Polish fashion brands go public
By Hilary Davies
Clothing company Artman, creator of the youth street-wear brand 'House' is preparing to début on the WSE early next year, the Business Journal has found out. The news comes just as another Polish clothing company, Redan, announces plans to go public next month. Both firms hope to follow the trail blazed on the WSE over the last two years by L.P.P., owner of the quality fashion brand 'Reward.'
According to Artman's adviser to their coming début, Marek Witkowski of Central Europe's largest investment fund, Enterprise Investments, "What we're looking at is a trend that we can expect to continue."
In Witkowski's view, the shift in consumer fashions towards exclusive brands means that for many distributing companies, the only way to sell is to establish their own networks of branded shops. He says, "To create a chain of salons you need a lot of money, and since many Polish clothing companies are small firms, even family firms, they are turning to the WSE for investment."
It's a trend that the success of trail-setter L.P.P. can only have helped to encourage. Since its début, L.P.P. has seen its sales value increase from zł.30.2 million to 93.4 million, while net profits have increased by 590 percent. The company, which already has shops throughout Central Europe, has recently announced plans to increase outlets abroad to 30 and enter the German market in 2005.
Yet according to Dariusz Pachla, Financial Director of L.P.P, the entry of Redan and Artman on the public scene comes as no threat to the two-year veteran. He says, "For two years we've been trying to explain to investors exactly what we do. So if there are more clothing companies like us on the WSE, this will actually help investors to understand what we are."
Artman, currently in the process of changing to joint-stock status in preparation for its debut early next year, will be basing its business model on that of L.P.P. That is, it will be concentrating on the promotion of salons selling a single brand: 'House'. As yet, Artman's Vice President Jan Pilch is not willing to give out detailed information, other than saying that the capital raised on the WSE will go towards funding the creation of branded shops predominantly on the domestic market. Artman made a net profit of just zł.2.76 million in 2002, from a turnover of zł.65 million.
However Redan, which made a net profit of zł.7.6 million in 2003 and zł.8.4 million in the first six months of 2003, has a business model which differs from that of the other two. With the zł.40-50 million it hopes to raise on the WSE, plus another zł.40-50 million gained from bank loans and its own capital, the company plans to develop its chain of discount shops known as 'Textile Market'. The chain would distribute end-of-the-line clothes under its own and other labels, as well as developing salons for its middle-shelf fashion brand 'Top Secret.'
According to analyst reports at DM Millennium, this model makes Redan's business more profitable than that of L.P.P. Against a turnover of zł.62.5 million in the first half of 2003, Redan's profitability is rated at 19.3 percent. L.P.P, which had a turnover of zł.165.3 million for the same period, has a profitability rating of just 10.3 percent. In answer to this, L.P.P's Dariusz Pachla says, "It's true that Redan is currently more profitable. But we shall see what happens with time. Redan doesn't earn from its own shops, but from distribution, which makes it difficult to see how it will develop."
In Witkowski's view, however, there is plenty of room for both business models on the Polish market: "The discount shops work well in smaller towns of up to 50,000 people. Brand shops, on the other hand, make sense only in bigger towns and cities."
The main threat to the flourishing market for Polish brand names is the inflow of foreign branded shops, sure to swarm the country after Poland's EU accession. This is why Redan intends to follow L.P.P. in expanding into Central Europe and then Germany. Artman, too is already looking over the border.
