Punish Russia? Help Ukraine? Protect the bottom line?
Russia’s invasion of Ukraine, the ensuing humanitarian crisis, and a raft of new sanctions and restrictions on trade and travel have forced European brands to walk a tightrope, balancing their morals, and a desire to help those who are suffering, with the responsibilities of running an international business.
Businesses have been eager to help, make charity pledges and align themselves with customers’ expectations — around social responsibility, diversity and equality. They are also under pressure from shareholders, and the public markets, which is why they’ve been taking swift action this week, hoping to satisfy both.
A raft of companies, including Kering, OTB, Gucci, Acne Studios, Burberry and LVMH Moët Hennessy Louis Vuitton, have pledged their support to organizations such as the United Nations High Commissioner for Refugees, UNHCR, and the Red Cross to help war victims and those fleeing Ukraine.
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One brand manager who asked not to be named said that offering humanitarian support was vital, as was respecting government sanctions. But life goes on and so does business.
“You have to keep in mind that war isn’t your partners’ fault. Businesses have commercial considerations, and relationships, to consider,” the manager said.
Brands have reacted differently to the crisis: there has been a degree of posturing and virtue signaling, with some brands making grand statements about boycotting Russia without actually doing any significant business there.
Indeed, Russia is no longer a hot market for European luxury brands. According to a report from Morgan Stanley issued earlier this week, the importance of Russia and Russian nationals for the luxury goods sector has declined over the years and is now “relatively immaterial.”
The bank said that for companies such as LVMH and Kering, Russians account for about 1 percent of worldwide sales. Burberry — and the Italian brands — are more popular with the Russians. They generate around 2 percent of sales for companies including Moncler, Prada, Salvatore Ferragamo and Tod’s.
Much of the Russians’ shopping is done in Milan. According to tax-free shopping company Global Blue, in the 12 months to February, Russian tourists spent an average 1,215 euros per transaction in Italy, up 78 percent compared with 2019. Ukrainian tourists spent an average 1,088 euros per transaction, up 45 percent compared with 2019.
While Russian customers may account for a small part of their overall sales, these companies are still suffering the commercial consequences of Vladimir Putin’s war.
Burberry confirmed Wednesday that it has paused all shipments to Russia until further notice due to “operational challenges.” The company said it is “focused on supporting our people and partners, particularly in Ukraine and Russia.”
“Operational challenges” is an understatement.
Western countries have suspended flights to Russia; the rouble has crashed and the Russians have limited access to credit. Visa, Mastercard and Apple Pay have all put the stops on business in the region. Meanwhile, governments in the U.S. and Europe are barring Russian banks from international payment networks and freezing the assets of rich Russians living abroad.
Burberry isn’t the only company that’s been forced to press pause. On Wednesday afternoon, Farfetch posted a notice on the site that it has stopped shipping to Russia and Belarus.
The Munich-based Mytheresa stopped shipping goods to Russia on Monday. The company confirmed it has no significant commercial operations in the region and its top priority is the “well-being of our colleagues and partners with family in Ukraine.” It is also supporting humanitarian efforts in the region.
Acne, whose Russian clients include Tsum, Leform and Aizel, said it suspended e-commerce and wholesale operations with regret. Russia “was beginning to be a significant market for us,” said Mattias Magnusson, chief executive officer of Acne Studios, “but we want to stay true to our values.”
The company has also donated 100,000 euros to UNHCR and UNICEF to provide humanitarian help, and relief work in Ukraine and its neighboring countries.
It’s not just the European brands that are facing challenges in difficult market. Retailers on the ground in Russia are suffering the consequences of sanctions on banks and international money transfers.
According to Alessandro Maria Ferreri, the owner and CEO of The Style Gate consulting firm, the big Russian retailers have blocked payments and shipments for spring, and are canceling their orders for pre-collections, which were set to be delivered in June.
“Even in normal times importing goods in Russia is extremely complicated and custom procedures are very complex,” he said, adding that even if the war ends quickly there will be long-term consequences.
“The Russians will be cautious for a very long time, even if the war ends quickly, local spending will shrink and it will be a while before they start to travel again. And outside of Russia will their credit cards be accepted lightly?
“The war has triggered a domino effect that will impact all of the luxury sector. And even if tourists will eventually travel to Russia, they will hardly go and shop for international fashion brands. The market is very local in Russia,” he said.
He noted that the country has a middle class that will be afraid to spend given the uncertainties they will have experienced.
By contrast, Riccardo Tortato, head of buying at Tsum in Moscow, said he’s been received warmly by the brands with which he does business and was not aware of any orders being terminated. “We have nothing to do with politics, we are a retail company,” Tortato said.
It remains to be seen what sort of impact the war, and the sanctions, will have on mass-market players.
Companies including the Danish jewelry maker Pandora and Swedish fast-fashion giant H&M have both stopped trading in Russia and Ukraine, and are also helping with the relief effort.
The Danish jewelry maker Pandora said it was donating $1 million to UNICEF’s efforts to help children affected by the humanitarian crisis in Ukraine.
Pandora’s CEO Alexander Lacik said the company wanted to help Ukranian children and their families. “They need shelter, water, food, medicine, safe zones, and other support to live through the crisis. UNICEF’s work is critical and desperately needed.”
The donation was especially meaningful for Lacik, who said in a message on LinkedIn that as a young child he had to flee “when the Soviet Union occupied Czechoslovakia in 1968. A formative experience for me. It is with shock and disbelief I’m witnessing the history repeat itself.”
H&M said in a statement it was “deeply concerned” about the developments in Ukraine and said it was donating clothes and other necessities to the local people. The H&M Foundation has also made donations to Save the Children and to UNHCR.
Russia is the group’s sixth-largest market, registering sales of 2.07 billion Swedish kronor, or $216.6 million at current exchange, in the final quarter of last year. It had 168 stores in the country as of the end of November, having opened 13 new outposts during the past fiscal year.