Eastbridge Shuts Down Office

Unknown
Dutch firm Eastbridge, the distributor of French mail-order catalog 3Suisses and a leading retailer of clothing, footwear and furniture in Europe, has closed its Russian office and has promised to return money to clients for pre-paid orders by the end of the year.

Two years after its arrival on the local market, Eastbridge has conceded that setting up a European-style catalog business in Russia is a tricky business. Instead of using its usual sales method sending out catalogs and taking orders and fulfilling them through the postal service in Russia the companies wares were displayed in salon offices.

A major hurdle to success has been the lack of broad credit card use that would have allowed the business to flourish as it does in Western countries.

Eastbridge has been involved in catalog retail in Eastern Europe for several years. The company has distributed its 3Suisses catalog in Poland since 1996, and in 1998 it purchased a business belonging to Russian entrepreneur Vladimir Makarov, the then-distributor of 3Suisses in the Czech Republic and Russia.

"For us the Russian market was a logical next step," said Olivier Buchin, chief financial officer with Eastbridge.

It was generally accepted that Makarov had made 3Suisses the undisputed leader among international catalogs in Russia. Estimates in the late 1990s put total annual sales via the catalogue at $6 million to $8 million.

But Boucher said that in the past two years Russian sales had fallen to $1.6 million per year.

Eastbridge management attempted to salvage the situation by changing its team of managers last year.

But the shuffle did not bring the desired results.

"We understood that even if one day we manage to change the situation, this will take too long and shareholders dont want to lose their money here," said Anna Tuzova, director of sales and logistics at Eastbridges Moscow office. She previously held a similar position in Prague.

She said the company has lost about $2 million on the Russian market in the past two years.

Tuzova cited high lease rates in Moscow and security problems as being among the reasons for the slump.

These are particularly difficult times in the catalog business, she said. Retail sales are developing apace and competition between shops is soaring while catalog retail lags in Russia behind its European counterparts and is significantly less convenient.

In the Czech Republic, mail-order sales are as successful as they are in France and other Western countries, where catalogs are sent to clients and the client can order by fax, telephone or e-mail to a single, central office.

"This means they have minimum expenses," Tuzova said. "All that is needed are premises for the call-center, the operation center and the distribution center. Work is focused on deliveries and communication with clients. This means that with enough turnover this business can be made very profitable."

Furthermore, orders take two to three minutes to record, while in shops up to an hour can be spent on the same task, she said.

But Boucher said that the company also plans to stop work in Poland and the Czech Republic due to increased competition from local stores.

Incidentally, the most significant competition in Poland was created by Eastbridge itself.It owns a major retail chain in Poland.

Other businessmen involved in mail-order retail said Eastbridge didnt come to grips with conditions on the Russian market and expressed dissatisfaction with Eastbridge for trying to change the established market.

"Since Makarovs time the conditions have only gotten worse," said Sergei Kurguzskin, joint owner of the Voronezh order center. "They tried to change the profit margin and make it unified. But it is illogical to try to tell us at what prices we must sell goods to clients. There are different conditions in different regions."

Kurguzskin said the Russian version of the last 3Suisse catalog was truncated after an insert with childrens clothes, sports and other goods was delayed. 3Suisse "lost out significantly" to competitors Otto and Quelle, he said.

In the meantime, neither Eastbridge nor 3Suisses plan to bid farewell to the Russian market just yet.

Boucher said the company is looking at other projects in Russia.

The 3Suisses representative said that the company hopes to renew sales in Russia "as soon as possible."

"The Russian market is very important for us," he said. "We have been working here for a long time, our clients will wait for us."

All that remains is to find a new distributor.

Total turnover of the Eastbridge group of companies is $300 million. Eastbridge controls EMPiK Centrum Investments, or ECI, the largest Polish retail holding for consumer goods, as well as the Domy Towarowe Centrum department stores, or DTS, a former state-owned network of 31 stores, and the French franchise for the Zara, Wallis and River Island brands.

ECIs recently announced projects include a $30 million reconstruction of DTS department stores and a $20 million investment in electronic retail.