MOSCOW — In 2012 the premium segment of the Russian fashion market is likely to remain the sweet spot for foreign brands.
Russia’s $56.1 billion fashion retail industry is expected to grow to $75 billion by 2013, and there is a substantial but under-exploited opportunity in the middle-price segment.
In the first half of 2011, exports of women’s jeans alone rose 28 percent compared to the same period in 2010, according to the European Fashion and Textile Export Council (EFTEC ). The council predicted that end-of-year exports to Russia in the European casual and denim market would be just shy of 1 billion euros, or $1.29 billion at current exchange. The number is 3 percent up against the segment’s pre-crisis peak in 2007.
In 2008, the upper-medium segment accounted for 10 percent of the market, versus 15 percent for the luxury segment. During the global economic crisis, both numbers fell, but retail for the upper-medium price point rose quickly, and is expected to account for 13 percent of the market by 2013.
Jack Geula, the owner of Muschel GmbH & Co KG, which has been working in the high-end fashion industry in Russia for the past 20 years, describes Muschel’s “sweet spot” as the premium market. “When you focus on the luxury market, you’re limiting yourself to specific cities … you can still serve up to 150 clients in the premium market, not only in Moscow and St. Petersburg but throughout the country,” he said. “Once in the lower market, you still have to deal with customs, but compete with imports from the Far East or Turkey. When there’s no [brand] name involved, you just can’t compete on price.
“The [Russian] market has always been dynamic. For [Muschel], whenever there has been growth we have seen growth of 25 percent on an annual basis, but any dips are more dramatic, up to 40 percent,” Geula said.
The upper-to-middle segment allows companies to sell not only in Moscow, but also in the regions. “There is a whole shopping center culture that’s developing throughout the country,” he said. “The premium section is the one that’s going to be benefiting the most” from this culture.
As the market grows, Russian companies are capturing a larger share compared to foreign brands. The 20 largest Russian chains — Zarina, Incity and Kira Plastinina among them — saw a 42 percent increase in their number of stores from 2008 to 2010, compared to 27 percent for the 20 largest international chains (Inditex, Benetton and Mexx being the leaders), according to A Fashion Consulting Group report. The expansion of Russian retailers puts pressure on foreign brands.
The huge gap results from Russian retailers’ willingness to franchise. Geula noted that shopping centers, which are the most popular form of distribution, prefer mono-brand franchises to multi-brand retailers. Still, independent multi-brand retailers make up 30 percent of the market.
In the regions, “very fancy, almost concept, multi-brand stores… have emerged and focus only on special brands,” Geula said. These include stores such as Bulvar in Novosibirsk, Angel in Krasnodar and Maska in Donetsk. The stores carry brands like Moncler, Vivienne Westwood and Dirk Bikkembergs.
One relatively low-risk way for foreign manufacturers to get these retailers’ attention is via shows like Collection Premiere Moscow (CPM). While companies like Levi’s and Guess, which have long histories with the Russian market, recently ended their partnerships with Russian distributors to open their own stores, many smaller denim and casual wear brands look to CPM to find clients.
The most recent CPM reintroduced a young fashion pavilion, called Fashion and Denim, due to increasing demand in the segment. “In the past, before the crisis, there was a young fashion segment at the CPM. During the crisis we reverted back to a smaller format, but recently, as things are getting better, more and more companies are asking about young fashion. We spoke to young fashion magazines, distributors, buyers and they suggested starting a new pavilion, Fashion and Denim,” Christian Kasch, CPM project manager, said.
Exhibitors in the denim section of the September 2011 event included Diesel, Buffalo and Silver. Robin’s Jeans, a brand that works with Muschel, will exhibit in the Fashion and Denim hall of the upcoming CPM, which will be held Feb. 27 to March 2.
Andreas Kurz, president of fashion consultants Akari Enterprises, which does extensive work in Russia, said CPM is a good opportunity for firms to showcase their brands without taking too much risk. “What most companies don’t know,” he said, “is that there are many great multi-brand retail outlets in Russia that look to CPM to find brands.”
Guela calls the event “a great platform to get a feeling for the market,” and hopes to arrange for an extra day during the September 2012 event specifically for American brands looking to enter the market.
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