The negative impact of the Russian downturn on the global luxury industry
The dramatic devaluation of the Russian Ruble as a result of the recession looming over Russia’s economy has been having a domino effect on all luxury sectors on the local luxury market as well as international markets. It is estimated that the Russian economy which is heavily dependent on oil exports (over 55% of the GDP) is losing US$1 billion since the fall of the oil price.
The local luxury market which has already been suffering by the looming recession on Russia’s economy, for the past 3 years, is now facing a major price inflation, sending customers to shop abroad. Luxury groups have announced price increases in their retail in Russia of up to 50%.
But the worst affected international luxury sector is tourism, with markets such as Austria (Vienna and the mountain resorts(, France (Paris & the Alps), UAE (Dubai) and Italy (Milan & Rome) seeing a 50% drop in Russian visitors number over the past two months, with further cancellations for the 3 months ahead. It is not the ultra-rich but rather the upper middle class which seems to bear the brunt of this economic crisis, which has resulted into a standstill in consumption. Most of these Russian consumers have turned to domestic destinations.
Other luxury sectors likely to be significantly impacted globally are: fashion, watches & jewelry, cars and accessories. Russians however, have maintained a keen interest in real estate frantically investing in high value properties in the UK, France, Switzerland and the U.S. Dubai has yet to see a significant increase in purchases of residential real estate by Russians.
Oliver Petcu in Istanbul