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Russians Still Buying Western Brands

The new sanctions imposed by the U.S. and heated rhetoric coming out of Russia cause a lot of uncertainty for apparel and footwear brands.

More than 80 percent of clothing purchases in Russia are imported.

MOSCOW — As the U.S. declared a new round of sanctions against Russia on Monday, President Vladimir Putin proclaimed a crusade of his own: creating a national fast-food industry to beat McDonald’s.

This story first appeared in the April 30, 2014 issue of WWD.  Subscribe Today.

“Russia has wonderful cuisine,” Putin said, citing Ossetia pies among the national dishes that could compete with Big Macs and fries.

Putin’s case against McDonald’s, however tongue in cheek, amounted to the first call for a boycott of Western brands. Could Gap, Tommy Hilfiger and European fashion labels be next?

Ksenia Bugrina, 22, widened her green eyes at the question as she waited to try on jeans in one of Moscow’s 23 Zara stores: “Why wouldn’t we want European clothes?”

McDonald’s recently provoked public ire by saying that it was closing all three of its locations in Crimea, which Russia annexed last month after a controversial referendum. Duma deputy speaker Vladimir Zhirinovsky called for all of the chain’s restaurants to be shut down throughout Russia.

As relations have deteriorated over the crisis in Ukraine, a poll earlier this month by the independent Levada Center found that 61 percent of Russians now have a “bad” or “very bad” view of the U.S., compared to 44 percent in January. But so far, such feelings haven’t translated to buying clothes, more than 80 percent of which are imported.

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Still, Western brands are nervous, with both Hermès and Karl Lagerfeld admitting Tuesday that they are keeping a wary eye on the situation. On Monday, Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said the new sanctions imposed by the U.S. and heated rhetoric coming out of Russia cause a lot of uncertainty for U.S. apparel and footwear brands exporting their products to Russia.

Lamar said he has had numerous phone calls from concerned members over the crisis.

“This is not just an exporting issue,” he said. “If you are selling in there but your partner [in Russia] or derivative partner are people or entities somehow involved in the sanctions, does that put you at risk? It increases the land mines out there that companies have to step around to keep doing business in Russia.”

Lamar added that companies also have to be “leery” about getting caught in the “crossfire,” particularly if Russia retaliates or counter-sanctions U.S. exports.

Overall, Russian clothing sales were down 10 to 15 percent in the first quarter compared to the same period in 2013 due to the weakened ruble and an unusually warm winter, said Anna Lebsak-Kleimans, head of Moscow’s Fashion Consulting Group, noting the hit applied to brands across the board.

“I don’t see any changes,” said Raiffeisen consumer expert Natalya Kolupaeva. “At the moment, people consume products which they like and can afford — this is the only criteria to buy something. They have loyalty to particular brands, or the quality of particular products, and politics have a very minimal influence on this.”

American brands have expanded considerably in Russia in recent years. Over the past seven years, Gap has opened 15 stores in Moscow and Saint Petersburg. Last summer, Tommy Hilfiger opened a palatial flagship not far from the Kremlin. While most Western clothing outlets are concentrated in the capital and Saint Petersburg, several major chains, such as Mango, have expanded deep into Russia’s hinterlands.

“There’s not such a literal connection between fashion and ideology and politics,” Lebsak-Kleimans said. “Western-style fashion was in great demand during the whole Cold War period, and such Western symbols as Levi’s jeans, Adidas sneakers and Pierre Cardin dresses were more than desired by Russian Soviet fashionistas, simply because these were just great fashion products.”

On Tuesday afternoon at a central Moscow mall, American stores such as Michael Kors and Ann Taylor Loft were buzzing with shoppers.

“My friends and I love American brands,” said Sergei Lutsatto, 21, as he walked out of Gap. “Even if war broke out, I don’t think they would be less popular.”

Olga Ivanova, 49, was sporting a tan trenchcoat as she sifted through the racks at Tommy Hilfiger. “I don’t think I’ve ever seen an American product — it’s all made in China,” she said. She picked up a striped shift dress and checked the label. “See?”

So far, sanctions have had the greatest impact on the technology industry, said Alexis Rodzianko, president of the American Chamber of Commerce in Russia. “I don’t see any negative sentiment from locals in a local environment,” Rodzianko said. “But the sanctions, as narrowly targeted as they are, make everybody anxious and uncertain about the future.”

While the situation may be stable now, President Obama has said that if Russia doesn’t change its behavior towards Ukraine, there will be a third, much broader round of sanctions aimed at the financial sector.

“That begins to affect everybody, including the consumer,” Rodzianko said. “Just think about a world where you couldn’t use your Visa or MasterCard.”