What Is Happening In Russia's Luxury Market?
While Russian economy still struggles, who shops for luxury in Russia?
Hello readers!
Welcome to Fashion Business Reader, where each week I cover in-depth a selected topic in Fashion & Luxury industry.
This week I would like to give you a closer look at a largely misunderstood Russian luxury fashion sector, which has been ignored by big fashion media for a while.
The State of Russian Fashion Market
According to the latest The State of Fashion 2020 report from McKinsley & Co and BoF:
Russia’s clothing market is worth close to $30 billion annually and is the ninth largest in the world, according to data from McKinsey FashionScope.
Despite recent economic slowdown in the country, the luxury market is showing new signs of stabilisation. In 2018, LVMH, Dior and Tiffany all reported the highest sales in the region since 2014.
An increasingly budget-conscious middle class is creating new opportunities for price competitive players. Russians have embraced e-commerce too, which grew at an impressive 26 percent year-on-year in the first half of 2019.
Indeed, based on the data reported by leading Russian business media RBC, the following were the financial results of the Russian subsidiaries of the largest luxury fashion brands in 2018:
Chanel (Chanel LLC) — 13.732 billion rubles in 2018 compared to 13.441 billion rubles in 2017;
Louis Vuitton (Louis Vuitton Vostok LLC) — 9.36 billion rubles in 2018 compared to 7.027 billion rubles in 2017;
Christian Dior (Christian Dior Couture Stoleshnikov LLC) — 2.428 billion rubles in 2018 compared to 1.493 billion rubles in 2017;
Prada (Prada Rus LLC) — 2.904 billion rubles in 2018 compared to 2.49 billion rubles in 2017;
Bogner (Bogner Eastern Europe LLC) — 1.242 billion rubles in 2018 compared to 1.08 billion rubles in 2017;
Hugo Boss (Hugo Boss Rus LLC) — 3.835 billion rubles in 2018 compared to 3.1 billion rubles in 2017;
Tiffany & Co. (Tiffany Russia LLC) — 2.312 billion rubles in 2018 compared to 1.46 billion rubles in 2017;
Bvlgari (Bulgari Russia LLC) — 1.025 billion rubles in 2018 compared to 0.609 billion rubles in 2017;
Burberry (Burberry Retail LLC) — 0.902 billion rubles in 2018 compared to 0.788 billion rubles in 2017;
Fendi (Fendi Ru LLC) — 0.832 billion rubles in 2018 compared to 0.565 billion rubles in 2017.
In 2018, according to Fashion Consulting Group, several factors were associated with an increase in luxury sales: over 3 million foreign visitors during FIFA World Cup in Russia, the introduction of a tax refund system and a weakened ruble resulting in more Russian luxury consumers spending at home.
However, while the upper segment remains relatively stable, Fashion Consulting Group estimates the middle segment to shrink further. As for the lower-priced segment, its share has increased to 65%, compared to 51% four years ago. As reported by FashionUnited, Russian fashion market turnover decreased by 3-4 percent in 2019, to 2.26-2.29 trillion rubles. No wonder, Aliexpress became one of the leading fashion shopping platforms for bargain hunting Russian shoppers.
Speaking of online shopping, earlier in 2019, Louis Vuitton launched its official online store in Russia. Together with Armani, Balenciaga, Brunello Cucinelli, Burberry, Dolce & Gabbana, Loro Piana, Moncler and Valentino, it is one of the few high-end fashion brands, which have introduced online shopping for Russian clients, who usually shop for luxury products in physical stores or multi-brand e-retailers.
Recommended reading: Russian fashion follows inward turn of politics
Hope for China?
The number of Chinese tourists coming to Russia have been growing at significant rates in the last years, mostly to Moscow and Saint Petersburg:
The depreciating rouble has made Russia more attractive for fashion-seeking tourists, particularly from China. Chinese tourists were up almost 25 percent in the first half of 2019 from the previous year and collectively, are expected to spend more than $1.1 billion in total this year. […]
Luxury retailers have moved to ensure their prices are competitive with those in Europe; in 2015, Tsum became the first retailer in Russia to actively move towards matching prices in Milan and Paris. It also offered Chinese-speaking sales staff and Chinese language in-store signage and in 2018, became the first major Russian retailer to accept WeChat Pay, making transactions even easier for Chinese customers.
Related reading: Lessons from Russia: What Luxury Retailers Can Learn From Moscow on Wooing the Chinese Traveler
Under normal circumstances, the week of the Lunar New Year would have been an occasion for Chinese tourists to shop at luxury retailers globally. As the famous saying goes “Don't put all your eggs in one basket”, for many luxury players, the current coronavirus outbreak will test their over-dependence on China and Chinese consumers.
Thanks for reading,
Asia Assanbayeva
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