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The first independent Louis Vuitton store in Russia opened on Stoleshnikov Lane in Moscow in 2003, part of a retail boom that marked the decades following the end of the Soviet Union. Last week, LVMH, Vuitton’s parent company, was at the forefront again, this time announcing that it was closing its doors there indefinitely amid the devastating invasion of Ukraine.
As the geopolitical and economic fallout of the conflict reverberates around the world, the luxury industry is just beginning to grapple with its response to a sector that accounts for a fraction of global sales but has taken years to cultivate. .
“Most luxury companies have already ‘suspended’ all operations in Russia, as it would be next to impossible to maintain a flow of goods and funds,” said Luca Solca, senior analyst at research firm AllianceBernstein, in a note. this week, adding that purchases from Russia and Ukraine account for about two to four percent of the market. Brands asked for comment declined to elaborate beyond their initial publicly released statements.
At the consumer level, billionaires – some with ties to President Vladimir Putin’s Kremlin – fled to financial havens while average luxury shoppers were in a rush to buy designer handbags and items ahead of the official store closings. In the day between the Vuitton announcement and the store closing, shoppers tried on their potential purchases next to the shelves instead of wasting time waiting for a cloakroom, observed Alina Lysova, founder of Moscow boutique Vintage Voyage. Trousers and jackets stacked in piles on display counters. High Street staples like Zara and H&M, which have also gone out of business, have also seen heavy foot traffic.
“We don’t know what to expect [next]added Lysova. Some customers treated the latest shopping sprees as investments as the value of the Russian ruble plummeted. Bulgari, for example, saw its sales soar in the first days after the deployment of sanctions in the United States and Europe, Bloomberg reported.
The list of companies that have suspended operations in Russia has only grown in recent weeks. Hermès and LVMH were the first to emerge, followed by Chanel, Kering, Prada, Richemont and others, joining other major Western consumer brands like Apple, Nike and McDonald’s. E-commerce players like Net-a-Porter and MyTheresa have also stopped shipping. All expressed support for Ukraine in one form or another and expressed concern for their Russian employees. LVMH said its employees in the region are eligible for assistance from its Heart Fund, central to its social responsibility efforts; the group has also donated 5 million euros to the International Committee of the Red Cross, according to a message it published on LinkedIn. Chanel also made a similar donation to humanitarian organizations, writing in her own LinkedIn post, “Chanel stands firmly for peace and all those affected by the war in Ukraine.”
When Fast Retailing president Tadashi Yanai said the Japanese juggernaut would stay in Russia, explaining that brands like Uniqlo shouldn’t make political comments, the company was widely criticized and a “boycott Uniqlo” hashtag went up. spread online. He has since reversed Classes.
“It’s really easy to post things on social media, you know, ‘We stick to filling in the blanks’ – but what are you going to do about it? And that’s what people are looking for now” , said the brand consultant. Carineh Martin. “Luxury shopping in particular is driven by emotions, so brands need to behave in ways that elicit positive emotions in existing and potential customers.”
The actions of the industry are not limited to respecting the social values of its clientele. It is far from possible to operate in Russia at the moment, and the logistics of getting stocks and cash in and out will only become more difficult. Several Russian banks have been banned from Quick, the payment network that allows money to travel internationally, and FedEx and UPS have halted shipments. Visa and Mastercard have also suspended service in the country.
And yet, these decisions were not without complications. While Russia represents part of the sector, these measures threaten to undo decades of investment in the market. In recent years, designer brands catered to wealthy Russians who traveled less due to the pandemic and earlier sanctions by opening stores or expanding their retail accounts, expecting to have physical operations in the region for the foreseeable future.
Today, one of the likely consequences of the wave of closures is a stimulation of the gray market or the resale market, exactly the type of behavior that the fashion industry had tried to undermine by expanding in the global scale and standardizing its prices. Affluent Russians are expected to do more of their high-end shopping abroad in destinations like Dubai that are still open to them, according to multiple sources with knowledge of the market. And others are likely to call on their personal shopper to access the latest collections.
It remains to be seen how much this cohort has left to splurge on status looks and leather goods. As Solca pointed out in its note, overall consumer confidence could be severely undermined in 2022 due to continued sanctions against Russia, soaring energy costs and inflation. “This is particularly relevant for Russian high net worth individuals whose assets are being seized across the world,” he wrote. The UK on Thursday froze the assets of Roman Abramovich, the owner of football club Chelsea FC whose net worth is estimated to be north of $12 billion.
At the end of last week, the Bloomberg Billionaires Index released a telling figure: A third of the wealth belonging to Russia’s top 100 billionaires has been wiped out by economic sanctions, and many are scrambling to sell off assets ahead of further restrictions.
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