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Bye Bye Babushkas (Int'l Edition)


International -- European Business: Russia

Bye-Bye Babushkas (int'l edition)

Freight companies are driving small importers off the streets

Svetlana Goncharova is a survivor. The 52-year-old widow has earned $1,000 to $2,000 a month as a "shuttle trader" over the past five years. She buys sweatpants and sweaters in Turkey every few months, then carts them back to Moscow to sell in open-air markets. Goncharova and other shuttle traders accounted for 20% of the 66 million Russian workforce in 1996, according to the Russian Academy of Sciences.

Now, shuttle traders are a dying breed. Those who have been successful are opening new businesses with the profits they made from trading. Others, like Goncharova, are being thwarted by a customs crackdown, new taxes and regulations, and a weak ruble. And the quality of locally-made goods now rivals or surpasses the imported Turkish stuff. So, however painful the decline in business is for traders, the phenomenon is also a measure of Russia's economic development. "There has been a big shift by Russian consumers to domestically made goods after the devaluation," says Al Breach, an economist with Goldman Sachs in Moscow. "It's undoubtedly a healthy development."

Sophisticated, efficient shipping companies--about a dozen of them--are replacing the small shuttle traders. In the face of this competition, goods imported by shuttle traders into Russia plunged from $20 billion in 1996 to $8.7 billion last year, official statistics indicate.

The biggest winners in this shakeout are sleek companies such as East Line, Russia's No. 1 air-freight company. At first, the seven-year-old business transported goods merely from airport to airport. Now, it provides door-to-door service from eight countries worldwide for customers such as international air-freight carrier Chapman Freeborn Airmarketing. "The market is more developed, the money is longer-term, and companies work on contracts instead of just stuffing a suitcase," says Leonard Blinov, head of marketing at East Line.

Shuttle traders, though disappearing, have left their mark on the nation's memory. For much of the '90s, ordinary Russians journeyed to China, Turkey, Poland, and the United Arab Emirates, buying up everything from chewing gum to panty hose. They lugged hundred-pound bags through grimy airports and train stations. Consumers got cheap goods--some counterfeit, admittedly--that Russian industry couldn't supply. "They compensated for shortages, and at first there were tremendous profits," says V.M. Titov, a sociologist at the Russian Academy of Sciences."SO CIVILIZED." No longer. When Russia devalued the ruble in 1998, it dealt a blow to all importers. Goncharova was stuck with a load of jeans no one could afford after their price quadrupled in rubles. She sold at a loss and now goes on buying trips only sporadically. At $600 a month, her income from trading is less than a third of her take in 1996. She has a second job cleaning a department store and, to make ends meet, is looking to get out of the business altogether. "Now it's all so civilized," sniffs Goncharova.

Indeed, localities are keeping traders on an ever-shorter leash. Last year, Moscow imposed a 5% sales tax, and many other cities followed suit. Moscow also requires vendors to install cash registers and is shutting down outdoor markets. Of Moscow's 224 bazaars, the city closed 27 last year and plans to shutter 43 more over the next two years. The intent is to move the markets into heated--but more expensive--facilities.

Some traders are putting the past behind them. Oleg Ryabov, a 39-year old Muscovite, started his business with profits he earned by peddling women's underwear bought in Poland. Now, he runs a small sewing company with 50 workers in northern Moscow. He and his wife, Tanya, established it last year with help from friends and $50,000 of the couple's savings. While his annual sales of blouses, at $200,000, don't compare with the $800,000 he used to gross, Ryabov predicts the figure will grow to $500,000 next year.

In Russia's tough business environment, shuttle traders are not the only ones under pressure. East Line was raided Sept. 19 by federal agents for allegedly smuggling contraband goods from China into Russia--charges that East Line managers deny. For the new shipping companies as well as the shuttle traders, the challenge is to keep adapting to an ever-changing economy.By Sabrina Tavernise in MoscowReturn to top


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