It’s a brown, honeycombed foam cylinder, about six inches tall, that looks like something from a toddler’s play pen. But when Sandi Češko holds an ‘Octaspring’ – so named for its eight sides – it is with the reverence a collector reserves for fine China.
“A spring out of foam! The first time in history!” he says, eyes wide. “A mattress made from Octaspring is lighter, more adjustable and uses 30 per cent less material.”
More to the point, for Češko – founder and owner of Studio Moderna, a Slovenia-headquartered, multi-channel retailer with operations in 21 countries in central and eastern Europe – Octaspring mattresses will help propel his sales drive into western European, North America and other global markets.
Studio Moderna has sold memory-form mattresses for a decade under its Dormeo brand, in its core CEE markets and beyond. This year it launched Octaspring products in north America, through direct retail channels, and in the UK through Dreams, one of the UK’s biggest bed retailers.
The reception, says the company, has been “overwhelming”, with the UK operation, which started with a 175-store test run, quickly expanding to 250 outlets. Sales to western markets are expected to be less than €10m this year, but that figure is expected to “at least triple” next year on the back of aggressive marketing currently underway, he says.
Studio Moderna is a multinational concern with 5,500 employees and revenues of €400m, selling online, through tele-sales and at 210 of its own shops and 30 franchise outlets across the CEE and Russia, with plans to open 10 more of its own shops this year. In addition to Dormeo, its own brands – manufactured under contract but with Studio Moderna leading product development – include Delimano kitchenware, Wellneo food supplements and Bigfish folding bicycles, plus the product that started it all, Kosmodisk belts for relief of back pain.
How has it got there from its origins in a garage in tiny Slovenia?
“I was in computer trading and training. A friend of mine introduced me to a belt for back pain. I thought he was joking, how could a piece of plastic ease back pain?”
Sceptical, he gave the Kosmodisk, as its Serbian creator had dubbed the belt, to some friends who suffered from lumbago. To his amazement, each one reported an improvement.
“This was really a big shock for me. So I said to my wife, maybe we should start some side business, and maybe she could manage it. I was, after all, selling computers – this then seemed the important business,” he says.
Selling through advertisements, scrupulously fulfilling orders, using cash on delivery mail services and re-imbursing any dissatisfied customers (even though the terms of sale did not require this), Kosmodisk’s revenues steadily grew.
By 1996, Studio Moderna had adopted US tele-shopping techniques and began developing its product range, moving into “typical tele-shopping items” such as cosmetics, fitness and kitchenware.
A year later, at the invitation of Central European Media Enterprises, Ronald Lauder’s television network, Češko expanded into Slovakia and then Poland. The cross-border march had begun.
Many local competitors failed in terms of customer service standards, while international rivals typically struggled with outsourced service providers, such as call-centres, which also raised issues in terms of service standards, says Češko.
Seeing the pitfalls, Studio Moderna invested for the long term, building up its own service infrastructure to ensure good service quality.
By 2005, with the Slovenian company present across most of the former communist bloc including Russia, Češko opted for a new development strategy.
“The next phase was not to expand into new territories, but to leverage the platform we had built into two strategic areas. One was to build our own brands, and secondly, to create a multi-channel distribution system, that is not to be only a tele-shopping and internet company, but to start opening our own retails shops, to sell to other retailers, and [expand] tele-marketing using our data base,” he says.
But to build such a multi-channel system would take capital, and investors were initially sceptical.
“Everybody said this is blah blah, how could you do it? Nobody in the world is doing this yet, even in the States. Companies which have two channels, typical classical retail plus internet?”
Češko began to expand regardless. Today, market specialists say this multi-channel approach is the way ahead.
“What the consumer wants is both bricks and mortar stores and the opportunity to shop on-line, switching according to their circumstances. I believe the strongest long term option would be a player who can offer both,” says Paul Foley, a Vienna-based retail consultant focusing on central and eastern Europe.
Studio Moderna has already invested to establish its own logistics and retail outlets across its core region. Can it successfully leverage western bricks and mortar outlets to expand into the west, and even Japan?
Private equity investors clearly think so. General Atlantic, Templeton, JH Partners and Insight Venture Partners have all taken undisclosed stakes in Studio Moderna in recent years.
John Bernstein, head of General Atlantic Europe and a board member at Studio Moderna, told beyondbrics: “Despite the difficult economic environment, the company has continued to grow in line with our expectations. [Even] more important than short-term performance is the great progress Sandi’s team is making in further developing its operations, systems and talent to facilitate sustainable growth for many years to come.”
For Foley, Studio Moderna’s efforts to penetrate western markets “make absolute sense”.
“I think they have great chances, because they have a method, a system, and they are beginning to build up some reasonably famous brands. Studio Moderna’s business model actually suits western Europe more than it does CEE, where they’ve had to overcome issues such as logistics and payments methods. So I’m not surprised he’s looking west, I think it’s quite a sensible strategy from his point of view,” he says.
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