modnaKasta: How Andrey Logvin became the largest online clothing seller
15,000 parcels are shipped from the warehouse of modnaKasta daily. To make this possible, the entrepreneur Andrey Logvin had to accustom the Ukrainians to buy clothing via Internet and to become one of the largest e-commerce companies in the country.
Every day, on his way to the office Andrey Logvin figures out what good news to start the daily briefing with. It is a must of every morning briefing: at first, all participants share their good news (by the way, the news should not obligatory be related to their job) and only after that they start discussing KPI and plans for a day.
The format of the morning briefings in modnaKasta has been changed in June, 2016.Now these briefings are called stand-ups. Such meetings do not exceed 15 minutes and all attendees participate while standing. At 9:30 a.m. company’s directors hold stand-ups and at 10:00 a.m. stand-up takes place in every department. It not only helps to cheer up and avoid long meeting, but also ensures circulation of news that is of critical importance for the company, where the number of employees now exceeds 700 people.
Natalya Logvin, PR Director of the company, explains, If any employee has a problem, hindering the company’s work, in 10 minutes after stand-up we are able to gather a working group and begin to address the problem.
The efficiency of this approach is proved by the fact that presently modnaKasta is the company number one by online sales in closing and footwear segment in Ukraine, with a market share of 30%. How had it been achieved?
Crisis is a growth engine
The 37-year-old founder of modnaKasta Andrey Logvin does not consider himself a fashionista. He says that he is closer to sport and travelling. Of course, it depends on what we mean by the notion fashionista. If it means monitoring the latest trends, new designers collections and leaving your home just with ideal total look no, I am not a fashionista. On the other hand, of course, it is more than one T-shirt and jeans in my wardrobe.
Andrey Logvin studied in Donetsk State University of Management, obtained Masters degree in Kyiv-Mohyla Business School and got legal education in Taras Shevchenko National University of Kyiv. Andrey started his first business (Internet providing) when he was a third-year student. Before launch of modnaKasta he was CEO of mobile operator CDMA Ukraine.
In 2010, when Andrey Logvin and his friend Oleg Skripnichenko got the idea to open up shopping club Brendomaniya (this was a working title of the project), people were scared to buy clothing online by the same reasons as today. Natalya Nazarchuk, the Chief of modnaKasta contact center clarifies, We are used to buy household appliances and gadgets online. As for the clothing, many of us worry that it is impossible to try it on and it will be difficult to return a thing that does not suit.
Later combating these two fears will make a basis for strategy of modnaKasta brand, but in 2010 a unique feature of this business was represented by agiotage and low prices.
At that time, Turkish shopping club Markafoni, headed by entrepreneur Sina Afra (future majority shareholder and ex-Director of eBay Turkey), have already successfully tested business model flash sales (maximum discount or promotion offered by an ecommerce store for a short period of time).
Markafoni sold clothing with a discount from 20% to 90%. New special offers were posted on the website a few times per day and were active from four hours to three days. New clients were brought to the website by the existing subscribers: it was impossible to sign up without recommendation of one of the club members. Business Angel of Sina Afra was actively looking for partners all over the world.
Oleg Skripchenko and Andrey Logvin came to Istanbul and offered cooperation to the businessman. The latter agreed to try and invested 500,000 Euro in this business. In a few months the project was launched. The stocks of famous brands were the key sources of the goods and modnaKasta contributed to make them empty very quickly.
By that time, online clothing stores were no longer news: many Ukrainian fashion retailers managed to open such stores. Thus, a major player of domestic luxury segment Helen Marlen Group became one of the pioneers. This company opened online store in 2010.
Alexey Meleshchuk, CEO of Helen Marlen Group, told, according to the results of the first year of work, share of sales made less than 1%. Now this index varies from month to month within the limits of 10-20%. Nevertheless, after launch of the website, online sales demonstrated active annual growth. Alexey Meleshchuk explains, maximum relative growth (167% in UAH and about 50% in dollar equivalent) was achieved in 2015, after launch of the updated website helen-marlen.com with more user-friendly interface, tailored to sales.
Not just clothing
Initially, the closed nature of the project (sign up by recommendation) helped modnaKasta rapidly to spark interest of the audience. However, soon it started to impede the growth and in 2012 they decided to abandon this model. All other attributes remained the same: it continues to be the project, built on flash sales business model (discount or promotion, offered by an e-commerce store for a short period of time).
Up to now modnaKasta website posts not less than 40 promotional offers per day and most of these offers start at 6 a.m. Natalya Logvin clarifies, When the offers are especially successful, the goods can be fully bought by 10 a.m. This habituates buyers to everyday visits of the website. It is one more component of the game every promotional offer has its deadline. It increases agiotage and results in spontaneous purchases.
Although, fan is not the only driving force, which helped modnaKasta to attract an audience of 5 million subscribers. Andrey Logvin always treated his project as IT company and not as closing store. He says, The nature of e-commerce market is innovations. We are continuously looking for new solutions that will make online shopping cheaper, easier and faster.
Andrey Logvin states, I would like to redress historical injustice when the country with such a number of gifted programmers has no IT company with capitalization, exceeding the threshold of $1 billion.
Every month modnaKasta monitors NPS (net promoter score, demonstrating customer’s willingness to repeated purchases), makes customer survey concerning quality of goods, speed of delivery, usability of website and application. Consumers feedback results in a list of tasks for the next month.
Initially, a major challenge of modnaKasta was to attract attention of suppliers. The Ukrainians enjoyed the project and they demanded new promotional offers. Tatyana Yushchuk, Category Manager, who has been working for the company for more than five years, recalls, We had even to hunt for most of suppliers.Not all partners understood how e-commerce worked and therefore, they didn’t believe in partnership with us. However, when for two promotional days we had sold the amount, which was usually sold by retailers for a month, the situation changed, she adds.
Since 2011 buyers of modnaKasta have ventured to offer clients something else besides clothing and footwear. The first non-core promotional action was kitchenware: at first, baby tableware and then the rest of varieties. A category household goods started fully working in 2014. Now it is one of the most rapidly growing segments.
In 2015 they began to sell foodstuff on the website: groceries, snacks and alcohol. According to the global trends, modnaKasta has chosen the right focus. According to the report of Food Marketing Institute and Nielsen, by 2025 costs on online purchase of foodstuff and beverages in the USA could grow up to 25% of overall sales in this segment (now it makes 4,3%). Last year online stores earned about $20.5 billion on foodstuff. According to Digitally Engaged Food Shopper, in ten years 60% of users will spend a quarter of overall budget on foodstuff.
Katerina Mikula, CEO of Lamoda project, tells, The last two years were not easy for retail market in general. During economic crisis most of clients change their purchasing behavior, demonstrating more rational approach to purchases. Now clients monitor discounts more attentively, compare longer and make purchases less spontaneously. According to Katerina Mikula, there is an increased demand for fast fashion – budget collections, which are updated once per season. Following this trend, Lamoda also increased share of brands in the medium price segment (now their assets comprise 1,500 brands and the most popular are Mango, Oodji, Lost Ink, Dorothy Perkins and Sela).
After the crisis, company management faced one more problem: despite adding new category, clients began complaining about poor assortment. Importers became more economical and purchased only those goods, which they could really sell. Old stocks became exhausted and the goods of Ukrainian producers were not enough. Management ventured to offer radical solution: they provided clients with an opportunity to make purchases in American online stores.
Nova Poshta provided a warehouse in New Jersey and the project was launched. It was not the first experience of cooperation between two companies. Oleg Makarenko, Sales Director of Nova Poshta, told AIN.UA, for several years modnaKasta has been staying one of our largest clients and, for sure, the largest one in the area of fashion retail. Similar amounts of delivery are perhaps demonstrated by such marketplaces as Rozetka. This fact proves general trend towards online sales. Oleg Makarenko adds, judging by three largest clients of Nova Poshta in the area of fashion e-commerce (modnaKasta, Le boutique, Lamoda), an increase of deliveries in this segment made 22% for the period January August, 2017, in comparison with the same period of the previous year.
Parcels were often delayed by customs service, and a number of negative feedbacks harmed the reputation of the entire business. On June 1, 2017, when the amount of negative feedback had become critical, the project was suspended.
To put clothing on in 60 seconds
The sales are affected not only by complaints of clients, who used the service, but also by fears of potential audience. According to the survey of BigCommerce (technological company, developing software for e-commerce), 58% of the Americans believe that paid delivery is a minus of online shopping, 49% – impossibility to touch cloth or try it on before purchasing, 34% – complexity of returning the goods, and the same amount of people complain about too long period of waiting for the goods. Emotions of American shoppers are also shared by the Ukrainians.
Reduction in time of delivery and decrease of product returns daily KPI for employees of modnaKasta.
So, we invested in new equipment, which helps to save a few seconds per operation. Recently our warehouse was enriched by new scales, which not only measure weight of the parcel, but also scan its size and automatically add this data to the bar code. The entire operation takes a few seconds. Thus, the parcels arrive in Nova Poshta (the department is located at the same building with warehouse) being measured. It considerably reduces the processing time.
Natalya Logvin explains, We send about 15,000 parcels per day through Nova Poshta. Therefore, it is no wonder that every saved second is important for us.
Until now we have a big problem with content production in Ukraine. Just photos of products are not enough for successful promotional action: every product item should be described in details, size chart should be standardized and a brief guide how to take care of the goods should be added. The more information a consumer obtains before purchasing, the less product returns an online store has.
With increasing number of suppliers, work on content became more and more complicated. Maxim Gorbunov, the Chief of photo studios, tells, I have been working still in the time, when modnaKasta had five photo studios in different parts of the city. We stored photos on flash drive and manually transferred them to server. Time consumption was huge. Then it became necessary to equip our own photo studio and processing center. Now modnaKasta has 12 photo studios, equipped for object and model photography, as well as contend department, where they elaborately describe every product item. Later modnaKasta developed software for preproduction, which allowed sending photos to retoucher in 4 minutes after shutter clicking.
One more barrier impossibility to try the selected thing on before purchasing was partially eliminated by opening a network of Client Service Centers.
The company noticed: many of clients prefer to pick up parcels themselves in the warehouses of Nova Poshta, instead of waiting for address delivery. Therefore, they decided to improve this sector. In 2016 modnaKasta opened ten centers in different districts of Kiev. It was possible not only to try cloth on in such centers, but also to make a return if it does not suit. Moreover, delivery to any of these centers was free that allowed eliminating one more subject of clients complaints. Today 50 Client Service Centers operate in eight cities of Ukraine.
These centers do not reduce the amount of returns, but make handling of such returns easier: the information on returns is obtained by suppliers much faster and logistical chain is simplified.
In future, such centers would probably have workshops, where the clients could fit cloth on. Company management believes that clients would rather address to tailor than refuse from purchasing.
This autumn modnaKasta explored an alien territory. They suggested the key Ukrainian Fashion Weeks – Mercedes-Benz Kiev Fashion Days and Ukrainian Fashion Week testing See now/Buy now format, which was already used by many world brands: Burberry, Tom Ford and Vetements. The rationale of the project is to provide a buyer with an opportunity to order anything they like, right during fashion show. Previously, the collection from fashion show appeared on store shelves only in a few months.
Despite of the fact that the audience of Fashion Week and modnaKasta is very different, designers have willingly agreed to participate in the project. Darya Shapovalova, the Founder of Mercedes-Benz Kiev Fashion Days, is sure, The audience of modnaKasta is 300,000 people daily. Every designer, participating in Fashion Week, thinks exceptionally about sales. In the world, where Louis Vuitton cooperates with Supreme, it is impossible to afford ignorance of communications with mass audience. She believes that the future of retail lies in competent integration of online and offline sales. That is why, when Andrey Logvin suggested at Lvov Jazz Fest launching the project See now/Buy now, the decision was taken promptly.
8 designers from MBKFD and 17 – from UFW agreed to participate in the project. Irina Belyayeva, Project Manager, explained the mechanics of the project, Simultaneously with beginning of show they launched live webcast and opened a page, where the demonstrated things (the photos were taken in advance) where available for sale. According to tradition of modnaKasta, promotional actions continued only 48 hours and thereafter preliminary orders were sent to designers, who had to sew all clothes for the period of three weeks.
Photographing the collections was the most effort-consuming stage in preparing the project. Taking into account that this autumn Fashion Weeks were held one after another (MBKFD started on August 30, and on September 4 we had the first day of UFW), photographers of the company had to work non-stop for almost three weeks.
Maxim Gorbunov, Chief of photo studios, tells us, A team of one studio usually photographs about 200 items per shift. For See now/Buy now we made photographs of not more than 50 items. He explained that requirements to content for Fashion Week were higher than usually: photographing and retouching took more time. Almost all designers provided photographers of modnaKasta with strict instructions, and some designers even came to the studios to be present during photo shoot.
Nevertheless, no one produced any impressive results. Natalya Logvin, who refused to comment financial indices, clarified us, The first experience is not about numbers, but about image and dealing with new audience. She summarized, We suspect that our audience was not ready for the prices, offered by designers.
modnaKasta scheduled one more experiment for 2017.
Simultaneously with the existing business model, the company is going to occupy a niche of full-fledged marketplace with sustainable assortment.
The assets of this unit will be represented not by stocks, but by up-to-date products that cost a little bit lower than offline products. The categories will be the same: apart from clothing and footwear, they will also sell children’s clothes, toys, sports equipment, household goods, groceries and alcohol.
Notwithstanding the upcoming launch of the project, the company still hasn’t decided on its title. Employees from different departments call it Polka (shelf), Catalogue, but most often they call it Market.
Katerina Mikula, CEO of Lamoda project, tells us, For the last two years a lot of marketplaces have emerged in our category. Lamoda has extended their business model still in March of 2016. They allowed the brands, which were not the official suppliers, to be sold on the website. It was driven, among other things, by the growth of popular goods Made in UA. We wished to see local producers on our website. Lamoda is rapidly gaining momentum among our partners there are 180 trademarks, Ukrainian (Must Have, VOVK, Sova), as well as the world-famous fashion giants like Nike and Women’s Secret. Recently we even created a separate Made in UA tab in the top menu.
In modnaKasta they are sure that launch of Market will attract more solvent audience and will allow considerably to cut time on delivery. Moreover, sustainable assortment will simplify SEO-optimization of portal. Natalya Logvin, PR Director of the company, clarifies us, Now it is not easy for us to work in this direction. Actions of one brand cannot take place more than once per two months. Therefore, search by names of these brands will not bring customers to modnaKasta website. Google poorly ranks us in the search due to small number of permanent categories.
Photo: Alexander Kozachenko