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An Interview With Anton Titov, CEO Of Obuv Rossii Group


Below is our recent interview with Anton Titov, CEO at Obuv Rossii Group:

Anton Titov

Q: Could you provide our readers with a brief introduction to Obuv Rossii Group?

A: Obuv Rossii Group is a Russian footwear retailer, we are the first publicly traded company in Russia. In October 2017, we held an IPO on Moscow Exchange and raised more than 100 million dollars. Obuv Rossii develops several business lines. The first and the main one is footwear retail. Regarding retail, we follow diversification strategy and develop several brands with unique positioning, their own consumer audience and style within one price segment – mid-price. Our main brands are Westfalika (a monobrand store of classic footwear), Peshekhod (“Pedestrian”, a multibrand footwear supermarket), Rossita (a store for the whole family), Emilia Estra and Lisette (salons of fashionable footwear). We develop omni-channel trade model and offer our customers different ways of purchasing making their experience of interaction with brand coherent. In 1H2018, the share of e-commerce in our retail sales achieved 12%. We cooperate with online hypermarkets as well as develop our own online stores which have more than 95% sales in our e-commerce. Another very important business line for us is additional, financial services for our customers. We offer them installment payments, cash loans, cash payments, etc. which are combined within innovation loyalty program Arifmetika (in English — Arithmetic) introduced on the base of payment cards as well as MasterCard. As of 30.06.2018, more than 2 mln cards were issued. We introduced installment payments service in 2009 and we were the first footwear retailer at the Russian footwear market to launch this program. The range of services has widened since then and now they are our significant competitive advantage.

One more business line is footwear production. We have two own production facilities in the Novosibirsk region in Russia. Our manufacturing capacity is 500 ths.pairs per year. We produce footwear of genuine leather and polymer materials with all the main construction methods. Our factories have a high level of automatization.

Out business model is quite efficient: in 2017 EBITDA margin amounted to 25.3%, it is a high result among leading global fashion retailers.

Q: You are among the first in the Russian fashion retail who introduced blockchain in your business processes. What made you go that way?

A: New technologies are one of the competitive advantages of modern retail and we are always monitoring what new is being introduced at the market. Blockchain is the technology of the future, nowadays not many companies really use it and have managed to embed it in their business processes, at least in Russia. However, we are sure that after a while this technology will be in industrial use and will become a common business practice. Those who is introducing it in its business processes right now, will have a competitive advantage in the future when it will be implemented everywhere.

It is one of the reasons why we decided to deal with blockchain – to be competitive in the future. Another important reason is that it helped us solve one of the key business tasks – to ensure safety of personal data and of information on transactions (contracts) with customers who use our financial services such as installment payments and cash loans. Now the base of such clients comprises more than 1.2 mln people and the number of clients is constantly increasing because of considerable retail chain growth. This year we plan to open 150 new stores, more than 100 we have already launched. In the nearest future, we will keep the current tempo of growth. Blockchain enables us to ensure safety, reliability, relevance and authenticity of the information on all transactions (contracts) excluding a possibility of any unauthorized changes. What is more, it includes both external interferences (hacker attacks, failures in the communication channel operation, etc.) and internal ones.

We have all necessary infrastructure for blockchian introduction — three data processing centers of the company: in Novosibirsk (our headquarters), Khabarovsk (Far East of Russian) and Moscow (Central Russia).

Data about interactions with the customers is encrypted and stored in a distributed manner in three DPC. A two-level encryption system is used: first, each contract is assigned a unique identifier (hash), then the contracts concluded within the day are united in blocks and are encrypted too. Each hash of the contract and block contains a reference to the previous block or contract. As a result, information and system integrity is guaranteed.

For the period May-August 2018 Obuv Rossii settled more than 190 ths. contracts on installment payments and cash loans using blockchain technology. Any attempts of unauthorized changes have not been detected, business processes have been functioning normally without any slowing down.

The Group has thoroughly studied and tested the blockchain technology and now it sees the possibilities of this technology rollout to other business processes such as CRM (coalition loyalty programs) and accounting.

Q: How would you convince someone to buy your shoes? What makes them unique in the market?

A: As we have already mentioned, we thrive on diversification strategy and development of several brands. Each brand has its own target audience, its own values and style. Diversification strategy enables to reach wider audience of potential customers and gain bigger market share. We develop our collections by ourselves: we have the team of professional designers. All the collections correspond to modern fashion trends, at the same time models are very comfortable. One more important thing is that we develop total look concept, i.e. we offer our customers not only footwear but also apparel and a wide range of accessories, including shoe care products, leather accessories, hosiery, etc. So that the client comes to our store and may choose a whole range of fashion goods for the coming season – a pair of shoes, a jacket, a bag, etc., items of this fashion set are made in a single color palette, in a single design solution, and of similar materials. So, we may say that we are not a traditional footwear retailer, we are a fashion retailer. Moreover, our customers like this idea. In our stores you may find more than 5000 SKU of related products, the share of them in retail revenue exceeded 31% in the first half 2018, and there is room for further growth. Following total look concept, we increase cross sales, average ticket size and the share of complex purchases when a customer buys the whole set of goods for the season at once.

Another competitive advantage is our innovative loyalty program and number of additional, financial services that we offer. For example, installment payment. It is not a kind of financial support for our clients, it is the service which expands opportunities of our customers in making purchases and the instrument of building long-term relationships with them. These services contribute to the growth of sales: the average ticket size of purchase by installment payments is two-time higher than in case of traditional purchase.

Q: You’ve recently launched a mobile application of the Arifmetika loyalty program; could you tell us something more?

A: In September, we launched a mobile application of our Arifmetika loyalty program. The application operates on the platforms of iOS and Android. It is intended for the holders of MasterCard Arifmetika cards that are issued to clients of our stores who use the financial services of the company. By means of the mobile applications, holders of such cards can effect payments and transfers, add other cards, view the history of transactions, monitor debts under loans and installment payment plans, reload cards and withdraw funds. We consider the application to be a new channel of communication with our customers, it provides our purchasers with additional services and opportunities. In the future, we plan to extend the range of functions, introducing QR payments and partner cashback.

Arifmetika is our innovative loyalty program that we launched in summer 2015. First, it was the system of financial services, providing its customers with an opportunity to pay with a card for the services of mobile communication, Internet and other providers at the cash registers of the stores. Later we became an affiliated member of the MasterCard international payment system and got the right to issue prepaid cards of MasterCard Standard. In February 2016, we launched an electronic purse on the basis of the Arifmetika payment system. Then we combined the traditional accumulation discount system (so, our clients can get some discounts on purchases made with a card) and financial services under Arifmetika (money loans, payments at the cash register, etc.) and provided our clients with an opportunity to remotely place loans to cards. Now Arifmetika is a non-standard loyalty program with a wide range of services. Over 2 million Arifmetika cards are currently issued.

We decided to start developing additional services and this innovative loyalty program as we think that modern retail is more than just shelves for goods. Modern stores are multifunctional service centers which provide different services for their customers. Borders between different retail formats are blurred, for contemporary customers relationships with the brand is very important and they would like to have access to the brand whenever it is convenient for them and use any communication channel – online, mobile, social media, etc. Due to such approach, we form unique customer experience and inspire our clients to come to our traditional and online stores again and again.

Q: Tell us something about your manufacturing process. How does it work?

A: We have two production facilities in the Novosibirsk region in Russia. We use the state-of-the-art equipment like cutting and sewing robots NewLast and Orisol, direct injection machines Desma, etc. Automatization enables us to considerably increase the productivity. For example, the usage of automatic sewing machine allows to have 5-6 times growth in productivity. Thanks to such equipment, we provide high quality of the released product and can produce more sophisticated footwear with a lot of stitches and combination of materials.

Our factory is also a testing site for us where we can test new technologies and new materials which we introduce into our footwear production while outsourcing. We have our own R&D center which develops innovative materials for shoes and introduces new technologies into production. For example, we deal with new polymer materials which enable to improve such consumer attributes as lightness, durability, frost-resistance, antislip properties, etc. The Group cooperates with Novosibirsk Technological Institute, one of the major industry research institutes in the eastern part of Russia, as well.

It is worth mentioning that our production experience helps us to professionally organize quality control while outsourcing manufacturing at other factories in Russia or abroad. We have stage-by-stage and finish quality control. As a result, we achieve high quality of final products: for the last 10 years, the percentage of shoes returned to the company stores has not exceeded 1%.

Q: What are your plans for the future?

A: Our strategic goal is to become the leader of the Russian footwear market by brand awareness, by retail operations, by profitability, by retail IT infrastructure, by level of omni-channel development; to be presented in the majority of cities with population over 50,000 people and significantly increase market share. In the mid-term perspective, we would like to increase number of stores up to 1000 (at the present moment our retail chain comprises more than 640 stores). At the same time, the market capacity for our brands is more than 3000 stores. So, we have a great potential for growth. We go in line with our plans: in 2018, we have already launched more than 100 new stores and plan to open 50 more. We will develop our range of goods and will introduce new lines for our customers. For example, in 2017 we started to sell midlayer clothes – cardigans, jumpers , etc. The sales were very good and we decided to broaden the range of such goods this year. The share of midlayer in retail chain reached 2% in first half 2018 and we expect it to grow. In addition, we will develop omni-channel trade model and additional services for our customers within the innovative loyalty program Arifmetika. One more purpose that is important is to develop our own production, introduce new technologies and materials.


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