"We have come out of the crisis far stronger"

. (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 10 iulie 2014

"We have come out of the crisis far stronger"

Interview with Mr. Alexandru Rizea, the owner of the Lemet plant and of the LEM'S furniture stores brand

An increasing focus on premium and luxury products

Reporter: Dear Mr. Alexandru Rizea, you have said that the customers' constant pressure on traders to cut prices is harmful. Please discuss this aspect in more detail.

Alexandru Rizea: In this context, I was referring to our struggle with the other competitors to offer the lowest price, through the discounts being offered.

Customers constantly expect discount campaigns from us, but we can't do that all the time.

We want to have a close relationship with our clients, we've even said that we await their opinion about our products, the improvements we could make and what promotions they would want.

For us, competition has always been a beneficial thing, we've never avoided having competitors and I am convinced that they feel the same way about it. It would be much better if we could compete on what is better and more beautiful, than competing on cutting prices.

Cutting prices isn't everything, it's better if you come up with something extra.

The pressure of offering discount campaigns is caused by the situation in our country, rather than by the competition.

Reporter: Discount campaigns have been beneficial for increasing sales.

Alexandru Rizea: It's true. They did help our sales a lot, when it comes to volumes.

Reporter: These discount campaigns actually represent a self-fulfilling prophecy, because it is the companies themselves that have accustomed their clients to promotions.

Alexandru Rizea: Any habit has a cure. It is true that people can even get accustomed with the bad, and even more so with the good ...

Our customers understand very well what I am saying. From a certain point on, people avoid discounts because they no longer trust the quality of products that have been discounted.

Reporter: What is your opinion on the increase of the sales this year? What were the engines of growth behind it?

Alexandru Rizea: There are three strategic directions which Lemet has focused on in the last years and which have contributed to the annual increase of the turnover: investments in technology, which have implicitly led to the creation of new products, the ongoing development of new furniture programs, the constantly growing portfolio, as well as the development of the new LEM's network of stores through new units placed in malls.

Also, the Easter holidays, the discount campaigns and the interest-free financing solutions have stimulated consumption in the first part of the year. We have loyal customers whose numbers have increased from one year to the next. In the first quarter of 2014, according to the internal marketing studies, 38% of our buyers have come back to buying Lemet products.

Reporter: What is your estimated turnover for this year?

Alexandru Rizea: Last year, we had a turnover of 231 million lei, up 10% over 2012. For 2014, we expect the growth rate we had last year and in the first quarter of 2014, when we had a turnover of 40.18 million lei, up 10 percent over the same period of last year, will remain the same.

Reporter: What investment plans do you have for this year and what is the allocated budget for that purpose?

Alexandru Rizea: The business strategy for 2014 continues to rely on expanding the store network, but we will focus more on launching new products.

Last year, we opened 12 LEM'S stores. Thus, we have very few stores where our coverage is not the way we would like it to be.

For these cities, we are already in talks with potential partners. In the coming two years, we intend to have a better coverage of Bucharest, where we currently have 5 stores.

Reporter: What cities are targeted for the opening of new LEM'S stores in 2014?

Alexandru Rizea: The strategy for the massive expansion that we have had in the last few years has reached maturity. Which means that there are fewer cities where we don't have a coverage that is in line with the demand for furniture. Like I have already told you, we predominantly aim to open stores in Bucharest, including in its northern area.

Reporter: Which store is doing the best?

Alexandru Rizea: The stores of Bucharest have the best sales, followed by Constanţa and Ploieşti. This year, we want to develop the services segment in our stores.

Reporter: What products do you plan to launch on the market?

Alexandru Rizea: In the beginning of the year we have already launched two - a bedroom and a living-room. They are products from the economy class, for which we have already seen orders far exceeding our expectations.

By the end of the year, we will develop the upholstery segment.

Reporter: Do you intend to export Lemet products?

Alexandru Rizea: We have succeeded in significantly growing from one year to the next solely based on the domestic sales, which means that there is demand for domestic furniture in Romania as well.

LEM'S products are designed and produced following thorough research of the Romanian consumer and the Romanian households. Following our studies, we have found that, once the products are tailored to the needs and purchasing power of the Romanian consumer, demand exists.

So far, we haven't focused on exports, but in the future we don't rule out this option. We went along with the idea that the closer our stores are to the Romanian borders, the better the chances of people from Hungary or Bulgaria buying our products as well. However, we are considering exporting to those countries as well.

Reporter: How many employees do you have?

Alexandru Rizea: The Lemet plant, as well as the LEM'S network have over 1,350 employees. The turnover rate is less than 5%.

The most important thing is that the employees' income has remained stable. Furthermore, we have increased salaries. I think that we've only had two or three months when we didn't give the employees their meal tickets. And that is considering that we offer our employees a warm meal at the plant, as well as meal tickets.

Black remains the customers' favorite color

Reporter: How has the furniture market evolved last year and what is its outlook for 2014?

Alexandru Rizea: In the first ten months of the year, the furniture market stood at approximately 2.4 billion lei, down 1.7% compared to the similar period of 2012. Most likely, the market will not see any significant changes in 2014 either. The most optimistic scenario would be for it to see an increase of 2-3 percent.

Reporter: What do Romanian customers want from their furniture?

Alexandru Rizea: Over the last two years, our development policy was focused on deluxe product ranges - Premium, Premium Plus and Lux. Since this segment is not very heavily consolidated, I can tell you that it had the biggest growth recently.

Our goal is to find out what our customers want from us.

The employees have constantly been asking questions in the store, not necessarily in the form of questionnaires, in order to glean answers from people.

Currently, our target is to offer services to our clients. Now, when they buy a product from us, we offer them assembly, transportation, after-sale services. For example, in Bucharest, the number of customers seeking such services has increased significantly.

We are currently working on increasing our vehicle fleet and the number of teams of workers.

Reporter: What are this year's trends, both when it comes to models and to colors and the raw materials used?

Alexandru Rizea: Furniture has long now stopped serving just functional purposes, people increasingly buy based on its design.

The main defining elements of the furniture of 2014 are modularity, multiple functions and color. Romanians want furniture that can be tailored to their needs and to the space available in their households, furniture that can integrate with their existing furniture and with the decorative items in the room.

As for colors, black remains one of the favorite colors, firstly due to the elegance it gives to the entire home, but there is an increasing number of requests for furniture with bright colors.

When it comes to kitchens, violet or pink are the most sought after colors, but on the other hand, when it comes to living room and bedroom furniture, wenge, (ed. note: a very dark and hard tropical timber, from the tree species Millettia laurentii), cream or black remain the traditionally favored colors for which there is no substitute. As to what concerns the materials used, people want them to be easy to carry and to maintain.

In our network of stores we have seen an increased orientation towards premium and deluxe products.

The Gazelle kitchen furniture has become the bestseller of our network, thanks to the more than 5,000 units that Romanians bought this year. The average price of a Gazelle kitchen is more than 5,000 lei.

The New York living room, a product of the deluxe category, launched at the end of last year, is another product that was successful. Since the beginning of the year, over 4,000 living rooms have been sold, at an average price of 3,500 lei. When we start thinking about designing a new product, the first thing we keep in mind is the fact that the product must adapt to our customers' homes, because the opposite will never happen.

Reporter: Where do Lemet specialists get their inspiration in designing their products?

Alexandru Rizea: We have a complex design team, which we have helped participate in every important international fairs. The most important fairs are held in Köln and in Milan.

When it comes to furniture, there are indeed designers who set the tone, the general direction, but in general, a wardrobe is still a wardrobe and a bed is still a bed.

Reporter: How have consumers educated themselves, in these years of crisis?

Alexandru Rizea: The economic crisis has had a fundamental impact on the behavior of consumers all over the world and of every industry. First of all, after the crisis, consumers have stopped making impulse purchases, and have become far more thrifty. The main factors that determine the purchase are the need and the price/quality ratio.

Reporter: How much does the furniture for a kitchen, a living room, and a bedroom made by Lemet cost?

Alexandru Rizea: If we are talking about the median range, which is more economical and affordable, the average price of a kitchen is approximately 1,200 lei, and the average price for a bedroom or a living room can go to 2,000 lei. As for the premium and deluxe ranges, the average price of a kitchen is 5,000 lei, for a living room is 3,500 lei, and for a premium bedroom it reaches approximately 4,000 lei.

Because LEM'S products are modular, and customers can very specifically choose those furniture bodies which they need, they are not mass-built products, the price varies according to the needs of each customer.

Reporter: Are you a member of any association in the industry ?

Alexandru Rizea: I recently received a visit from the main representatives of the Association of Romanian Furniture Makers. Mrs. Aurica Sereny is its president and recently, I was elected as one of the four vice-presidents.

I participated in a meeting where the offers for the project of Romania's booth for the coming years were discussed.

Over the last few years, Lemet has not participated in any fairs, not even in the BIFE International Furniture Fair which is held in Bucharest.

Since it is an international fair and up until now we didn't pay any attention to exports, we haven't been too interested in participating in this kind of activities. Moreover, in Romania we have approximately 80 such exhibitions, through our shops.

Reporter: Why did you access European grants?

Alexandru Rizea: We have built two production areas so we can have a line for the customization of our products. We have drawn up a project for accessing European funds for this line and for outfitting the other two lines with two machines each that we have already assembled, which also increase the speed of the lines, and make them more flexible. The project has amounted to almost 6 million Euros.

"In order to grow during the crisis, we have shifted our focus to customers that are above the median segment"

Reporter: How did you succeed in growing, especially during the crisis period?

Alexandru Rizea: In order to grow and expand, we have moved on to the customers who are above the median segment. What we sell depends on the market.

Reporter: What other investments do you want to make here and in the stores?

Alexandru Rizea: The investment in stores remains an ongoing activity. We are prepared for new opportunities.

As for the plant, in 2013 we didn't do anything, but I think that this year we will launch a beautiful project. There are a few technologies that we lack which prevent us from diversifying our products, I am referring to materials, paint, colors, textures, processing. If we succeeded in building a structure where to bring those technologies to, then we would get an additional edge over out competition.

Reporter: How would you describe your relationship with Kaufland?

Alexandru Rizea: We have a good relationship with Intercora, the developer of Kaufland. In this period of crisis, we have been very fair with our partners, we have paid all of our debts on time, and as a result the developers have realized that we are reliable. In the interim, we have become an anchor in malls.

Reporter: Do you sell products for the hotel industry as well?

Alexandru Rizea: So far, we have done this sporadically. But now, we have an interesting project in that regard. We are preparing a quick program for this segment. We don't every type of furniture that hotels need, because if we did, clients could come to our stores and buy a large number of products at a discounted price.

We have hired a man to work on this, he has sent in letters of intent, we have already received answers. I can tell you that that is not an activity that has been fully launched, but we are making preparations for that purpose. The project will probably be completed this year.

Reporter: How do you get along with banks?

Alexandru Rizea: We have a very good relationship with all the suppliers and with all of our customers. With banks, we currently have a relationship just how we've wanted it to be since back in 1991, when we took out the first loan - to be on equal footing with them.

Reporter: Has anything changed in their behavior?

Alexandru Rizea: A lot. We are now equals, in other words the bank is selling and we buy if we need to buy and if we like what is being offered. There are banks that want us to be their customers.

On the side of cooperating on the sale of our products through "interest-free" installments, we also have a very good relationship with banks. Essentially, last year, there were thousands of people who bought Lemet products using the card with interest free-payments.

Reporter: How does the bank make its money?

Alexandru Rizea: From us. But customers have their cards which allow them to manage their budget very easily, if they buy furniture worth 3,000 lei and they have ten installments, that means they only pay 300 lei a month. Thus, they can afford better furniture, when they want it. This is a service that is extremely helpful to the clients.

Reporter: What are the problems that you have encountered lately?

Alexandru Rizea: We were unable to push forward with momentum, to grow. This is the thing that I am not happy with. The fact that until 2005, whenever I set an objective for the plots of land around the factory I would build within a year made me think that I would progress at a certain pace. And that hasn't happened anymore We are below the ideal level of development.

For us, the crisis has been an unpleasant, but very useful experience. We have exited this crisis far more powerful, better prepared and organized. We have reduced the delivery delays in our network, even though the network has expanded and the number of products has grown.

I am not complaining, but I think that if this crisis hadn't existed, we would have far better placed in terms of the development of our plant and the diversification of our products. After this crisis, we handle some things far better than we did before. After the crisis began, we drew up models, we diversified greatly, we can make custom designs, we are very flexible.

Had we went at the same pace as before the crisis, we wouldn't be doing those things.

Reporter: What is your opinion on the relationship with the authorities?

Alexandru Rizea: It's perfect.

Reporter: What would you want the authorities to do for the entrepreneurs?

Alexandru Rizea: I've found out very late what being an entrepreneur means. Not when I made my company in 1991. I never expected anything from the authorities. At times I've said to myself: they should just leave us alone. We don't want them to help us, but we don't want them to cause us problems, either.

Reporter: Did the VAT increase give you trouble?

Alexandru Rizea: I couldn't tell you. I lived the time when the 19% VAT was first introduced. I worked in a workshop located inside a school and we sold our products through a store in Ploieşti. And a man who was far older than I am now, when the VAT was first raised to 19% told me: "Relax, Mr. Rizea, you'll be fine. They'll add this tax, but people will get used to it..."

Now the VAT has been increased to 24%. It gave us trouble for a few days - for a month. But eventually, people got used to it.

It's true that we wished the VAT were lower, but we also want to have good hospitals and highways. There are other states which have an even higher VAT.

But I wouldn't want to sound like we can't wait to see tax increases.

Reporter: What is your opinion on the competition in the furniture industry in Romania?

Alexandru Rizea: In general, in our industry competitors play fair.

Reporter: Thank you!

The Lemet plant of Câmpina was created in 1991, and its production facilities currently cover over 35,000 square meters. The annual processing capacity of the Lemet furniture factory is approximately 3,500,000 processed PAL.

Lemet has developed its LEM'S brand of stores to sell its product. The LEM'S network currently has the greatest national coverage, over 65,000 square meters of retail areas in all the counties of Romania all set up at the same standard. The Lemet factory as well as the LEM'S network employ over 1,350 employees.

LEM'S now has over 130 stores, of which more than 100 are LEM'S franchises.

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