Nenad Bakić on Saving Varteks from Clinical Death

By 10 January 2020

Nenad Bakić talked to Branko Podgornik from Novi list about the year he spent as the President of the board of Varteks.

Nenad Bakić, a prominent Croatian entrepreneur, probably had one of the hardest years of his life in 2019. He was the President of the board of Varteks, and has dedicated almost all of his energy to saving the company from failing, and it seems that he's succeeded. In the last couple of days of 2019, he was showered with truthful and touching messages of gratitude on social media. In them, the workers of the company with the hundred years of tradition thanked him for his hard work and efforts, as he invested his money and business know-how to save more than a thousand jobs, made sure people were paid on time and brought some new zest into a company that was sliding into the abyss.

He's been known as an innovative entrepreneur for two decades now, he started the "Moj Posao" website, started and financed the Institute for Youth Innovation in Croatia, and is a donator and investor in many companies in Croatia. For his extraordinary undertaking from last year in Varteks, he has received many thanks and acknowledgements, not just from the workers and citizens of Varaždin, but also from the members of the business community and the wider public. The company, in which Bakić managed to buy a 47 percent share, is gradually recovering from the years marked by acquired losses. The metamorphosis of the company is still not complete, but the worst is behind it.

After the successful operation of salvaging Varteks, Bakić has withdrawn from the position of the President of the board, which he held for a year. He was replaced by Tomislav Babić, who was the member of the board of the company. Bakić returns to the Supervisory Board, where he will continue to work to revitalise one of the highest quality textile companies in Croatia and the region and allow it to grow back to its old glory.

Bakić says that his entry into the company was an accident.

''Some ten years ago, as Varteks was going through one of many crises, then President of the board approached me and suggested I invested in their stocks. He was afraid of aggressive buyers, and he wanted some investment into the company.

As an investor, I followed the underrated stocks, which might have a very bad or a very good perspective. If your portfolio is wide enough, your good investments can cover some losses. That's how I became a small shareholder in Varteks. First I had 6 percent, then I kept buying on the market and got to 17 percent two years ago. It wasn't a significant investment for me, as the price of the stock was very low.''

Asked if he knew the situation within the company, Bakić replies that he wasn't interested in that then. The company was doing poorly, and in time he realised that over the last 13 years, the company's losses amounted to over 800 million kuna. In former Yugoslavia, Varteks was one of the biggest real estate owners, they had over 200 stores. In order to cover those losses, the real estate was constantly being sold.

In 2017, an English investment fund wanted to invest in Varteks and turn things around and make their business healthy again. In the last moment, that fund withdrew, and the Board repeated their call for investment, saying that they'd need between 20 and 40 million kuna in order to stabilise the company. Bakić decided to invest 20 million kuna at that point, as he was already an important minority shareholder, but he had a responsibility toward the company, to help turn it around.

After the investment, he saw that the situation was much worse than what the management was saying. It was almost destroyed, it had no capital, and no merchandise on the shelves. The fashion component, important for this industry, was neglected, as was the selling network. Work done for foreign partners led to losses. Right after he invested, it turned out that there wasn't even enough money to pay the workers and suppliers.  The banks wouldn't give Varteks any more loans, so Bakić had to provide his own money – during 2018 he loaned the company more than 30 million kuna on the short term, without interest. He still hopes he'll be able to have that money repaid someday.

Bakić says that they tried to work with the former management, but that wasn't working out very well, and the company was sinking even further. In early 2019, he personally took the position of the President of the board for a year, to try to turn things around. The difficult situation continued, as Varteks needed more capital, and the banks still refused to give loans. He wanted Varteks to start producing more, and not just work as subcontractors for foreign companies. But, the company needed more money to start that cycle, so he loaned more of his money in 2019, around 15 million kuna. The good news is that the latest loan was provided six months ago.

The situation with textile companies in Europe was very difficult, and some of the European companies managed to profit from the European Union funds. However, in the 2014-2020 period, those funds were unavailable to Varteks, as only small and medium companies in Croatia could be financed from the European Union funds. Bakić says that it was a wrong decision by the government because the big companies carry the progress, which then, in turn, helps the SMEs. That's how the Bulgarian, Polish or Portuguese textile industries managed to restore their capacities, but Croatia was not able to.

He recognised the tradition of a hundred years in Varteks and the quality of their products. However, over the past decade, even that tradition of quality had been slipping away – their fashion was not as attractive, and the quality of the materials was reduced.

International brands took the lead on the Croatian market, beating Varteks in sales up to ten times. Bakić's strategy was to radically increase the quality of the material for the clothes, bring back the top materials by Italian producers to create recognisable products, such as suits. The second prong of the strategy was to re-establish their fashion, and they hired Martina Vrdoljak to be their creative director. Fashion is changing with increasing speed, as the producers now need to create nine or ten collections per year. To be able to provide that rapid-fire exchange of collections, much of the production is returning to Europe, mostly to Turkey. They want to become a part of that trend.

They also keep providing clothes for the Croatian army and police, and many other clients. It's a marginally profitable operation, and isn't creating problems, so they haven't focused much on that.

The results of all those efforts are amazing. Their retail income will be increased by between 50 and 70 per cent, and the company will have positive results overall. All of that happened in the year when the company was basically clinically dead, of which Bakić was not aware when he became the CEO. Bakić is, however, still not ready to celebrate victory, as there are numerous risks ahead. He adds, though, that if this transformation of Varteks succeeds, if it's possible to save a company from such an uncompetitive industry that was on the brink of failure, then it proves that almost anything is possible in Croatia.

Bakić says that they're extremely active online, especially on social networks. They also opened an online store, and during November, 7 percent of Varteks' sales came through that webshop. That's a remarkable result. Many Croatian celebrities promoted their suits in their campaign "Imperfect men in perfect suits" etc.

They also bought an old bus and turned it into a fashion store, and it has been travelling around smaller towns in Croatia for nine months now. It's possible to try something on in the bus and buy it using your phone, and the size and colour you want will arrive to your address in just a couple of days. That's how they reach buyers in rural Croatia, and also promote the use of the internet for shopping. All of that shows that they've managed to restore faith in the Varteks brand. If this trend continues, they'll be back in the safe zone in 2020.

They've also changed many things within the company, as they hired some new managers and changed the managerial culture which then brought new, positive energy. Workers in the textile industry are never paid well enough; however, but in Varteks the employees don't work for minimum wage, as they get some bonuses. Those bonuses were increased in the last year, and the employees didn't even demand that raise. Bakić wants the employees of Varteks to work for more than minimum wage, as soon as that is possible and the company is profitable. He promised the workers that not one kuna of dividend will be given to the shareholders, as long as their salaries are that low.


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