The interview with Mikhail Merkulov, CEO of «Arricano Real Estate Plc» on the innovative business model in the development segment, courage in breaking down stereotypes and the importance of leadership.
There are not so many companies in the retail and development market today that managed not only to keep their positions in the difficult time for Ukraine, but also to increase the efficiency of the business, improve its performance and become a leader. «Arricano Real Estate Plc» CEO Mikhail Merkulov is an example to follow for many people when it comes to lead the company into
leaders, to introduce new technologies in both management and operational work. His business is everything for him, he is entirely devoted to work, but at the same time personal development is an integral part of the progress. The conversation with Mikhail is so bright emotionally, full of facts and interesting thoughts and all this gives incredible power. After such a conversation you want to improve and grow.
LDaily: Mikhail, tell us about what was the year 2016 for «Arricano Real Estate Plc» and what are the plans for 2017?
M. Merkulov: «Arricano Real Estate Plc» is not only a market leader, but also the largest foreign investor of shopping centers in Ukraine, the only public company in Ukraine, whose shares are quoted on the London Stock Exchange. In addition, despite the protracted crisis in the country,Arricano shows double-digit growth in profits. And, of course, this makes us the industry leaders in the country.
And who are such leaders? These are companies whose representatives participate in international business panels on the development of commercial real estate. And for such events the first persons and agro-companies, IT, and the banking sphere are necessarily invited.
For example, in March, an international forum was held in London, where was considered proposals for cooperation from investment-attractive territories, presented the achievements of companies, and also had the opportunity to receive financial support from investors. And we also participated there.
LDaily: Mikhail, tell us about the unique management strategy, thanks to which Arricano, led by you, holds leadership for so long?
M. Merkulov: The secret we have is our leaders, who always learn and move forward, never stopping. Of course, there is another extremely important point — a team that gets high from its work. And to collect these people, believe me, was worth a lot of work. Since 2015, we have completely changed the composition of IT teams, leasing and marketing. In general, over 2 years, we have changed 80 people. For today the team is smaller than it was in 2015, but it is ten times more effective. Each of them understands the needs of the market today and its needs in a few years, thanks to which we achieve high goals.
In addition, everyone whom we take into the team, I will interview personally, testing everyone on QV. This is a kind of verification, as far as a person is a fighter, whether it fits into the corporate culture, whether the eye shines.
After working in «Arricano Real Estate Plc» for one week, I sent e-mails to all employees asking them to send me suggestions on how to improve the company and the management. And I promised for every decision taken to pay UAH 100. Thus, 240 proposals were received, 120 accepted and 61 completed or almost completed. Everyone got the opportunity to participate in the improvement of the company’s work. Every year we try to identify some priority development lines for business in general and for the team. These lines subsequently affect many management decisions and even the business model. We try to make shopping centers, which are in the management of the company Arricano, the most comfortable social space. Without a global ideology and strategy, involving all the team members, this is impossible. So, 2015 was our year of innovation, 2016 — the year of service, 2017 — the year of Customer Experience Management.
Managing impressions is a worldwide trend, which we have no right to miss. Every detail is important, due to which we understand better, why the customer has come to this shopping center, for this product and service, and why he does not go to another one. Now, for example, we conduct an in-depth study of the behavior of visitors, and not what they say, but how they behave. About the findings, we tend to share with partners — tenants and other market participants, because this is also one of the features of the company — openness and effective collaboration.
LDaily: Is the financial motivation for your team the most important?
M. Merkulov: Motivation for us is constant development and dynamics. I want to draw your attention to the fact that over the past 2 years we managed to collect such specialists in the team, who were lured to other teams for salaries twice as much. But they continue to work on large and interesting projects in the Arricano team.
LDaily: Is this means that you have some competence that allows you to keep people, giving them the opportunity to self-actualize exactly under your management?
M. Merkulov: I have 20 years of management experience. And I’m not just conducting an interview, taking people to work, I have to use HR-technologies, which I constantly improve. And I do not take people into the company who do not speak English. Still, innovation in the English-speaking segment, in social media. For example, some time ago we found that a corporate site is not such a dynamic tool as social networks, which are incredibly popular today. Therefore, in a greater degree we are there. We have an internal group where employees post what they want, and much in English. And every post is an innovation in the work of commercial realities or interesting solutions in related industries. The fact is that our business itself is conservative and has a certain verge. My task is not to allow the moment when we will come to this verge. And we are working on it.
LDaily: Let’s imagine that one of your team, occupying one of the top positions, told you about the intention to leave. What will be your reaction?
M. Merkulov: I’m Always happy with this kind of steps. Almost. If a person goes further, then there is an opportunity to grow further. Of course, I pay special attention to the fact that I work with those who are really a steep specialist, aimed at growth. The rest could not resist. And I, by the way, always aim at growth and development, love experiments as well (smiles).
LDaily: What was reason for leaving those who could not resist? Was it too much work?
M. Merkulov: No, it’s more the matter of the mismatch of views on the further development of the company and people in it. Let me remind you that
when I came to «Arricano Real Estate Plc» at the end of 2014, we had 144 people, now — 96. And we are simply incredibly productive, we already have a corporate culture, values, mutual views
LDaily: Have you ever regretted the decision to return to Ukraine?
M. Merkulov: On the third day after coming to Arricano, I began to panic because of the Ukrainian business reality and the complexity of the work… All of this just went off scale. But now everyone sees the results, and believe me, it will be even better (smiling). And by the way, I returned to Ukraine, because I like to live here. The comfort of this life is much higher than in Austria and France. Everything is much more natural here.
LDaily: Mikhail, how do you assess the Ukrainian investment attractiveness?
M. Merkulov: I have to go abroad very often. For example, at a conference in Poland, where the representatives of largest business of the Central and Eastern Europe region such as developers, banks, investors are present I’m talking about Ukraine as an mentally understandable for Poles country where everyone can be effective. In particular, I tell you that you can work and earn money here. I also communicate with foreign bankers who invest in the development of real estate in Poland and ask the question: «When will you come to Ukraine?» And they reply that there are a lot of risks in Ukraine and, most importantly, there is no fundamental nature – protection of private property.
LDaily: Are you an affordable manager?
M. Merkulov: If you have in mind the issue of subordination I do not attach much importance to this. Although. When I came here everyone talked to each other on behalf of the patronymic, and now everyone talks as he likes. For example, a person holding a lower position can complain personally to me and, believe me, I always react. I also hold annual meetings with the staff without their managers, which last about 4 hours. And I’ve got different questions starting with the salary and ending with the introduction of innovations.
LDaily: What kind of innovations came to «Arricano Real Estate Plc» with your arrival?
M. Merkulov: I came from quite a different business, and it was very difficult for me. But I began to study this sphere: first I observed, wrote down, went into the operational work and as a result we made many cardinal changes in the company’s activity. For example, we changed our relations with tenants, moving from breaking copies to rental rates to working together on turnover. The basic relations between the lessee and the lessor are based on a fixed rental rate, which has a limit. And since the economic situation in the country is not the most favorable, the turnover falls due to the decreased sales, and rental rates remain at the same level. We changed the approach, thus breaking the established stereotype. Our model, which is based on two elements: one — a fixed rate, the second — a rate depending on your turnover, that is, the lessee pays a certain percentage of turnover. At the same time, we forget about the fix, but we always remember about the growing turnover. I want to emphasize that we completely rebuilt the work and sent it to the help of tenants.
LDaily: How easy tenants or partners agreed to change their strategy?
M. Merkulov: There is no unequivocal answer for your question. Very different. At first they do not understand why we need this and insist on one thing — a reduction in the rental rate. I start explaining why such position is wrong, and propose to do business better for everyone to let earn everyone. This approach is constructive and ideal. «Arricano Real Estate Plc» , by the way, is the first company that cares about the fate of its tenants. And I draw your attention this is the opinion of the tenants. And since the beginning of last year we started to conduct free sales trainings, teaching staff of tenants. And do not hesitate — we take the best speakers. And the hall is always full.
LDaily: Have the preferences of customers changed during a protracted crisis?
M. Merkulov: Of course, they have changed. The average segment passed positions in terms of volume, and the middle class simply fell through. It takes time to restore it. On the category of economy class buyers, for example, the tariffs on utility services were very influenced, as a result they began to buy even less. In general, the discount format began to be in demand. If we talk about luxury segments, they practically did not suffer. In any case, what matters today is what retail sells and how it does. In other words, the experience economy works, but it is important not only to correctly recognize its key features in order to apply this tool and its derivatives as correctly as possible, but also the right target audience. Ukrainian designers only increase their turnover, opening monobrand designer stores. I am sure that in the near future many European brands with goods will come to us at affordable prices.
LDaily: What is the potential of retail in Ukraine?
M. Merkulov: The country’s potential is colossal, even despite the crisis. The country consumes a lot, and will consume even more. And I want to tell you that any high-quality and affordable brand in Ukraine will definitely be in demand much more than niche. Brands-leaders in all industries will develop according to their laws: after all, the leader always acts unexpectedly and unordinary, asymmetrically with the assumptions of competitors and anticipating the expectations of customers. That’s why the leaders are successful.