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The Market for Children's Apparel in Russia

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According to a market analysis by one of the major retail chainsin Russia, approximately 60 percent of the Russian population buys apparel and textiles in

The Market for Children's Apparel in Russia

Industry: Apparel & Textiles

    by: Marina Parshukova, US Embassy Moscow

    approver: Cheryl Dukelow

    Report Date: 02/03/2004

    Expires: 09/30/2006

    --------------------------------------------------------------------------------

    The market for children’s wear has been one of the fastest growing markets in Russia over the last three years. According to official Russian statistics, overall apparel and textile industry output totaled $3,010 million (88.8 billion rubles) against market volume of $14,068 million (415 billion rubles) in 2001. For a number of reasons described in this report, Russians depend heavily on imported goods. While a large segment of the population still continues to shop in open markets that offer inexpensive food products and low quality apparel, textiles and consumer goods, the Russian middle class continues to grow and with it, the demand for high quality imported goods for children. European countries are the major players in the market for imported high quality children’s wear thus far. Currently inexpensive apparel and textiles are imported from Turkey, China and other Asian countries. The market is far from being saturated and there is an opportunity for U.S. manufactured children’s apparel in the Russian market.

The Market for Children’s Apparel in Russia

Summary

    The market for children’s wear has been one of the fastest growing markets in Russia over the last three years. According to official Russian statistics, overall apparel and textile industry output totaled $3,010 million (88.8 billion rubles) against market volume of $14,068 million (415 billion rubles) in 2001.

    According to statistics released by the Ministry of Economic Development and Trade of the Russian Federation, published in April, 2003, $22,764 million (about 700 billion rubles) were spent by Russians on apparel and textile goods (20 percent of the overall volume of purchased goods) in 2002. While specific statistics on sales of children’s wear are not available, it is

    generally agreed that children’s wear constitutes a considerable percentage of total volume of sales.

    In 2003 the Russian GDP increased 4.1 percent, production volume grew by 3.7 percent, and real income grew by 8.8 percent. One of the most notable economic indicators was the growth of retail turnover, which rose by 9.1 percent. Some experts attribute GDP growth last year to the rise in retail turnover and an increase in the price of oil (a major Russian export commodity). While Russian industrial production continued to grow, Russians still rely heavily on imports. According to a market analysis by one of the major retail chains in Russia, approximately 60 percent of the Russian population buys apparel and textiles in discount shops, and about 6 percent of the population buy goods in supermarkets and/or newly constructed malls. A large segment of the population still continues to shop in open markets that offering a range of products and serivices from inexpensive food products to low quality apparel, textiles and consumer goods. At the same time, the Russian middle class continues to grow and with it, the demand for high quality imported goods for children. Italy, Germany, Poland, Finland, Spain and France are the major players in the market for imported high quality children’s wear.

    Inexpensive goods are imported from Turkey, China and other Asian countries. There are

    opportunities in the apparel and textiles market for both high-end cost goods and low-end cost goods.

A. MARKET HIGHLIGHTS & BEST PROSPECTS

Background and Statistical Data

    The Ministry of Economic Development and Trade reports (April 2003) that the textile and apparel industry in Russia is one of 15 major industries closely reviewed by economists for statistical analysis of the Russian economy. In 2002, based on economic indicators, textiles and apparel ranked 12th. Currently, the textile and apparel industry provides jobs to over 800,000 people (80 percent are women) and includes about 16,000 enterprises (including 2,800 small and medium sized companies).

While there was a slight decline in the production of trousers, girls’ dresses and skirts in 2002-

    2003, the production of coats, suits, shirts, blouses and jackets increased considerably compared to the previous year. The table below shows statistics on local production of children’s apparel over the last three years (in thousand items):

Apparel category 2000 2001 2002

    Coats and short coats 108.1 99.7 260.8

    Raincoats 14.3 4.3 11.2

    Suits 586 1,097.4 1,235.9

    Dresses for girls 4,207.8 2,408 1,209.7

    Trousers 5,188.5 6,206.5 6,061.5

    Skirts 237.9 369.3 184.6

    Blouses 107 82.9 103.1

    Jackets 1,523.3 3,135.6 4,037.3

    Shirts 1,445.8 1,549.2 1,681.6

    (Note: Official statistics for the apparel production do not include production from small- and micro-business operations.)

In 2003, according to official estimates, the production of children’s wear grew 1.5-2 times faster

    than production of apparel for adults (in categories showing growth). For example, in the first quarter of 2003, the production of skirts for girls grew 6.3 times as much as the production of skirts for women.

    The Ministry of Industry and Science released statistics on unaccounted-for imported (not registered at the customs) products in the apparel industry for the last couple of years. According to the Ministry, unaccounted-for imports outnumber local production of clothing by 350 percent and knitted goods by 270 percent.

     According to Ms. Lobacheva, PhD., an expert in the textile and apparel market in Russia, in 2002 the market for children’s apparel in Russia consisted of 71 percent local production, 3 percent imports, 2 percent exports and 24 percent surplus stock (Tekstilnaya Promyshlennost’ –

    Textile Industry Magazine, No. 3, 2003).

Market Trends and Best Prospects

     Russian major economic indicators (according to the State Statistics Committee) continued to grow in the first half of 2003. Industrial output grew by 6.8 percent compared to the first half of 2002. Production continued to grow in the major industry sectors in Russia, but in the textile and apparel industry it declined by 0.8 percent (in sub-sectors, production dropped in the clothing and textile sectors, but grew in the footwear, leather and fur industry sectors.)

     The decline can be attributed to the following factors:

    - The age of equipment and production facilites. Up to 80 percent of production equipment is obsolete. 20 percent of all production facilities in light industry currently use equipment at least 20 years old, 1.5 percent of enterprises operate with equipment less than 5 years old, and;

    - The increasing cost of services in Russia: in 2000-2002 electricity prices increased by 65.7 percent; gas by 84.2 percent, railroad tariffs increased by 60.1 percent;

    - The lack of adequate financial resources for equipment purchases and introduction of new technologies;

- High interest on loans;

    - The lack of knowledge about implementation of marketing technologies (only 10 percent of Russian enterprises have marketing divisions/units).

    The Russian Government is considering measures to overcome the above obstacles. The Ministry of Industry and Science is proposing to cut import duties on imported manufacturing equipment and components not currently produced in Russia.

    The market for children’s apparel in Russia cannot be adequately estimated without the consideration of surplus stock. Due to strong competition from China and Turkey, a lack of marketing skills and techniques, and the overall low quality of Russian production, a considerable portion of locally produced apparel for children never leaves the producers’ warehouses. In 2002, surplus stock of children’s apparel accounted for 24 percent of total

    market. The statistics below show surplus by different apparel categories for children in 2002 (in thousand items):

- coats, short coats - 101.2

- rain coats 1.8

- suits 338.8

- dresses 132.8

- trousers 1,583

- skirts 88.6

- blouses 12.8

- jackets 2,160.6

- shirts 434.3

total: 4,853.9

Best Prospects

    The demand for good quality apparel for children in Russia is much greater than the current supply. The following product categories may be considered as best prospect opportunities for trade with U.S. companies:

6104 Women’s and girls’ suits

6115 Pantyhose, socks and other hosiery

6203 Suits for boys

6204 Women’s and girls’ dresses

6309 Worn Clothing (and Other Worn Textile Articles)

B. COMPETITIVE ANALYSIS

Local Production

    JSC Rostextile is the major Russian manufacture of apparel for adults and children. It was established in 1990 as a successor to Rostextile, the State Company for textile products manufacturing, under the Ministry of Textile Industry of the Russian Federation. It includes over 400 apparel and textile production and commercial companies, as well as banking and scientific and research organizations. JSC Rostextile is the largest manufacturer of textiles and apparel in Russia, and accounts for about 70 percent of total apparel production in Russia.

    Gloriya-Jeans Corporation, Closed JSC (Rostov Oblast), is one of the largest and fastest growing production enterprise of clothing for children and adults in Russia. (Based on their reputation, Levi’s Corporation has chosen the company for the production of Levi’s jeans in Russia.)

Listed below are other important manufacturers of apparel for children:

    - Saima Garment Mill, OOO (Note: OOO means Company Limited) (based in Vyborg, Leningradskaya Oblast)

    - Fantaziya, OOO (Volkhov, Leningradskaya Oblast)

- Viktoriya, OOO (St. Petersburg)

- Dalvatan, OOO (St. Petersburg)

- Textile House Devore (St. Petersburg)

- Karusel’, OOO (St. Petersburg)

- Kolibri +, OOO (St. Petersburg)

- Olla, OOO (St. Petersburg)

- Region-Moda, OOO (St. Petersburg)

- Salut, Closed JSC (St. Petersburg)

- Soyuztrikotazh, OOO (St. Petersburg)

    - Fansi Garment Mill, Closed JSC (St. Petersburg)

    - Slavyanka, Pskovskaya Garment Mill (Pskov)

- Rassvet, Cherepovetskaya Garment Mill, OOO (Cherepovets, Vologodskaya Oblast)

- Areal, JSC (Bryansk)

- Detskaya Odezhda, OOO (Vladimir)

    - Pobeda, Vladimirskaya Garment Mill, JSC (Vladimir)

- Slavyanka, JSC (Vladimir)

- Sobinskaya Garment Mill, Closed JSC (Sobinka, Vladimirskaya Oblast)

    - Puchezhskaya Garment Mill, JSC (Puchezh, Ivanovskaya Oblast)

- Trikotazhnitsa, OOO (Ivanovo)

    - Beloomutskaya Garment Mill (Moscow Oblast)

    - Krasnaya Zvezda, Egorievskoye JSC (Moscow Oblast)

- Lyubava-2, JSC (Moscow Oblast)

    - Oryol: Domodedovskoye Garment Mill (Moscow Oblast)

    - Podolskaya Garment Mill, Closed JSC (Moscow Oblast)

- Serpukhovskiy Tekskil (Moscow Oblast)

- Aladdin and Co. (Moscow)

- Valentina-Stil, OOO (Moscow)

    - Detskaya Odezhda Garment Mill (Moscow)

- Kosmos Garment Firm, OOO (Moscow)

- Pioner, OOO (Moscow)

- Smena Garment Mill (Moscow)

    - Trekhgornaya Manufactura, JSC (Moscow)

    - Avangard Garment Mill (Smolenskaya Oblast)

- Voskhod, JSC (Smolensk)

    - Aelita Garment Mill (Tverskaya Oblast)

- Tverskaya Garment Mill (Tver)

    - Rossiyanka Belgorodskaya Garment Mill (Belgorod)

- Zarya Garment Mill (Kirov)

    - Voskhod Nizhegorodskoye Garment Mill (Nizhny Novgorod)

    - Rus’ – Dzerzhinskaya Garment Mill (Nizhegorodskaya Oblast)

- Vlada Samarskaya Garment Mill (Samara)

    - Azovskaya Garment Mill No. 13 (Postovskaya Oblast)

    - Ornika Orskoye Garment Mill (Orenburgskaya Oblast)

    - Mayak Garment Mill (Sverdlovskaya Oblast)

    - Ruskor, Closed JSC (Sverdlovskaya Oblast)

    - Berdchanka, JSC (Novosibirskaya Oblast)

    - Severyanka Novosibirskaya Garment Mill (Novosibirsk)

    - Angarskaya Garment Mill (Irkutskaya Oblast)

    - Minusinskaya Garment Mill (Krasnoyarskiy Krai)

- And others.

    Apparel for children is produced by 338 large and medium-sized enterprises, and numerous small businesses.

U.S. Competitive Position and Third-country Competition

    Italy, Germany, Finland, Spain, France and Poland are the major players in the market for imported high quality apparel for adults and children. At the same time, the most aggressive exporters of children’s apparel to Russia are China, Turkey, Pakistan, as well as India and

    Taiwan. They offer inexpensive clothing for children that can compete cost-wise with locally produced apparel.

    In 2002, the U.S. exported $2,295,000 in apparel to Russia (according to USDOC, Office of Textiles and Apparel/OTEXA Statistics). According to Russian statistics, the U.S. generally occupies between 10th and -15th place in total imports of apparel to Russia. Statistics for imports of children’s apparel (for major categories such as shirts, skirts, coats, etc.) are included in the

    total statistics for imports of apparel.

    Several major U.S. apparel manufacturers have been exporting to Russia for a number of years. Reebok and Levi’s are now manufacturing their products in Russia. Old Navy, GAP, Columbia and other U.S. manufacturers and brands are gaining brand-name recognition in the larger cities in Russia.

    The following tables show U.S. exports to Russia in several product categories in the apparel industry, including children’s apparel in 2002 (by HS code):

61.10.11. Sweaters, Pullovers, Vests, etc. Knitted or Crocheted, of Wool

Total Imports: $10,757,500

1. Italy $2,975,800

2. China $2,914,100

    3. Turkey $2,548,100

    4. Germany $729,600

    5. France $269,300

    6. Poland $160,900

    7. Yugoslavia $111,500

    8. Austria $95,900

    9. Spain $92,700

    10. United States $81,500

    11. Denmark $78,400

and others.

61.15. Pantyhose, Socks and Other Hosiery, Knit or Crochet; Including Stockings for Varicose

    Veins and Footwear without Applied Soles

    Total Imports: $31,573,700

    1. Italy $12,670,800

    2. China $8,447,300

    3. Poland $2,034,800

    4. Lithuania $1,244,700

    5. Turkey $1,152,200

    6. Yugoslavia $ 749,900

    7. Germany $684,300

    8. Ukraine $572,300

    9. United States $505,400

    10. Latvia $408,400

and others.

62.04.43. Women’s and Girls’ Dresses Made of Synthetic Fiber

    Total Imports: $8,131,600

    1. China $6,777,400

    2. Republic of Korea $591,800

    3. Kyrgyz Republic $219,600

    4. Germany $190,800

    5. Italy $108,200

    6. Turkey $105,800

    7. France $30,800

    8. United States $25,800

    9. Demark $11,400

and others.

62.05. Shirts for Men and/or Boys

    Total Imports: $38,699,200

    1. China $19,967,100

    2. Turkey $10,963,900

    3. Germany $1,959,300

    4. Italy $1,522,400

5. Republic of Korea $816,400

    6. Poland $696,700

    7. Bulgaria $406,700

    8-12. France, Finland, Portugal, Syria, Netherlands

13. United States $138,900

    14. Belgium $9,500

and others.

    63.09. Worn Clothing and Other Worn Textile Articles

    Total Imports: $11,217,500

    1. Germany $ 2,403,500

    2. Netherlands $1,675,200

3. United Kingdom $1,561,200

    4. United States $ ,427,400

    5. Finland $864,400

    6. Belgium $757,200

    7. Poland $370,300

and others.

(Note: Generally, official import statistics are not accurate because a considerable portion of

    goods are brought into the country by so-called “shuttle” traders. According to an estimate by a Director of a large Russian garment factory, about 40 percent of imported apparel is not

    accounted for in official statistics.)

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