Atlantic turns to Germany

Underwear producer shifts some production from China to Poland to better control quality

By Timothy Sifert

Warsaw-based underwear producer and distributor Atlantic is looking to take its first crack at the German market later this year, seeking to exploit the parallels between Polish and German consumers and to establish a cornerstone in its western European expansion strategy.

While Germany absorbs millions of euros in Polish products yearly, far fewer of those goods are of the branded, consumer-oriented variety, such as Atlantic's brand of men's and women's underwear. The brand was established here eight years ago, at a time when the local economy saw a gradual influx of established foreign consumer brands - in clothing as well as other wares - begin to stake claims to the domestic market.

Now, as the country joins the European Union, Atlantic is following suit by becoming a direct player in EU markets.

"Our future strategy is to expand the brand to western Europe," said Wojciech Morawski, Atlantic's president. "The first step is going into the German market because of (its) size and because the differences between the Polish and German consumer are not that big; they are much less than between Poland and France, for example."

He pointed out that Atlantic would open its own stores - not franchise outlets as it has in other countries - in the autumn. Recently, he added, the company has installed a representative on the ground in Germany to launch the operations.

Jerzy Garczyński, general director of the Polish Federation of Apparel and Textiles, said that, while the clothing industry has been a de facto EU member for years, owing to light border restrictions, actual membership would certainly spur the local industry forward. Atlantic, which Garczyński said is one of the more robust locally-based apparel concerns, is a case in point.

At the same time, the company has set its gaze on an initial public offering on the Warsaw Stock Exchange - a key financing option, Morawski said, which would help the company shore up its expanding distribution channels while promoting its products.

The underwear manufacturer, which has so far only sought bank loans, would seek to raise roughly zł. 20 million (e4.5 million), somewhat meager by financing standards. Morawski explained that the IPO figure is based on a company valuation of over zł. 100 million (e22.5 million), which itself is based on this year's revenue expectations of zł. 140 million-zł. 145 million (e31.5 million-e32.6 million). The company expects zł. 5 million (e1.13 million) in profits this year, compared to last year's zł. 4.2 million (e946,000).

Additionally, Morawski said that Atlantic needed the zł. 20 million to improve its distribution, on which it plans to boost spending as it did this year on advertising, which increased this year by about zł. 800,000 (e179,000). The company at present distributes its products in Hungary, Ukraine, Russia and other nations via a franchising business model. In the future it would also seek to open up stores directly owned by Atlantic, as those rake in more revenue for the head office than franchises.

Atlantic is especially focusing on the German market because the company has just opened up its first Poland-based factory, which exclusively produces upper-end clothing suited for the west, Morawski said. The company's other production locations are in China. In May Atlantic opened a zł. 8-million (e1.8-million) factory in Konskie, in the southeast of Poland, to produce some 250,000 high-end bras monthly.

Atlantic opted to bring some of its production closer to home at a time when many consumer goods companies are shifting all production to the Far East because company executives would be able to keep a closer eye on the quality of production.

"To have the best effects and to beat our competitors we must do it perfectly," Morawski said. "And we find that we can only do it according to our own standard in our own factory."

Garczyński said that "when we compare 2002 to 2001, there has been a drop in production of textiles and clothing in Poland." He chalks this up to cheaper production and labor costs in the Far East.

But Morawski tried to balance out that argument, noting that production costs are less than in western Europe.

"Relatively, the costs are quite cheap," he said.

However, he hardly credits the government helping along his decision to bring more jobs into the country.

"The government says GDP will be over 3 percent and that will be a success," he pointed out. "Whose success is it? The government's or the entrepreneurs'?"

Morawski answers, unequivocally: entrepreneurs. The government, he concluded, does "nothing but talk."