Business Booms for Fur Coat Clan

They are a clan. Their business is not registered and they've never paid any taxes. The recent economic crisis only boosted their income.

No matter how it sounds, the Bogdanovs are no mafia. The 40 families of this southern Russian clan are simple, hard-working people. Though clan members have been educated in many different fields, everyone works in the fur coat business, which has proved to be lucrative even in the warm climate of their native Stavropol region.

Five years ago, Vladimir Bogdanov, 30, joined the family business, founded in the late 1980s by his five aunts, all professional tailors. By then, the fur goods industry that thrived in Soviet times had fallen in ruins.

Private coat manufacturing sprang up in the unemployment-stricken region with the influx of Armenian refugees, fleeing ethnic conflicts in the nearby republics of the Caucasus in the early 1990s. The Armenians settled in the Stavropol and Krasnodar regions and raised nutrias, small rodents resembling otters, for fur and meat.

For Bogdanov, trained as a systems specialist, the switch from computers to overcoats wasn't as abrupt as it seems. He has been tailoring his own clothes since the age of 14. He learned how to sew to make himself jeans, a much-desired and hard-to-obtain Western item back then.

Most of the clan live near the Caucasus spa resort of Pyatigorsk, which has recently turned into the center of the Russian fur industry. The clan holds a good share of the market, but each family works separately. To spread out the business, Bogdanov, his wife, Tatyana, and their 3-year-old son, Yefim, moved to nearby Kislovodsk.

"We are in competition with each other. It takes smarts to avoid interfering with relatives and not lose business myself," says Bogdanov, a shy and quiet man until he starts talking about his business.

The family has succeeded in staying on good terms and "scaring bandits away," says Bogdanov who carries a gun to protect himself from possible racketeers.

The Bogdanovs employ three tailors and work at home, making a dozen coats weekly and charging 1,000 rubles for work on each coat. Tatyana, a trained clothing designer, develops fashions based on the dealers' tips of what is selling best. Wholesale prices range from 3,000 to 7,000 rubles per coat. The dealers add at least another thousand for themselves. In remote, cold regions of Siberia the original price may double, but it drops by half by the end of the sales season.

"The competition is fierce," Bogdanov says. "I'm trying to carve my place under the sun by producing quality stuff.

"It's a lucrative but complicated business," he adds. "You have to be an expert in furs, know how to cut and sew and have an economist's and a psychologist's skills in order to know whom to trust."

Bogdanov's business is not registered and he argues that that's crucial to its survival. If he had to pay taxes, he says, he would see no profit at all. He says that people in the industry have an unspoken agreement with the local tax authorities.

"The tax police could get easily get us, but it would be to no one's advantage. They capitalize on the marketplace and the whole production chain is paying here and there," he says. According to Bogdanov, the Pyatigorsk wholesale fur market is controlled by Cossacks. They patrol it in their uniforms, collect fees and settle conflicts if they erupt.

Continually investing the profits into business development and construction of his new house, Bogdanov says he didn't lose any money in the recent banking system collapse. In fact, he unexpectedly capitalized on it. Prices for imported furs from Greece, Argentina and China soared after the August 1998 ruble crash, making local manufacturers nearly monopolists. A good half of the fur coats sold at Moscow's Luzhniki market originate from Pyatigorsk.

"The crisis gave us a huge advantage," Bogdanov says.

"When there are no imported goods, Russian money stays in the country. The main concern is if the customers have enough money to buy local production."