Russian luxury market, so what?

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Since the ex-URSS disappeared, many brands, especially the luxury ones have been trying hard to make good money in Russia. Luxury shopping malls in Moscow were built and many companies installed subsidiaries there. But are they really making money? What is the luxury industry status today?

luxury in Russia

photo: russiablog.org

Until the global financial crisis of 2009, the luxury market in Russia was at the level of 8 billion dollars. Since the crisis stroke hardly many of the industrial countries, this figure was basically cut by half.

Since the Perestroika, luxury brands developed and built local owned-flagship stores in Moscow and St. Petersbourg. With the crisis many shops closed down and most of the brands regrouped in one or 2 big department stores.

Gum Department Store

2 main luxury import distributors have shared the internal market since the 90’s: Mercury and Bosco di Ciliegi. They also control TSUM and GUM department stores respectively.

TSUM department store

But the real problem is how to keep russians to buy locally instead of traveling abroad for shopping?

One of the clues is about global recognition. In deed, russian shoppers want to have the same products than anybody else in the world. No local adaptations. That’s why they travel. They want to be sure they buy the real products as in the international magazines. Some limited editions might be possible if there is a specific theme but it will not be the foundation of an annual business.

russian luxury girls

photo: prlog.org

Another interesting point is the lack of qualitative distribution throughout the country and the growing wealth of certain interior cities. According to russian administration, cities like Sochi will grow in the luxury consumption by 8%, Kaliningrad by 4,5% and cities like Krasnodar, Permj or Kazan by 5%. Although Russians are not really fans of “Russian themed products”, Brands will need to adapt to regional tastes as there might be differences with the big cities.

russian luxury taste

photo: ITAR-TASS / Mikhail Fomichev

Around 80% of total luxury shopping done in Russia takes place in Moscow and this rule applies since 2005.

With its 140 million of inhabitants, Russia has 291,000 millionnaires or multimillionaires. These people groups a purchase power of almost 3 billion dollars. So yes, Russia is interesting for luxury brands.

Russia is the 4th biggest country for luxury, just behind the USA, Japan and China. Until the financial crisis, the russian market grew by 10% each year and experts say that the luxury growth in Russia will be between 5% to 10% until 2015.

Global luxury brands have suffered alot with the crisis in Europe and in the US, so investments have been reduced and they focused on the new eldorados like China or India. So it is hard to be everywhere and Russia was probably left over.

Another point is about importation. Try to import a luxury product in Russia. It is very complicate, takes time, have its own risks and you need to work with efficient local agents who trust the markets. This does not motivates brands that prefer to go to Middle East, Latin America or Singapore.

But when you talk with the successful brands who have their own flagship stores in Russia, they all grow this year by 40% in terms of sales. So the efforts are worth it. Louis Vuitton, Prada, Fendi, Dior, Chanel or Hermès have an interesting growth with their flagship stores, even brands like Valentino, installed inside Tsum in Moscow also get to harvest the fruit of their efforts.

LouisVuitton flagship store russia

Last but not least, Brands should invest more in local events, inviting the best customers. Most of the time russian customers have the feeling that luxury brands invest less in the customer relationship there than in Europe. So the feeling of lack of consideration also make them travel in order to aspire to get a little piece of the glittering life.

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Info sourced at http://luxurysociety.com and study, CPP-Luxury.com and Wikipedia. All images are copyrighted with no reproduction rights available.

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