Bad Time For Some, Others Cash In

Investment banks are laying employees off by the hundreds, developers are freezing projects and oil firms are lining up to receive government aid. At some companies, however, business has never been better. "We're seeing at least three to four times more cases lately," said Nikolai Ivanov, the deputy director of USB Credit Collection Agency. "We were getting around 1,000 to 2,000 credit portfolios turned over to us monthly. In the last few months, it's been more like 6,000 to 8,000." The company, which according to its web site "creates an atmosphere of maximum discomfort and tension around debtors … forcing them to speedily return their money," is used by banks to search out clients who are lagging behind on payments and convince them to settle their obligations. In October alone, USB received $80 million in debts for collection — a record, Ivanov said. Credit collectors, lawyers, business schools and even fast food companies are among those that are seeing the crisis as a once-in-a-lifetime opportunity. In Ivanov's case, it is a chance to profit from delinquent debtors, some of whom stretched themselves thin during boom times and gave no thought to what would happen if things turned around. A typical delinquent debtor, Ivanov said, is younger than 30 and in debt because "their desires did not correspond to their financial capabilities." "They go into debt because of their stupidity," he said. "They borrow money thinking they can handle it, then something happens in their lives, or the economy changes, and they start missing payments, and the charges start piling up." Other debtors are older and become delinquent because of a major life change, such as a layoff or divorce. While the financial crisis has not yet produced a significant increase in the amount of delinquent debtors, Ivanov said it has affected the amount of time that banks now wait before turning to a collection agency. "Banks used to spend months looking for these people on their own before turning them over to us," he said. "Now they do it much sooner, sometimes as quickly as 10 days after a missed payment. "Bank-to-bank lending is low, and they need the cash." Ivanov said the amount of unpaid debts by private individuals would eventually ebb because banks have begun lending more selectively and demanding more collateral for loans. However, he predicted a looming credit collection boom tied to corporations unable to meet their debts. "Next year will be a golden year for credit agencies," he said. "We've seen a huge jump in corporate debt collection, especially from European clients trying to collect from Russian corporations." Ivanov said that among his corporate clients were "two very large European wireless firms seeking to recover tens of millions of dollars each from Russian companies." In order to collect money from private individuals, USB bombards them with phone calls, visits their homes, serves legal papers, and if necessary, calls in a state marshal to confiscate their properties. When it comes to collecting debt from corporations, however, the tactics change. "We engage in a bit of corporate espionage," Ivanov said. "We search out their weak points, places we can apply pressure." One tactic that Ivanov said has been effective in the past is threatening to call a company's partners and suppliers, as well as its other creditors, and letting them know that the company is delinquent in paying its debt. "This puts the company in a bad light and makes it much harder for them to obtain goods on credit or get credit at the bank," he said. "In short, our entire strategy is to convince a company that it is much more in their interest to settle up than to fight." One way people have been avoiding calls from creditors is by visiting Vremya, a pawnbroker near the city center that specializes in offering loans in exchange for expensive watches, which are then held as collateral. Like USB Collection, the shop has reported an increase in business that they attribute to the crisis. "More people have been bringing in watches, and fewer people have been redeeming them," said Lyudmila Sevtsova, the shop's director. Vremya charges a monthly interest rate of 18 percent on items it holds as collateral. "We've been seeing much more small and midsize businessmen who have run out of money and are unable to get credit at the bank," Sevtsova said. "We also get young women who have been given a watch as a gift, but the number of those has remained the same." Private entrepreneurs aren't the only ones that have been feeling the credit crunch. As the crisis gains momentum, the corporate landscape is beginning to shift, with some firms being bought out by better-positioned competitors while others go out of business altogether. A bad business environment for corporations, however, can be a good one for the law firms helping them negotiate the country's labyrinthine legal code. "We're actively advising Russian and foreign corporate clients on various crisis-related issues, including dispute resolution, emergency funding, mergers and acquisitions," said Dmitry Afanasiev, chairman of Egorov, Puginsky, Afanasiev and Partners, a law firm specializing in corporate practice. "Everybody is under pressure to act," he said. Afanasiev said his firm has experienced a 30 percent jump in business in the past few months and predicted that the crisis could be beneficial to some law firms. "This will be a good time for large law firms like ours. More law will be applied to transactions as a result of the increasing role of the state in economic matters," he said. Mergers, acquisitions and bankruptcies can also put jobs at risk, especially when they occur during a crisis. One way people have been dealing with employment uncertainties is by beefing up their business education, said Yevgeny Plyuzhkov, the general director of Moscow Business School. "When the economy goes into a recession, people begin investing in their education," he said. Plyuzhkov said the school has seen a 15 percent to 20 percent jump in applications during the past three months, although enrollment has not actually grown because potential students are taking longer than usual to make up their minds about making a financial commitment. "Many of them are senior managers who feel their jobs might be under threat," he said. "By furthering their business education, they feel they might have a better chance of being kept on, or at the very least finding a new job if they do get laid off." Not everyone worried about work sees education as the answer. Business Relations, a company specializing in business-related personal growth seminars, is offering a variety of "anti-crisis programs" to help guide corporate workers through tough times. "We've recently gone from having just two phone lines to having six," said Ivan Maurakh, one of the company's trainers. "People want a competitive edge these days. They would rather use their time and money for self-development." According to the company's web site, executives are taught how to motivate themselves and their employees, deal with layoffs and raise productivity under crisis conditions. "We're seeing people who have been fired as well as people who have kept their jobs," Maurakh said. "We try to teach them to keep a cool head and distinguish their interpretation of facts from the actual facts themselves. This is very important in crisis situations." The company offers both one-on-one seminars and corporate seminars costing 300,000 rubles ($11,000) for 30 people. Maurakh said larger corporations that have recently come under financial pressure like Troika Dialog and Mirax Group have canceled their contracts with Business Relations, but "smaller, more mobile companies have actually been looking for ways to boost their productivity." Mirax Group said in e-mailed comments Monday that it had not been working with Business Relations since the summer of 2007 and that there was no connection to "the recent situation." Troika Dialog said Maurakh's comments were "not true," without providing further details. Others are turning to the Internet for answers. "There has been a surge of user interest in financial web sites," said Dina Litvinova, the marketing director for Yandex.ru, the country's largest Internet search engine. "From the end of September through the end of October, the number of unique visitors in the 'Finance' category has increased by 86 percent. Last year, we didn't see a comparable increase at all." One such finance web site, Testcrisis.ru, asks visitors a series of questions — such as whether they keep their savings in rubles or dollars or whether they own real estate — to determine how affected they will be by the crisis. And even as people remain uncertain about what the downturn will bring, customers seem to be digging for cheaper alternatives wherever they can find them. "We've seen a 15 percent bump in profits recently," said Mikhail Kudryavtsev, director of marketing for Kroshka Kartoshka, whose baked-potato stands are a fixture on Moscow streets, in an interview with Komsomolskaya Pravda last week. "And we expect even more demand," he said. "A friend of mine just came back from the United States. She said that hot dog stands are getting lines that stretch around an entire block."

Ads Pushing Products With 'Crisis' Creativity

"Why would you want to buy an apartment now?" a woman's voice grumbles in an ad running on Ekho Moskvy radio. "Look what's going on in the world." A male voice then chimes in, reassuring the woman that buying real estate is a "really stable" investment. While state-run television may be shying away from coverage of the financial crisis, many companies are seizing on economic uncertainty in their advertising campaigns. Most of the ads are offering discounts on major purchases, such as apartments or cars, but the crisis also crops up in ads for business lunches, cartoons and winter coats. Experts diverged on the effectiveness of crisis-related advertising. Some say it can come across as honest and direct, while others warn that consumers will be turned off by campaigns that play on their fears. The radio ad for Glavmosstroi-Nedvizhimost, which has run regularly over the last week on Ekho Moskvy, offers a discount on apartments until Nov. 30. A spokeswoman for the agency said the management had instructed staff not to give any comments related to the financial crisis. Another real estate ad in the business daily Kommersant promotes luxury housing next to a yacht marina with a quote from former U.S. President John F. Kennedy: "When written in Chinese, the word crisis is composed of two characters. One represents danger, and the other represents opportunity." The ads with the Kennedy quote began appearing in October in business newspapers and weekly magazines, Anna Shadrina, advertising director for the company, Capital Group, said in e-mailed comments. "The word 'crisis' appears in the ad in the context of a brilliant saying by a famous personality," Shadrina said. "The advertising campaign is based around the deep meaning of the whole phrase. The accent is not on the crisis but on how our attitude to the situation depends upon ourselves. "It's stupid to deny that what's happening is real, and as is well-known, you can't change reality, but you can change your attitude to it," Shadrina said. One advertising expert was more blunt about the real estate ads. "It makes sense that real estate brands are doing anti-crisis ads," said Alex Shifrin, head of ad agency The Creative Factory. "They're desperate." He said he hadn't seen the Capital Group ads, but called it "a bit silly and naive" to use the Kennedy quote in a campaign aimed at wealthy investors who understand the financial situation. "It's just in denial more than anything," he said. But another expert praised the idea of ads talking about the crisis. "This means advertisers are talking honestly, they are talking openly," said Vladimir Yevstafyev, president of IMA-Press ad agency and vice president of the Association of Communication Agencies in Russia He singled out billboard and radio advertising and ads in business-oriented newspapers as the most effective. Nevertheless, campaigns should use the word "crisis" with care, Yevstafyev said. "If it's a very chic or high-society item, I would not recommend my clients to use this exact word." As customers tighten their belts, mass-market car companies are also running anti-crisis campaigns persuading customers to spend by offering discounts. Opel has an ad on Ekho Moskvy featuring people cheering and shouting, "Hurrah! Crisis!" It turns out that they're celebrating a sale that runs to Dec. 31. Opel has asked the German government for some 1 billion euros in credit guarantees as its parent company, General Motors, struggles to survive the crisis. Russia's largest carmaker, AvtoVAZ, has a banner campaign around Moscow offering an "anti-crisis deal" on Lada Kalina cars. The discount of 15,000 rubles ($544) lasts through the end of the year. The ads have appeared on television and the Internet since September and resulted in a rise in sales in October, the AvtoVAZ press office said an e-mailed statement. When the Lada ad campaign appeared on television in September, the text didn't mention the crisis but simply promoted an "autumn discount," said Anton Charkin, group communications director at Video International, which places ads on channels including Channel One and Rossia television. Major fast food and consumer brands generally aren't doing crisis campaigns, Shifrin said. "What I've seen are small, localized types of business using the word crisis as a way to push seasonal promotions," he said. Ads for winter clothing chain Mir Kozhi and Mekha show a blonde woman modeling a fur hat with ear muffs and a fur coat. The slogan is "Anti-Crisis Warming." The ad has run in Sem Dnei magazine, on Kommersant's web site and on the Odnoklassniki social networking site over the last month, company spokeswoman Yana Getman said. "I wouldn't call [using the word crisis] a fashion, but at the moment, it's the most current topic." A beer restaurant in central Moscow, Bakhus, advertises an "anti-crisis lunch deal" with a poster on the door. The discount began earlier this month, said a staff member who only gave her name as Tatyana. "It will continue at least until New Year's, and then we'll see," she said. Another company hopes to profit from the national taste for strong drink in times of trouble and has registered the brand Anti-crisis Vodka. The drink will go on sale around Russia next month and will cost around 150 rubles ($5) per bottle, putting it firmly in the budget sector, a spokeswoman for the alcohol distribution company Recolte said. Natalya Ignatyeva, head of communications at Nielsen Russia, said she had noticed ads using the crisis theme. "Of course, all the negative news immediately attracts attention, but there is also a risk here that the brand and the company will be associated with the crisis," she warned. Shifrin of The Creative Factory also warned against overusing the word "crisis" in ads. "I think consumers will get cynical," he said. "It seems like opportunism." Nevertheless, some brands are dipping into the pessimistic mood for humorous promotions. In parodic ads for the U.S. animated series "The Simpsons," cartoon network 2x2 does a low-budget remake of the show's famous opening sequence using Lego figures moved around by hand. "It's the reaction of our television channel to the financial crisis," network spokeswoman Maria Teleshyova said. "There's a bit of joke in every joke." In October, the upscale Wall Street Bar held a crisis-themed Halloween party with fake ruble notes covering the floor, barmen dressed as bankers and waiters dressed as vagrants. The bar also held a party called an "Evening of Confidence" in September. "It looks like we will have to do another party, because nothing is changing and the crisis is still going on," said Seyran Gevorkyan, a partner in the bar. Trendy nightclub The Most, owned by billionaire Alexander Mamut, held a crisis party in September with the theme, "In loving memory of Lehman Brothers," art director Rita Mitrofanova said. "We were the first to do this in an ironic kind of way," Mitrofanova said. "I think there were people from the stock exchange, banking people, it was a bit different from the normal clubbing people." The club had a centerpiece made of dollar bills and a "stabilization fund" stage with 20 beautiful girls. "It was interesting, but now everyone's doing it," Mitrofanova said, adding that the club isn't planning a repeat event. "At the moment, the crisis is just at the beginning. I think when the real troubles start, it won't be funny any more."

IT Minds Expecting The Next E-Boom

Antoine Poissonnier, a recent graduate of Harvard Business School, says he's not deterred by the economic crisis. In mid-December, he will launch a new Russian online luxury-goods retailer, CollectionPrivee. Ilya Shirokov, now 27, started social networking site Moikrug.ru in 2005 before selling it to Yandex, the country's largest search portal, in March of last year. Now, he's working on an MBA at Stanford, after which he plans to return to Moscow to start a Russian "analogue" of a popular English-language site — but don't expect him to say which one. "There are some business models that I think would work perfectly here," Shirokov said. Poissonnier and Shirokov are part of a small but growing group readying for what they say will be the country's next big boom. Internet use is growing rapidly, and as traditional retailers struggle to expand and cover rising property costs, electronic commerce is ready to step in with lower prices and added convenience. "The beauty of the Russian online industry is that it is purely in the growth stage," said Vincent Huttner, director of strategy at Publicis Modem, a digital ad agency. "It's much more exciting for young, energetic people like myself to work in such a market." There are about 30 million monthly Internet users in Russia, according to Publicis Modem, a figure growing by 25 percent annually. But the obstacles to e-commerce in Russia are still many. New and established online retailers have to deal with low Internet penetration outside of Moscow, counterfeit goods and a notoriously slow postal service. Even more problematic, most people do not have credit cards, and there are fewer still who would use them to make a purchase online. "People don't trust the security [of credit cards]," Huttner said. "The issue of hacking is real." Nonetheless, online ventures — from luxury-goods retailers to book and music stores — say well-established Internet business models in the West are ready to take off in Russia. The country's largest retail site is Ozon.ru, which started in 1998 as a site for fantasy and sci-fi lovers to discuss their favorite books and where to buy them. Now, it looks more like a modest Amazon.com, primarily offering books, music, movies and software. "We are still in a position where there is a certain organic growth to our business," said Bernard Lukey, Ozon.ru's chief executive. The company's revenue growth will be about 60 percent in 2008, he said, and its growth in the regions will be about 90 percent. It has 250,000 unique hits per day and an average of 5,000 orders. The trick, Lukey says, is processing the purchases quickly — otherwise customers will shop offline. "Timing is the issue with e-commerce," he said. "Nobody will wait one or two or three weeks." Eighty percent of Ozon.ru's customers pay cash on delivery, creating a "big, big complexity" for the company outside its core business. Reluctantly, the site decided to start its own courier service, which now serves other companies as well. "We didn't want to be in this business," Lukey said, referring to the delivery service. "We had to find this business." Now, Ozon.ru can claim that if you order a book in Moscow by 3 p.m. that it has in stock at its warehouse in Tver, it will be delivered the next day for 200 rubles ($7). Customers can also pick up their orders at one of three locations in Moscow for less. Because his company is able to sell books and other items cheaper than offline competitors, Lukey said, he expects Ozon.ru's market share to grow as consumers become more price-conscious. Poissonnier, who first came to Russia in 2002 to set up the accounting departments and control logistics for Auchan supermarkets, is counting on a similar appeal. CollectionPrivee will sell surplus, high-end products at a discount to invited members of an online community — a strategy not unlike that of Gilt.com. The company is targeting young, upper middle-class professionals who recognize designer brands but might not have time or money to shop retail. The web site's first flash sale — where a limited amount of inventory will be completely sold out — will feature products from French jeweller Les Perles de Noa. Items normally sold for between $7,000 to $65,000 will be offered on the web site for $2,000 to $17,000. Customers may pay in cash and expect delivery in Moscow in five hours. Poissonnier expects his business to catch on in Moscow before spreading rapidly to the regions, where demand is growing for luxury goods faster than boutiques can open. "They're really eager to consume when they can," he said. "But in times of crisis, they pay more attention to price."