From kitchen sewing to market leaders in Ukraine: story of Yaroslav home textiles chain

Yaroslav is one of the few light industry enterprises in Ukraine with its own textile production. It is also the only one in Ukraine that has a full cycle of terry towel production: from the production of terry cloth.

Today, the concern includes four factories and a network of more than 80 stores. In early February, Danil Getmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, announced on his Telegram channel that Yaroslav had become a leader in its industry in terms of taxes paid.

The firm’s founder, Oleksandr Barsuk, told LIGA.net how he managed to conquer the Ukrainian light industry market and what difficulties he faced.

Sewing production in a kitchen

The first products of the future major enterprise were oilcloth aprons and lingerie that the Barsuks sewed in their kitchen. They sold them in the Kyiv Central Universal Department Store (TSUM) and gave them to stores for sale. Their products were in demand, and over time, Barsuk hired additional seamstresses and then opened his own sewing shop.

"It turned out that we had sewn that set incorrectly as it was not the right size at all. The duvet cover could not be put on because the blanket simply did not fit. Then we figured out the dimensions and sewing technology. We started sewing correctly," the company founder recalls. In a year, Oleksandr Barsuk took over the entire Kyiv bedding market, offering almost half the price for his products. At a time when other manufacturers had a selling price of 37 hryvnias per set of linen, he sold to stores for 19.5 hryvnias at a cost of 19 hryvnias. The entrepreneur earned 50 kopecks per set. "I didn't just collapse the market, I killed it. Although, in fact, I made it different. I started selling more than all of them combined. And in a year I became a major bedding manufacturer, although no one knew me before. I didn't know back then that making little money did not pay off. Nowadays we won't work where there is no profit. But I didn't know at the time. And we offered all the stores this price. As a result, they abandoned their previous suppliers and bought bedding solely from us," says the businessman. Oleksandr Barsuk registered his private enterprise Yaroslav in 1995 and opened his own outlet in a department store. At the same time, he got the first cash register in the department store, which, according to him, everyone came to look as if it were a novelty.

"I knew from the very beginning that I would have a large production. Even though I had nothing behind me at the time. I borrowed $1,000 at 5% per month and started the company. When I went to register it in 1995, I was asked: "Are you a small private enterprise?" I said: "No, I don't want a small business." At that time, there was no such thing as a private enterprise, but I was registered," the founder recalls.

Expanding production and own production

The Barsuks got their first large production facility in the late 1990s. At first, they rented a room for a sewing shop in one of the premises of the National Academy of Sciences of Ukraine in Kyiv. In 1999, they bought it out. The company's office is also located there.

With the advent of the factories, the company's product range included rugs, blankets, mattresses, work and home clothes, and terry towels.

"I got our factories quite easily. No one would believe now that some factories came into my possession because the staff asked for this. This was the case with the first factory in Dymer (Promin factory in Kyiv Oblast – ed.) in the early 2000s. The director came to me and said: ‘Take us, we have no work’. There was a small team left there – about 15 people worked there. They just signed over their shares to me, and that was it," the businessman said, describing the circumstances.

Barsuk had to buy the Bohuslav Cloth Factory in Kyiv Oblast, which cost him about 350,000 hryvnias. He also paid money for the Stebliv Cotton Spinning and Weaving Factory, but he believes that it cost him nothing.

The factory had a stock of blankets, and the entrepreneur managed to sell them at a profit that exceeded the cost of the factory. In 2008, a powerful earthquake hit China, so the blankets went there.

"The director of the Stebliv factory also came to me himself, although I had no plans to buy anything at the time. We had already agreed on a deal, but then the staff backed out. Then we agreed that he would bring his employees on an excursion to Bohuslav. It was about 40 kilometers away. There, the factory was already operating at full capacity, and a free canteen was organized for people. The Stebliv workers arrived and saw that all the machines were working, but they had work at best one or two days a week. It was also cold because the premises were not heated. After that, they agreed to sell me their shares. A week later, I sold the blankets and got my money back," Barsuk recalls.

The entrepreneur rebuilt the Krolevets Garment Factory from scratch on the site of a former weaving factory, which was left in ruins. The renovated enterprise was opened in 2018. The factory produces women's shirts, pajamas, and workwear. During the quarantine due to the coronavirus pandemic, it produced masks.

The only terry production line in Ukraine

The Bohuslav factory is the only one in Ukraine that has a full production cycle for terry towels – from weaving terry cloth to the finished product. Although, as the entrepreneur recalls, there used to be a lot of them in the country. The largest was the Kherson Cotton Products Plant, and there were also factories in Crimea, Chernivtsi, Kyiv, and Kyiv Oblast – more than 20 terry towel factories in total.

"Why did they disappear? The state's policy was not very far-sighted. If our government had at least taken a strategic approach to this... Let's take Belarus, they have a full range of raw materials for the light industry. They produce synthetic fibers, yarn, and then fabrics themselves. They have one of the best factories in Europe that produces linen fabric (Orsha Linen Mill – ed.). Before the war, there was a queue to buy it. When there is a raw material base in the country, hundreds of processing enterprises can operate around it," the entrepreneur assures.

For the construction of such a processing plant, state aid is needed. In particular, it could provide an interest-free loan in hryvnia for a long term, 10-15 years. It could also finance the construction of waste treatment facilities for the enterprise.

"Don't buy us looms, give the company the opportunity to operate legally without hiding its wastewater, for example. And in the last two years, the government has given out a lot of money for entrepreneurship. How many production facilities have been built in the country with it?" reflects Barsuk.

Organizing textile production today is expensive, the entrepreneur says. One machine costs up to 100,000 euros. Dyeing equipment costs from 200,000 to 400,000 euros. In terms of one person, $200,000-300,000 are needed to start textile production. However, one person can operate from 4 to 10 machines, depending on its specifics.

Clothing production, as opposed to textile production, is way cheaper. It takes about $2,000-3,000 to start it up.

"Textile equipment is very expensive. It is very technologically difficult and complex. Today, if we help, those who sew will not need to be helped, and the sewing business will not disappear," says the entrepreneur.

He cites the initiative to provide installment payments of VAT on imports of equipment imported for own use as an example of assistance. The Cabinet of Ministers adopted the relevant decision in February 2018.

"This was my proposal to the former head of government (at that time, Volodymyr Groysman was heading the government – ed.) We did not use it because it does not save us money. It is interesting for those who live from paycheck to paycheck. And if you have money in your account, you don't need it. But for other businesses, it was important," explains the entrepreneur.

Light industry in the shadows

According to the entrepreneur, the light industry in Ukraine has always been in the shadows. At different times, the percentage of those who worked legally and illegally simply fluctuated.

"Shadow production used to take up to 50%. Today it is slightly less, because there were a lot of orders from the Ministry of Defense, and to get them, some manufacturers started working legally. But now there is still a lot of shadow production. The products at the markets are all from shadow companies. A shop employing 100 people can work entirely in the shadows. In Kharkiv, one such shop existed for quite a long time. No one could get in as the doors were always locked. Products were shipped to markets, and cash flowed everywhere. Such shops are very well developed in Khmelnytskyi, Kharkiv, and Odesa," the businessman comments on the specifics of the industry.

The entrepreneur believes that the government should make it more interesting for underground workshops to operate legally. He considers the government's move in 2016, when the tax burden on wages was reduced, to be positive. Back then, the government reduced the unified social contribution rate from 34.7% to the current 22%. The entrepreneur says that taxes need to be reduced even more.

"The tax should be tied to the size of the salary: the higher the salary, the lower the tax. I understand that this is not habitually done. But small salaries should be subject to high taxes. Then entrepreneurs will not be interested in paying it and employees will not be interested in receiving it. Because many people today are on the minimum wage. But we all realize that they actually get more through unofficial payments," says Barsuk.

The entrepreneur believes that another positive decision for the development of the light industry is the zero income tax rate, which was introduced in 2011. However, it was scrapped in 2015.

"Back then, light industry and hotels enjoyed this benefit. We did not pay income tax. To be honest, these industries hadn't paid it before. But when it was officially allowed to do so, they began to show growth. It's a pity that the exemption didn't last long, it was beneficial," the entrepreneur argues.

As for profitability in his industry, the businessman notes that it depends on how sales are organized. If properly organized, the margin of products is 25%-30%.

Consequences of the war

Russian aggression against Ukraine has affected Yaroslav in several ways. Until 2014, Yaroslav operated in the Russian market. According to the entrepreneur, there was a time when a large truck with goods was sent there every day. Now it's been 10 years since this market has been closed to them.

During the full-scale invasion, one of the group's factories in Dymer came under occupation, and the Russians looted it: they took vehicles and computers. The total losses amounted to about 3,000,000 hryvnias ($91,906). But, according to the entrepreneur, this is a very small amount. The factory had stocks of expensive satin fabric worth several million hryvnias, which the occupiers did not even touch.

Until April 2022, the chain's stores did not work either. Those that were open sold food. In particular, flour, pasta from the Kyiv Pasta Factory, which the entrepreneur bought before the full-scale invasion.

"The business dipped, but we still had stocks. During this time, people were not paid salaries, except for the security guards who worked at the factories. In April, we started to resume work, and in May we were already fully operational," Barsuk recalls.

In total, the concern employs a little over 1,000 people at all its plants and stores. Some management specialists had to be laid off. There are no problems with seamstresses, the entrepreneur says, as there are enough of them. But now the company is experiencing a shortage of some highly specialized personnel.

"Two cycles of specialists were taken away from our terry factory. The first were very professional specialists, machine operators, who need to be trained for years, and the chief engineer as well. We recruited and trained them again, and they were taken away again. We are now in the third cycle. But while we used to not even let such workers in the doorway, now we have to hire them because we need at least someone," says Barsuk.

Most of Yaroslav's subdivisions work for the Ukrainian market. It is the easiest and most understandable for the entrepreneur. They also export their products to some European countries.

"We don't work much in Europe now. We ship to Lithuania and Georgia. But it's irregular and small batches. We used to send five trucks of rugs to Norway every month. To sell them in their country, we sewed on labels with a final cost of $100. Our selling price was $4.5 per piece. And I asked them to increase the price by 25 cents, or better yet, by 50 cents, because I didn't have enough to achieve profitability. They did not agree, and we stopped working with them. We sewed disposable bedding for the French. We shipped quite a lot – a truck every week. But Ukraine is not quite suitable for this. We need a raw material base, which we don't have," says the businessman.

As for his plans for 2024, the entrepreneur summarizes them briefly: to survive and grow.