Russian market for fashion and luxury – in an environment of recession, the rich keep on splurging
It’s been a tough couple of years for the Russian market as a whole, but apparently outputs are ambiguous and one cannot predict what the future will bring and how financial markets will react.
Low oil prices and sanctions after the annexation of Crimea, have hit the country hard. The European Union and the United States aimed at Russian’s financial, defense and energy sectors. Those sanctions had a multiplier effect on the losses that the decreased global oil prices caused to the Russian Federation. As accounted for the previous year, oil and gas were making up to 40% of total government revenue. Not only that, the local currency has been depreciating against the dollar, which further led to sharp decrease in imported goods, because the weak ruble makes imports much more expensive. Import bans imposed from the West, disabled Russia from getting a wide range of food and agricultural products. The shortage of supply further increased prices and contributed for the increased impoverishment of the population.
After all of that being said, one can guess that the fashion and luxury markets are not in their boom in Russia, and that a long period of plateau is up to come. Why I said plateau and not downturn? Well no matter the crisis, the country still has its high net worth individuals, who are not willing to sacrifice their lifestyles no matter what. Fashion retailers communicate that expensive bags with visible brand signs are still in the list of best sellers. Conspicuous consumers are pushing the sector forward and appears that this makes it really stress resistant. Luxury consumers say that they won’t leave their favorite brands behind and if worse comes to worst, they would rather decrease the number of items they buy. What changed though is the fact that instead of shopping abroad, Russians prefer to spend their money for luxury on a domestic ground. International shopping trips have decreased and an extensive demand has been registered in Saint Petersburg and Moscow. Moreover there is an observed interest from Asian tourists to Russia. This has highly influenced the retail for luxury and the Russian tourism department has registered an increase of 30% of the Chinese customers, compared to 2014. Significant push might have resulted from the fact that the yuan increased its value with respect to the ruble. Also having in mind that luxury items have up to 70 percent higher value in China than in Europe and therefore Russia as well, Chinese customers choose the closer destination. For that main reason the biggest department store in Moscow TSUM, has started a fierce marketing strategy, targeting the Chinese, who usually enjoy spending time shopping in metropolitan cities like Milan, London and Paris. “Milan prices on everything” is aiming at attracting not only Chinese but also Russians.
Other big department stores are signaling new openings of luxury fashion boutiques and brands like Bulgari, Jimmy Choo and Hermes, which are enriching their selling space. Others like Prada have registered a major growth in revenues.
Another interesting point appears to be the fact that the big luxury spenders are focusing more and more on one-of-a-kind items, which can be perceived as a long term investments. High net worth individuals are eager to purchase the absolute luxury goods more than ever. These could include items such as bags made of rare leather, timepieces, jewelry, automobiles, etc.
So here we can evoke the famous aphorism:” The rich get richer and the poor get poorer”. No matter what happens in terms of welfare allocation, the most affected will remain the middle and lower class of consumers, who are rarely opting for luxury goods. The target for luxury in Russia is hardly ever going to be affected and the market is only going to benefit from that.