Russia: From Rags To Cell-Phone Riches
A decade ago, Yevgeny Chichvarkin was 20 years old and a small-time market trader -- like thousands of other Russians -- selling clothing and cigarettes at the bustling Luzhniki market in western Moscow. His close friend Timur Artemiev made a modest living assembling landline telephones and selling them through newspaper ads. Across town, 17-year-old Maxim Nogotkov folded out a small table each day at the Mitino market, hawking clunky calculators, personal stereos, and other electronic gadgets.
Today, Chichvarkin and Artemiev own Russia's largest mobile-phone retailer, Euroset. In fact, with $970 million in sales last year, Euroset is the third-largest retailer in Russia, after supermarket chain Pyatorochka and electronics retailer Eldorado. It has 18% of the mobile-phone market and forecasts sales growth of 60% this year.
Hot on Euroset's heels is Maxus, a rival mobile retailer owned by Nogotkov, whose sales reached $663 million in 2004. Finans, a Russian magazine, recently estimated Nogotkov's net worth at $90 million, making him Russia's second-richest businessman under 30. It put the wealth of Chichvarkin and Artemiev, the two Euroset partners, at $60 million apiece.
These young mobile millionaires prove that you don't have to be a government-made oligarch to succeed in Russia. With a growing middle class, the country offers ample opportunity for entrepreneurs to tap unfilled retail niches.
Even Russia's notorious bureaucracy and weak banking system are obstacles that can be overcome. Chichvarkin and Artemiev each invested just $2,500 in startup capital to found Euroset in April, 1997. Last year the private company's aftertax profits hit $10 million. Nogotkov says he faced few bureaucratic barriers in expanding Maxus from a single market stall in 1995 to a company with 500 outlets across Russia. "I never thought I'd build a big company," he says. "It just grew bigger and bigger."
The young moguls can attribute much of their success to the explosive growth in the overall cellular market. Chichvarkin says that in 1996 only 10,000 people in Moscow owned mobile telephones, which cost around $2,000 each. Now 80 million Russians -- some 60% of the population -- own mobiles, and the price has dropped to around $100. Most Russians still buy their phones from small traders. But as the market matures, both customers and suppliers prefer the extra reliability that comes from doing business with large and well-known retailers.
Both Euroset and Maxus, which operates under the Svyaznoy brand, sell handsets as well as service contracts on behalf of Russia's major mobile-phone operators -- MTS, Beeline, and Megafon. Svyaznoy focuses more on tech and service, while Euroset emphasizes low prices and zany marketing. For example, a midrange Motorola C650 costs $126 at Svyaznoy and $116 at Euroset. On certain days, the first 10 men and 10 women who come to a Euroset store undressed get free phones. "If we can raise a smile, we've already achieved our goal," says Chichvarkin.
Rolling out branch networks is the linchpin of future growth for both companies: In the regions, profit margins can be up to 30% higher than in Moscow. Last year, Euroset increased its sales network from 328 to 1,177 outlets, with 90% of the new ones outside Moscow. Maxus is also expanding fast, aiming for 1,600 branches and $2.5 billion in sales by 2008. It is also selling new services, such as games and melodies for phones, as well as a wider range of products, including cameras and MP3 players. Both chains recently launched jazzy new megastores. In Russia's wide-open handset market, there may well be room for more than one winner.
By Jason Bush in Moscow