Russia´s luxury market recovers slowly

It is still early to say that luxury brands are experiencing a healthy boost on the Russian market, even though there are some signs of improvement. Fendi has recently opened a new boutique on Stoleshnikov Lane. Rolex has opened a monobrand boutique. The famous Italian brand Bulgari belonging to the LVMH luxury group has opened its first directly operated boutique in Moscow and announced the construction of a capital city-based boutique hotel on Bolshaya Nikitskaya Street.

At the same time, there are many examples when luxury brands that were planning to start their direct operations in Russia had to postpone or change their initial plans. Zilli, for instance, intended to enter the Russian market independently, but, according to persons close to the brand, changed its mind in the end and decided to open a boutique in TSUM Mall, going into partnership with Mercury Group. This is most typical of independent luxury market players who are not part of the leading conglomerates like LVMH, Richmond or Kering. On the other hand, Fendi and Bulgari receive strong support from LVMH, using the Group’s significant resources and the vast experience it has gained in starting the direct operations of its other brands in Russia and the CIS.

Rolex, being one of the most truly respected watch brands in the world and especially in Russia, enjoys high demand for its timepieces in spite of the crisis.

It is worth noting that companies with a solid investment base may even benefit from opening in the time of crisis as they would get better lease conditions, the price of labour is lower, and there are many qualified candidates on the market.

In general, we observe an increasing consumer demand for exclusive, most expensive models. Average price products are sold less as many middle class customers have lost their buying capacity due to the crisis and now prefer to choose accessible luxury and premium items.

The average transaction value has decreased too. Customers who used to spend considerable money on shopping while abroad now tend to buy locally, paying smaller amounts.

Travellers are still making a substantial part of all purchases. The flow of Chinese tourists has increased in large shopping malls during the last year. The Chinese usually buy luxury products outside China because of high taxes at home. Many Russian retailers, including Bosco and Mercury, are trying to attract more Chinese visitors to their stores. The tourist flow is lower in luxury zones where free standing boutiques are located, such as Stoleshnikov Lane and Tretyakovsky Proyezd.

Apart from traditional luxury zones in the centre of Moscow, such as Stoleshnikov Lane, Tretyakovsky Proyezd, TSUM, and GUM, there has appeared a new luxury zone – Petrovka Street. Several years ago such brands as Chanel and Cartier left Stoleshnikov Lane and moved to Petrovka Street. For the last two years Petrovka has also become a location for Burberry, Gucci, Bulgari, Ulysse Nardin and Tourbillon boutiques. A Dior boutique is located at the corner of Petrovka Street and Stoleshnikov Lane.

According to top managers of the leading luxury brands operating in Russia, the market is likely to grow slowly year by year and the situation will not be worse than in 2013-2014. The Russian market has seen many crisis periods in the last several decades and got used to adapting to them.

Mrs. Daria Goulko, Partner and Head of Luxury & Retail Practice, Eterna Law

Fendi new store Stoleshnikov Lane, Moscow