From Jeans King to Retail Czar?

Gloria Jeans' Melnikov plans to set up a store empire

Vladimir Melnikov is a born entrepreneur. During Russia's late Soviet period, when business operations were permitted on a limited scale, he cobbled together a small apparel business. Then, when he tried to import sewing equipment, he was thrown in jail for running afoul of tight rules on the use of foreign currency. And now? As the founder and owner of Gloria Jeans, Russia's top maker of children's denim apparel and an enterprise whose leading technicians and designers hail from Italy and other parts of the West, Melnikov, 54, is often invoked by authorities as a hero of Russian capitalism. "I haven't changed at all," he says. "But now the state is giving me medals."

Melnikov appreciates the medals, but what he really wants is to sell his wares to as many Russians as possible. So Melnikov is trying to establish a network of retail stores for mass-market sales of his denim trousers, jackets, and bib overalls. Gloria Jeans, based in the southern city of Rostov-on-Don, begins its quest with a highly recognizable brand name, thanks to intensive marketing, including a $1.5 million national television advertising campaign. Brand awareness is now at the point that 50% of the company's target group of Russian mothers say Gloria Jeans when asked by pollsters to name a jeans brand. That's twice the percentage that mention Levi's or Wrangler, the big Western labels.

The move that made Melnikov Russia's Jeans King was a gutsy roll of the dice. In 1998, he slashed prices by 25% to undercut Turkish and Chinese knockoffs of Western brands. Buyers lined up, pushing sales from $8 million in 1998 to $67 million last year, with profits of $3.6 million. Melnikov hopes to keep the growth going by opening 350 Gloria Jeans outlets within two years and selling franchises for another 1,000 stores. It already has four stores in the Rostov region. "This is a wide open playing field," he says, noting that most Russians buy consumer products in outdoor markets.

Melnikov figures that as the Russian market evolves, shoppers will head indoors: A well-run store can offer selection, customer service, and quality control superior to whatever an open-air merchant can manage. Gloria Jeans, he believes, can be the pioneer in its market niche--and capture the higher profit margins available at the retail level. Toddler jeans that Gloria Jeans makes for $3.75 and sells to wholesalers for $4.80 can fetch anywhere from $7.50 to $12 in the bazaars.

Melnikov has to watch out, though. Running a store chain takes a different set of skills from making apparel: A company has to scout real estate, negotiate leases, train and keep store managers and other employees, and make sure inventory stays fresh, for starters. And as he switches to his own retail network, Melnikov risks alienating the street merchants who have loyally peddled his goods for years.

Indeed, the company is having trouble enough handling its rapid growth. Plagued by a disorderly purchase-and-order system, it faces chronic shortages of its most popular items. Weary of such problems, the European Bank for Reconstruction & Development is selling its 20% stake back to Melnikov for $2.6 million. "I am not the strongest manager in the world," he admits. "I always know where I am going, but I don't always know how to get there."

One thing he does know is how to buy talent. Four years ago, he hired Rudolfo Rossi from Venezuela to run Gloria Jeans' factory in the depressed coal town of Novoshakhtinsk, outside of Rostov-on-Don. To manage the retail project, he recently brought aboard Leonardo Martini, who spent six years in China establishing a retail chain for Italian children's garment maker Brummel. In March, he nabbed Stefano Della Libera, the chief designer at Fiorucci.

Melnikov rides these foreigners hard. He rejected every one of Della Libera's first designs, including a pair of jeans with a fake-fur pocket. "Russian mothers and children are very conservative," he barked, storming from the room. Two days later, Melnikov showed his softer side, treating his prized Italians to duck with risotto cooked by an Italian chef he lured to one of Rostov's restaurants. With such intensity on display, there seems to be two possibilities for Gloria Jeans: To become the retail titan of Melnikov's dreams--or go bust trying.

By Paul Starobin in Rostov-on-Don

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