet in Moscow. To begin with she was satisfied with everything - rent of $500 a month and proceeds of up to $15,000. But it was necessary to develop. Kazakova turned to the manufacturers of more serious brands. And it became clear that a more prestigious place was needed. So the premises of the first concept store on Nikitsky blvd was found. Renovations of the premises in 2002, she calls "on a budget".

According to her, Traffic+ on Chistoprudny blvd appeared because the owners of the premises on Nikitsky blvd did not want to conclude a long-term contract. It was necessary to make sure that if the rental contract was terminated they would not have to make an urgent search for new premises, says Kazakova. Chistoprudny blvd is less busy, but buyers spend more time in the shop and the average bill is more than in Traffic.

In Traffic a 2nd floor is now opening. This is connected with the fact that there are new interesting brands in Copenhagen that she wants to bring to Moscow. They could not find another premises because of the high rental rates and all good places are occupied. So they decided to build a 2nd floor.

Cara & Co is located on the territory of a wine factory on Syromyatnichesky pereulok. Kamenev says that they launched the project Australian style – i.e. they looked for a premises and were engaged in the purchase of goods at the same time. In September 2006 when everything necessary had been bought, long negotiations about rent begun. At the beginning of November the contract was signed. However the shops only opened in April. The premises was in an absolutely desolate condition, she says. It was necessary to renovate it. Almost $1.5 million was spent on the interior and other necessities, according to Kamenev.

The owner of Street searched for at least half a year for a premises and found one without much effort at all. Having gone to Prospect Mira, she went to the Olympik Plaza to ask whether there were any vacant premises. She was sent to the sales manager, who offered her a place in the Sheremetevsky shopping center, which should open soon. Rybachenko says that she did the decorating herself and also the design of the interior. And as the opening of the shopping center was delayed, she had enough time. On fitting the premises which measures 50 sq.m she has spent no less than three months and almost $50,000.

Staff and brands

The owners of concept stores always personally and carefully select the personnel. Their united opinion on this question is that experience is not important, but the desire to work in this place and have "a creative beginning and a burning idea" is. For example, some employees of Traffic and Traffic+ are educated in art. And one of the girls working in UK Style, studies psychology. "Here any client can count on an individual approach. But the main thing is that the place lives, it needs to have a soul," assures Kovalev.

The owners of the business personally participate in the purchase of goods and trace the assortment. "A whole team scrupulously selects everything that is on sale in UK Style and Kix Box. However, I always personally participate in that each time. It is obligatory, in fact clothes do not just dictate the style of behavior of the person wearing them, but it also influences the inner state of a person, and their philosophy," says Kovalev.

"We periodically have to reject some brands. Because when we purchased them we were not informed that they had concluded a contract with someone else, and these clothes could practically be on sale next door," says Kazakova. It is necessary to constantly be looking.

In all concept stores clients get an individual approach. For example, in some cases the owner of Street may take an order from a customer and get it on the next trip. In UK Style clients that are in the database get informed of new collections by SMS. For such buyers there are special offers and discounts. And in Cara & Co there is a free bar for visitors. You can have a cup of coffee, tea or even wine. For this purpose there is a permanent barman in the staff of the concept store. However, in the future the owners hope to charge for it and make a proper menu for clients.

In the shops it is possible to buy not only clothes and shoes. There are toys, books, magazines, gramophone records, travel luggage, unusual interior items, perfumery, ornaments, underwear and bags on sale. You can even find vintage items.

Complex business

Concept stores are complex and costly and the profit on sales cannot be compared to that of mass markets. But nobody is going to quit the business. Kazakova says that the annual turnover of projects similar to Traffic, should be no less than $1 million. Otherwise the business will go in the red. Rent is expensive, and there are many other expenditures: the salary of personnel, taxes, maintaining the premises in a good condition, the purchase of goods, etc.

She finds it difficult to estimate the market value of the business, she has not had any offers to buy it. “The profitability of the business is low - about 10 per cent, it is not selling mobile phones," says Kazakova. At the moment she is not too happy with how there things are going. She says that when she opened Traffic+ a higher rate was made on vintage items, however hopes were not met. Buyers do not have a big interest, there are only a few clients - mainly from a creative sphere, says Kazakova glumly.

Kovalev agrees with such an estimation of profitability. At the moment, according to her, to open a similar project it is necessary to have starting capital of not less than $0.5 million. Kamenev says about $5 million is needed.

Rybachenko considers that to open such a store the figure may be more modest - not less than $300,000. And profitability, from her point of view, is less: now it is 3-5 per cent. And her monthly rental rate is 240,000 rubles. "Many of my friends who own boutiques in Milan or Paris are surprised by the funds I have to invest. Their rent, considering the location, is approximately half that in Moscow," says the owner of Street.

According to Kamenev, it is to early to talk about profit: "The first year is only for investing. In the second year with successful circumstances it is possible to break even. And in the third year of the life of the project it will be possible to understand what profit it is capable of bringing in." Kamenev says that this to year she hopes to get back what she has invested.

In Australia unlike Russia there are so-called rental holidays. When a tenant renovates the occupied premises, they do not pay rent. In fact the proprietor makes a profit from it. But in Russia it does not matter if you renovate it or not, if a contract is signed, the rent needs to be paid, she says. How much she pays for the premises, Kamenev does not say, but she does specify that the rent" is below that on Tverskaya.

"Not everybody can make a concept store; it is a hard piece of bread. But now, after two years of work, I look ahead more optimistically,” Kamenev sums up.

More often in such places art and photo-exhibitions of young artists are displayed. In Cara & Co an exhibition of Christophe Coppens is coming up. And in Neboutiqe Laboratory on Polyanka ulitsa such exhibitions have become a tradition. And sometimes they are held with a charitable purpose.