Oskar Hartmann - founder & CEO of KupiVIP.ru Holding - the largest online shopping club in Russia, offering over 1500 designer brands in fashion products and accessories with up to 90% off boutique prices through daily flash sales.
My guest today is Oskar Hartmann, Founder and CEO of KupiVIP.ru.
Tell me about how you ended up in Russia?
First of all I was born in the Soviet Union, born in Kazakhstan, so I didn’t end up, I came to the world in the Soviet Union. We moved to Germany when I was years old, so I did all my school and education plus university in Germany. I returned to Russia for the first time in 2000 and then I fell in love with the country and I came back in 2004 and stayed one year to do my civilian service in order not to serve for the army. I did my civilian service in children’s hospital. And I returned again in 2006 as an exchange semester, the finance Academy and then I came for good in the end of 2007.
That seems like a really long journey. How did you end up with this KupiVIP, which is very glamorous?
You know, they say that people connect the dots backwards. When you look backwards everything seems very logical how you ended up where you ended up. Of course a lot of the decisions are very emotional and I think for me it was emotional, it was about love, it was not about rational business decision to come to Russia. For me it was a decision where I want to live. A question that I asked at some point of my life is where do I want to live. It was more about city than a country. So, I was looking at different cities and including German cities, Berlin, Dusseldorf, Frankfurt and Moscow and in the end for me it was a kind of lifestyle decision to come to Moscow. I was very much attracted by a specific woman who lived in Moscow.
Ok, that is what it was. The weather is not better in Moscow for sure.
No, the whether is underrated though, it is much better than its image. I came to live and then when I was here, I had to see what I wanted to do, where I want to apply my young energy in this country. It took about half a year to kind of understand how things were. I didn’t really have a full understanding of how business works and how entrepreneurship works, so I took half a year in order to understand how different industries are structured, what is currently growing, what is changing, what are the macro-trends, what is not changing and this helped me to kind of find a business opportunity that I would want to pursue. So, the decision that I took before was that I want to build my own company. I interviewed a lot of CEOs, I had literally hundreds of interviews with people who are in the industry who made up my mind of what to do. What I found was that there were industries that were very hard to enter, they required large capital and they were very static. There were not many industries in Russia that are static, almost none. But there are some that are more static than others and some are more dynamic. So, I wanted to enter a very dynamic industry where everything is changing, where the top 10 players are changing every second year because I had no startup capital, I needed to be competing based on energy and speed rather than anything else. So, I was looking for growth opportunities, some new industries are being built, I was looking for something clean that doesn’t require connections, relationships, administrative resources, I was looking for something where my success depends on my ability to satisfy customer needs rather than anything else. So, very quickly I came to consumer internet because internet was the fastest growing industry of all, very dynamic, young entrepreneurs had a chance to compete and there was one specific industry which I discovered which was the most behind in terms of comparing to Germany and the US and everything I have seen around the world which was online fashion. Because online fashion is the biggest part of ecommerce in most developed countries. So, in the US the online fashion is 45 billion and all of online electronics and mobile is 44 billion. So, it is the single biggest segment.
And you think that fashion must be more difficult because of the try-on factor, you can’t try on if you buy over the internet of course.
Yes, of course, the try-on argument is a lot of times blocking argument for a lot of people who don’t understand but it is like a lot of people don’t understand Nascar, why millions of people go to see Nascar every week, but it is the same with online fashion. A lot of people have this try-on argument and at the same time the reality of things happening is that in Germany fashion is 30% of ecommerce, in the US it is 25% of ecommerce, and in the UK it is 25% of ecommerce. It is the single biggest category, it is the fastest growing category online, and women really love buying fashion online.
Because you can do it at work.
There are definitely some women who never buy fashion online and this try-on feel argument is very strong but there are other arguments that are stronger obviously because actually a lot of people from the fashion industry now start asking this question – what is driving it so much, because it is becoming so big and it is becoming so influential even offline. We got the try-on argument but what is driving the incredible growth? And a lot of people say it might be the pressure that people experience in shops, because when you go to the shop, for example, your favorite shop all the time, you have certain buying pressure, that if you come there, you don’t find something nice.
The lines, the traffic jams in Moscow for sure. You want to go to the moll and it is just jam-packed.
Your company is called KupiVIP. How did that start? You told us about the industry, but how specifically did you get the idea and what does your company specialize on, what is the profile of your company? Give us a little bit of the history of the company.
KupiVIP was the result of the analysis that I just explained. So, fashion was the biggest lagging, so I wanted to do online fashion. Then I wanted to do something completely different and what was available in the market. In 2007 it was the 5th year of boom of Russia. So most of the businesses were catering to VIP, super-VIP clients. And the message that companies were sending was “if you want something good, you have to pay a lot, and if you don’t pay, you have to get something of low quality”, and I was not ok with this message. I thought that having lived in Germany for so many years, the message that companies in Germany send is you can get a lot of value for the money you have, and this was not existent. So, I wanted to do something in online fashion that is uplifting, I wanted to sell quality products, I didn’t want to be in the cheap product business, I wanted to sell quality produced products, premium fashion, giving Russian women the opportunity to buy higher quality fashion with the budget they have and actually they deserve, because a lot of the Russian women that I met in 2007, they were actually already doing quite well. They didn’t really know they are doing well because for example a Russian woman that earns 1500 Euros a month is already a middle class but she doesn’t feel like it.
Because you can’t buy anything for that money in Moscow.
Exactly, and that is what I wanted to change. That is not ok. If the top 3% of the country don’t feel good about themselves, something is wrong.
The last 5 years was an evolution. First of all, import duties are decreasing because Russia joined the WTO, and now import tariffs for clothing were reduced to 10%, which is a big change.
10%? That is when?
That just happened last August.
How many players are there on the market?
There are 3 main players and then there is a big long tail of players that have been created, competing. Competition is relatively normal. There was a lot of VC funding and private equity. Obviously when the entire industry is created, there is a lot of activity, a lot of startups. There are hundred of startups in every single segment in online fashion.
How does this business work though? Do you actually have to buy all this?
Today we have 3 business lines. We focus on premium fashion. We work with the better half of brands, we have 1500 brands that we work with. Inside the premium fashion we have 3 different lines of business. One is the private sales, where we run sale events for brands to sell off excess inventory and it is a club with 10 million members. Every day we run a number of sale events that last exactly one day with one brand up to 70% off retail price. And this has been the first business model that we started. But we have a second business line inside the company, which is where we open shops for brands which means if a brand wants to open an online shop in Russia, they approach us and we can open it under their brand using our infrastructure. We have today 1300 employees, we have delivery all over Russia.
Our third business line is basically our own full price private label store, which we launched last year.
What is the most challenging thing of doing business in Russia?
I always say the biggest challenge of building KupiVIP was actually the logistic side and it still remains the biggest challenge. My biggest challenge is that I want to deliver 10 million packages a year. Every year I need to bit a 10 million dollars waiting for 20 minutes all over Russia in about 600 cities and I need to reduce the cost of providing the service to a level where it makes business effective and this is the biggest massive challenge that there is right now in the ecommerce in Russia.
What are your plans for the company? How are you going to be expanding, developing the company?
We will continue to be very focused on online premium fashion and we will try to deliver value to consumers giving them quality products in any point in Russia. What we will obviously do is we will expand our delivery capabilities, warehousing capabilities, speed and accuracy of delivery.
I wish you luck in all of your plans. It’s been absolute pleasure talking to you.
Thank you very much.
My guest today was Oskar Hartmann, Founder and CEO of KupiVIP.ru.