Russia’s luxury market unlikely to be overshadowed by newly emerged India and Brazil


Although the financial crisis cut through the Russian luxury market, bringing drops in sales of up to 40% in some sectors, the unique desire for Russians to show off which has, been entering a new stage of maturity, is likely to provide the strength for a powerful comeback within the next 2 years.

Like almost every aspect of Russia’s economy, luxury’s recovery has been pegged to the price of oil — which influences a trickle-down of wealth in the world’s top energy producer. With oil prices rebounding to almost $115 a barrel last month — more than triple the devastating lows seen during the crisis.

A major sign of re-birth has been brought by British based auctioneer Christie’s, which opened their Moscow branch in April last year, say Russian-speaking clients today are buying 35 percent more than they did in 2009. Christie’s turnover in 2010 was up to $3.3 billion, Stephenson said, 8 percent of which was generated by Russians.

Despite China’s ”take over” in luxury sales volumes in all sectors, according to CPP, Russia’s luxury market has grown indirectly, with Russians buying 20% more luxury branded goods, abroad, in 2010 compared to 2009 and the trend is likely to be maintained throughout 2011.

This increase of purchases abroad has been driven by in part by a need to be more discreet, but not in the way of displaying a product, but in the sense of openly displaying the amounts spent. Such pressure could also be traced in Bulgaria, one of the strongest Eastern European luxury markets before the crisis. Political pressure and overpublicized corruption cases have made Russians purchase less locally. A second reason behind the preference to buy abroad has been pricing, pricing of luxury goods in Russia being at least 25% higher than in Western Europe and 15% higher than in Dubai, the top preferred Middle East destination for Russians.

Russians’ taste for luxury has evolved, entering a phase of maturity, but not in the sense of preferences. Their hunger for overtly luxurious designs with the most precious materials, both in clothing, jewellery and watches being higher than ever. Russians will never suffer from the ”guilt” factor which we can encounter in markets such as the U.S. or Japan, where a growing number of wealthy consumers prefer to buy more ”discreetly branded” products, feeling, in a way, ashamed for being able to afford it, while his or her counterparts are struggling to make a day’s end due to the hardships of the crisis.

In comparison with Brazilians, Russians’ appetite for luxury is my much higher and much more consistent. While Brazilians would share the show off, snobbish factor, they do not boast the Russian ”all luxury” lifestyle with a fanatic loyalty to particular brands. While Brazilians do spend lavishly on services, especially hotels, travel and SPAs, Russians allocate more for shopping and take twice as many shopping trips on a regular basis. Luxury real estate is also another area of differentiation, Russians being known for their ”must have” real estate in a major capital such as London or New York, while Brazilians might invest more in lavish properties in their homeland.

“Russia has perhaps fallen off the radar of some luxury companies,” Thomas Chauvet, luxury goods analyst at Citi in London, told Reuters.  Analysts say the Russian luxury market makes up to 3 percent of global sales, and Chauvet believes Russia can gain 1-2 percentage points over the next five years, but not more.

“Russia remains an oligarchical society with huge inequalities in wealth distribution… I don’t think the penetration of luxury goods will ever be as high as in emerging Asia, the Middle East or even South America,” Chauvet said.

CPP’s research in the past 9 months in Russia, has revealed that sales of luxury goods and services has become almost twice more regionalized than before, wealthy Russians residing in other major cities in Russia preferring to buy locally. Such examples are Ekaterinburg, Kazan and Sankt Petersburg. Direct charter flights from Kazan and Ekaterinburg have doubled in 2010, locals flying to Dubai not only for holidays but also for shopping. Mention should also be made that CPP’s research among major travel operators has also highlighted the fact that prices of travel packages to destinations such as Dubai are now at least 30% cheaper than in 2009. While Russians might no longer book an expensive suite at a five star property, they would still allocate the same budgets for luxury shopping.

Oliver Petcu