Cover Feature: All dressed up

In 1989, Stanisław Bogacki, a well-known Poznań ophthalmologist, and Maria Pyzio, a teacher, decided to change their lives, ditch their old careers and start a business selling clothes imported from India. The firm, Solar Company, now manufactures its own brand and sells it from 25 stores in shopping centers around Poland. "Our brand has become visible because we started opening our own stores," Bogacki said. The move anticipated a new trend in consumer awareness, apparel sales and production as Solar and domestic firms like it - many of which started as street vendors in 1989 - began creating their own brands and selling them in their own shops. "Only a few years ago the Polish textile industry consisted either of huge state companies or small retailers who sold cheap clothes imported from India or Turkey at bazaars," said Barbara Wandachowicz, president of the Łódź-based National Chamber of Fashion (KIM), which represents 114 clothing companies. "But a small group of street vendors have turned their businesses into serious companies designed according to Western standards with development in mind. (They) started to create new Polish brands."

Trading places "It all started with tourist passion," Bogacki said of Solar's early days. "But at that time it wasn't easy to find money for traveling, so the best way was to sell goods imported from abroad. That's how it started. We would sell clothes imported from India." Another physician, Paweł Nowak, soon joined Bogacki and Pyzio. They decided they needed their own brand to keep their business going, so in the fall of 1990 they produced the first clothes under the Solar label. "Why? We weren't only focused on making money," Bogacki said. "We had our professions, just in case, so we could think about building our company with its future development in mind. We assumed at that time that selling clothes to a mass consumer (market) would sooner or later end while the Polish market would adapt to Western standards. So we thought that it would be better to have our own brand." Step by step, the Poznań trio of entrepreneurs did just that. "We wouldn't sell our clothes to any shop for any price," Bogacki said. "High quality for a reasonable price is our rule. In 1995 we introduced orders, which meant that our distributors had to preselect items of a specific collection in advance and buy them. It was a revolution because they were used to buying whenever they wanted and how much they wanted with no plan and without advance." By 1998, Solar Company was ready to open its first shop in Poznań. By 2003, Bogacki plans to run 30 stores and to franchise another seven in Poland. This year Solar will venture abroad, opening an outlet in Prague. Bogacki wouldn't reveal his company's yearly sales but he said Solar would produce some 300,000 items this year.

Dreaming, but never resting Solar's owners also moved into the market in anticipation of heavy competition as the market liberalizes. "We assumed that once Poland becomes an EU (European Union) member we'll witness an attack of Western clothing companies and our local distributors will have problems with selling," he said. "So having your own chain of stores was a must, according to our plans." Such foresight will be the key to survival for domestic brands. "EU accession will result in bankruptcies of companies that didn't use the time they had to change their ways of thinking and to invest in their brands," KIM's Wandachowicz said. But while some entrepreneurs fear that accession could squeeze local companies out of the market, others believe the harmonization of laws and standards and better access to Western markets will bring positive effects. "Meanwhile, in the textile industry, those companies that are working on their brands are focused, apart from the domestic market, on the East," Wandachowicz said. "However, their dream would be to enter Western markets too."

KAN-do attitude KAN, a Łódź-based clothing manufacturer, started in 1989 by making clothes for foreign companies. Now it owns the popular TATUUM brand and has ambitious plans for both eastward and westward expansion. "Our idea is to build such a position on the domestic market that will enable us to compete with Western companies once Poland is in EU," said Jacek Ulowski, the financial director of KAN. "Meanwhile, we plan to be present in Russia, Ukraine, the Czech Republic, Hungary and the Baltic states. In a few years we will base our sales on company stores only and we may consider franchising some stores, too." KAN opened its first store in 1999 in Łódź. Two years later the TATUUM label was available in five stores around Poland. By the end of this year, KAN will have 18 company stores in Poland and in December it plans to open its first store in Moscow. Two stores in Prague are also slated to open this year. "We still produce clothes for foreign contractors as we did in the beginning," Ulowski said. "Last year they accounted for more than 50% of our revenue; this year it should be less than 50%. We're not going to give it up. It gave us an opportunity to create our own brand but, on the other hand, it's only TATUUM that enables us to raise sales so dramatically, some 80% year-on-year." TATUUM is growing on its own terms without advertising campaigns. "We never wanted to promote our brand too strongly, especially in the media," Ulowski said. "We're still learning and we don't want to praise something that might not be perfect yet. And we didn't allocate money for advertising. Nevertheless, our sales are going up. "What we do is open stores at the best locations, not necessarily in shopping centers, and make them attractive. The cost of setting up a store can exceed even zł. 1 million ($250,000) in some cases."

"A lot of money" Polish producers and retailers say that Western manufacturers have several advantages. Solar's Bogacki said that local firms face major competition from companies with better access to capital. "Their sales in Poland account for a small percentage of their total sales and they have access to cheap bank credit," Bogacki said. "In Poland it's easier to get credit for a car than to secure average financing from a bank for a good company." And fresh Polish brands need capital. "There are few companies investing in brands because there is no money on the market," KIM's Wandachowicz said. She said pro-business companies still account for a small chunk of the yearly zł. 11.3 billion ($2.8 billion) (2000 GUS figures) sales of garments in Poland. "At the same time, Poles tend to choose Western brands rather than Polish," Wandachowicz said. "That's why the chamber is trying to get some funds from the state to promote Polish textile brands. They need TV, radio and outdoor advertising campaigns, quality catalogs, ISO (International Organization for Standardization) certificates. In short, a lot of money." Some companies are starting to share the costs of advertising by pooling resources to promote one kind of product, according to Wandachowicz. "At the moment five linen manufacturers are promoting themselves this way in Germany and Scandinavia," she said.

"A brave step" But there are also clothing manufacturers that qualified for bank credits and started professional advertising campaigns on their own. Łódź-based Redan, a clothing manufacturer that owns the Top Secret and Happy Kids brands, has just ended its first TV advertising campaign featuring Paweł Deląg, a Polish movie star. "We'll soon be entering the EU; no other textile company promoted itself this way, so we decided that the first one would take the cream," said Piotr Rejzler, the marketing manager at Redan. "It was a brave step because we had to finance the campaign from a bank credit (…) The campaign's costs, if compared to our yearly sales, account for a great chunk. Without zł. 1 million ($250,000), there is no point to even starting such a campaign. On the other hand, the kind of volume of our campaign won't be even visible in the West." With credits from Bank Handlowy and BRE Bank, Redan plans to launch ad campaigns for each new collection. It started its first campaign a few months before the company was scheduled to open its first store in Łódź. This year Redan plans to sell some zł. 90 million ($22.5 million) worth of clothes and its sales, compared to 2001, should increase by 80-100%, said Radosław Wiśniewski, the company's 30-year-old chief executive officer and majority owner. "We are financing our investments from bank credits because we have a healthy financial situation, which is quite uncommon for this textile sector, which is affiliated by public opinion more with bankruptcies than with success," he said. In four years, Redan plans to open at least two stores in every big city in Poland. "We are prepared to wait three years to start generating profits from the stores; right now it will be a kind of a promotion of our brands," Rejzler said. Despite opening dozens of stores, Redan still wants to sell its clothing through a network of local distributors and will also sell its other brand, TopHit, in supermarkets. "A lot of small companies on the market will disappear but those with several channels of distribution will survive," Rejzler said.

Reliable and skillful people On top of credit and marketing difficulties and pressure from international firms, local production problems are another obstacle for apparel companies. "We outsource (production to) some 50 Polish companies to produce our clothing according to our design but more and more we outsource abroad, to China, Turkey, Thailand, even to Portugal," KAN's Ulowski said. "Production costs abroad are more than twice as low." Redan's Rejzler said that his company manufactures most of its clothes in India and China. "Only 5% of our production is in Poland," he said. " We would like to do more here but we've had bad experiences. Our potential partners are not flexible enough, preferring long-term contracts, and their quality is not good enough." Solar's Bogacki said it's also hard to find real experts in textile craftsmanship in Poland. "There are lots of seamstresses on the domestic market but few are really good," he said. "There are also no design schools in Poland, so you can find artists but they know nothing about the market. "In short, it is also the lack of reliable and skillful people in the textile profession that impedes Polish companies from creating brands and expanding."