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Russia’s luxury market, an earthquake for the industry, globally

Gucci new store Moscow

Contrary to the general timely belief, Russia’s luxury market started its decline 4 years ago, signaling a decrease in purchasing power mainly affected by the sluggish economy. 60% of the Russian HNWI consumers would already make their purchases of luxury good abroad, the same products being, at the time, 20-25% more expensive locally (high import taxation).

Russians would also spend less time abroad, whether on holiday or on shopping trips, and they would also cut costs on travel, especially hotels.

The worsening of the state of the Russian economy due to the sanctions imposed by the West, the dramatic decline of the oil price and the devaluation of the Russian Ruble, determined wealthy Russians to further cut their spending on luxury goods and services. In December 2014, Austria and the UAE reported that the number of wealthy Russian visitors has halved.

Even for the New Year’s Eve and Christmas celebrations, Russians preferred domestic destinations. As for retail, it has reached a critical phase when last November a number of the major international luxury brands with a significant presence in Russian increased prices by up to 30%.

A clear indication that luxury brands recognize Russia’s downfall is also the fact that luxury brands which were planning to start direct operations have given up, at least for now. Gucci went ahead with switching to direct operations at the end of 2014 amid turbulent market conditions. Many other international luxury brands remain with franchising operations split between 3 major players who dominate the market.

2014 was poor in new store openings, most of the centered around Sochi, the host of the Winter Olynpics.

The executives of 4 major international luxury brands told CPP under anonymity that they expect 2015 sales to drop by an average of 30 to 40%. With orders reduced since last year by 20%, the key players in Russia’s luxury market see a 30% decline in turnover in 2015.

The only positive trend in luxury retail in Russia is the return to multi-brand and concept stores, given the rise in influence by influential bloggers.

Cars and watches are likely to maintain their resilient performance in 2015, while the most sluggish sectrs whill be hospitality and Spa

Oliver Petcu in Moscow

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