Bookstore of the Respublika network. Photo: Yandex.Maps
More than a modern bookstore
Vadim Dymov’s company was a chain of bookstores, but not such as, for example, “Chitai-Gorod” or “Book Labyrinth”. Respublika stores are very different from classic bookstores. Their format is a semblance of a creative space with the most fashionable novelties in the book industry, exclusive and unusual stationery, as well as household items and entertainment (board and computer games, accessories, decorative items, etc.).
Gradually, the network has established itself as a space for creative people who could not only buy books there, but also satisfy their broad creative interests. The books, the sales of which were guided by in the Republic, were also with a claim to exclusivity – in the Republic they sell mainly business and fiction literature from leading domestic and Western book houses with a relatively high price tag. A number of shops also had open spaces where visitors could go about their business, and lectures and meetings with famous people were held.
The concept of the store and the products sold determined the target customers. For purchases, they went to the Republic not for ordinary school textbooks, mass fiction or scientific literature and ordinary office supplies: the emphasis was entirely on niche and expensive goods. The Republic’s business was predominantly offline, with a focus on non-book products.
“I wanted to realize the idea of a modern, trendy fun place. I thought about money last ”- this is how Vadim Dymov, the founder of the Dymov group of the same name and the Respublika chain of stores, described his attitude to business.
A financially difficult idea
The negative consequences of this idea began to be publicly reflected back in 2019, when an unprofitable business demanded personnel decisions. Then in the summer, a change of management took place in the network: Mikhail Akhmedov, who had previously been a top manager in several Russian retailers, came to the position of the company’s general director. The purpose of Akhmedov’s arrival was to develop a trading network and, most importantly, to improve financial results.
Since 2015 (excluding 2016), the company has been receiving a loss from main sales, which has been increasing every year. The main part of the proceeds was “eaten up” by the commercial expenses of the Republic, which were at the level of 50% of the proceeds. The company received its final net profit mainly from other income (retrodiscounts and bonuses from suppliers, as well as other undisclosed income).
Data of reports on financial results of LLC Respublika. Compiled on the basis of the company’s financial statements
The unprofitableness of the company is also confirmed by the figures of net capital, which over the past five years was also in the negative zone or close to it. On the asset side, inventories have been around 2/3 of the balance sheet over the five years. On the liabilities side, the company’s accounts payable accounted for about half of all revenues and was also comparable to its balance sheet.
Balance sheet data of OOO Respublika. Compiled on the basis of the company’s financial statements
However, the situation did not improve in 2019: the problem of network growth was solved by Akhmedov by further aggravating the problems of the financial situation. The company approached the beginning of the pandemic with even bigger problems, already with working capital. According to one of the sources in the publishing market, back in January the company was unable to pay off publishers in the amount of about 150 million rubles.
During the pandemic, when all of the company’s stores were closed, the company found itself in an even more difficult situation. In early summer, the company announced the closure of some stores, in particular, the complete withdrawal of the company from the St. Petersburg market. Online sales channels, which are not very developed in the Republic, could not compensate for the complete lack of offline revenue.
The difficult situation with debt obligations could be postponed until the restrictions were lifted in order to focus on the new realities of demand and gradually get out of the crisis. However, in the summer of 2020, traffic in stores did not exceed 60% of the 2019 level, and in the fall it began to fall to 50%. Of course, there could be no talk of a positive solution to the debt problem in this situation.
In October, the company filed eight bankruptcy suits in the amount of 15 million rubles, and at the end of the month the company itself filed a claim for bankruptcy. The further development of the Republic brand now depends on whether creditors want to recognize the trademark as part of the company’s property and use it further.
The business model, which was created as the realization of its founder’s dream of a modern “more than” bookstore, was financially very far from reality. Making a company profitable when there is not very high demand for this type of goods and books with disproportionately high costs of doing business is a difficult task, even in a normal economy. The pandemic simply became the final point, when financial problems could no longer be solved otherwise than through bankruptcy. Weak sales strategy and management mistakes in business management played a role.
There are lessons to be learned from this story that will be useful to other non-food retailers as well.
- Business diversification is very important, and not only as insurance against major external shocks. It enables the company to manage its business more flexibly in the medium term, providing a basis for future restructuring of its core business.
- At the same time, the generation of profit in the core business is the main indicator of the company’s viability. The unprofitable main business of the Republic became a problem that could not be solved quickly and painlessly.
- The high business costs must be justified by the growth in business performance. Otherwise, they not only do not bring an increase in profitability, but also lead to its loss.
Finally, I would like to highlight the traditional conclusion for the history of bankruptcies and defaults – critical problems in a company become substitutes much earlier than a real declaration of problems.
Author: Ilya Grigoriev