Nobody panic — for now.

This story first appeared in the March 5, 2014 issue of WWD. Subscribe Today.

Financial markets, brands and retailers with interests in Russia are hoping the crisis in Ukraine will be resolved peacefully — and swiftly — without any long-term damage to business from military conflict or international trade sanctions.

“We are not cutting our budgets. We are aggressively buying, and we believe that the company will perform well,” said Alla Verber, vice president of Mercury Group, which owns luxury department store Tsum.

On the sidelines of the Valentino show in Paris, Verber added she was closely watching the situation in Ukraine, but was not concerned for business in Russia at this point, despite the threat of sanctions. “I have lived through many disasters in Russia, in ’98 and ’91, and everything bounces back. We’ll see what’s going to happen,” she said.

After plummeting into negative territory on Monday, the financial markets breathed a sign of relief on Tuesday following comments by Russian President Vladimir Putin that there was no need to send Russian troops into Ukraine. At the close of trading on Tuesday, all the major markets had rallied. The Dow Jones Industrial Average was up 227.34 points, or 1.4 percent, to 16,395.37 and the S&P 500 up 28.15 points, or 1.5 percent, to 1,873.88 after hitting an all-time high of 1,876.23 prior to the close. The indices fell 0.9 and 0.7 percent, respectively, on Monday. The S&P 500 Retailing Industry Group was up 8.83 points, or 1 percent, to 941.46 after dropping 0.5 percent Monday.

The FTSE MIB in Milan was up 3.6 percent to 20,475.12, followed by the CAC 40 in Paris and the DAX in Frankfurt, which both advanced 2.5 percent to 4,395.90 and to 9,589.15 respectively. The FTSE 100 in London rose 1.7 percent to 6,823.77 while most retail and luxury stocks were also on the upswing.

Alexis Rodzianko, president of the American Chamber of Commerce in Russia, said the mood it somewhat optimistic.

“Retail businesses have done very well in Russia, they’ve grown faster than the economy has grown….I don’t think anybody, at least our members, are in the mood to leave or stop doing business. They think Russia is a very important market and will continue to be. As the middle class in Russia grows, the appetite for luxury goods grows as well, and I think it will continue to,” he added.

Putin said Tuesday that military force would be a “last resort” to solve the political crisis in the region, spurred by Ukrainian leader Viktor Yanukovych’s ousting last week after months of often bloody demonstrations.

The U.S. and European Union have both threatened economic sanctions against Russia if it uses military force in Ukraine. The U.S. meanwhile has pledged $1 billion in loan guarantees to shore up the smaller country’s economy.

Anastasia Webster, the Russian-born wife of jeweler Stephen Webster and international p.r. director of his company, said Webster’s Kiev boutique has been closed “for the time being” due to the crisis.

Webster said restoring stability in the region was the priority, although she did not see any significant long-term impact on high-end consumption.

“Ukraine is not the Wild West. There are too many Russians in Crimea who don’t want to be part of Ukraine. We need to leave them alone, let them sort themselves out, and take things one day at a time,” she said. “It is all about stability.”

The mass end of the market, too, refuses to panic. Ikea said earlier this week that, based on its financial results, the company will continue investing in Russia. Some 2 billion euros, or $2.75 billion at current exchange, will be invested in new store openings through 2020. Ikea said its three Moscow stores are among its top performers.

Even in the U.K. and Continental Europe, where many wealthy Russians do their fashion and luxury shopping, retailers and tourism organizations remain sanguine. A spokesperson for Visit Britain, the national tourism agency, said: “We are not at the stage where we think Russians will stop traveling.”

According to Visit Britain, in 2012, there were 227,000 visits to the U.K. from Russia worth 240 million pounds, or $401 million.

In the first three quarters of 2013, both the volume and value of those visits were down 7 percent, with the weakening ruble taking its toll. That said, Visit Britain’s growth strategy from 2012 to 2020 foresees a potential growth in spend by Russian visitors of 75 percent.

According to Global Blue, the shopping tourism company known for its tax-free purchase scheme, Russia came second to China in terms of tax-free spending worldwide in 2013. Together, the two countries’ travelers accounted for 40 percent of all Global Blue’s shopping transactions.

“Russian travelers are the supershoppers, clocking up more transactions than any other nation in 2013, representing 24 percent of Global Blue’s total tax-free shopping transactions. Their lower average spend of 356 euros [$490] is often spent on fashion, clothing and fast-moving consumer goods bought across the border in Finland and Lithuania,” Global Blue said this week.

In the U.K., Russians were the third biggest tax-free spenders after Chinese and Middle Eastern consumers, with their average transaction value rising 16 percent year-on-year to 676 pounds, or $1,130, in 2013.

The Russians are clearly an acquisitive nation, so if the crisis escalates, and economic sanctions do come into force, luxury and fashion brands will feel the pain.

Luca Solca, managing director, luxury goods, at Exane BNP Paribas, estimates that Russians represent about 5 to 7 percent of the “global personal luxury goods” market spend. “Sanctions against Russia — depending on their possible shape and form — could be a negative for luxury goods companies, especially if they brought a reduction in the number of Russian tourists coming to Europe,” he told WWD.

Solca said that according to an analysis of the domestic market he carried out last year, there were 34 soft- and hard-luxury brands with a total of 121 monobrand stores in Russia. That represented less than 2 percent of the brands’ overall monobrand presence worldwide.

Among the brands he found to be most exposed to the Russian domestic market were Lancel, Tiffany, and Swatch followed by Louis Vuitton, Hermès and Gucci. He added that high-end clothing brands such as Stefano Ricci, Loro Piana and Kiton were also exposed to the domestic Russian market.

For the moment, the big brands — on both ends of the retail spectrum — are watching and waiting for the outcome in Russia. Many of those polled declined to comment for this story.

Michele Norsa, chief executive officer of Salvatore Ferragamo, said: “At the moment, it is premature to draw any conclusion or make observations.”

Germany’s Metro Group, a cash-and-carry department store, hypermarket and electronics retail business, is on alert, however. Its plan is to float about 25 percent of its highly profitable Russian cash-and-carry business in the spring. In late February, the company suggested that an initial public offering in London could be in place before Easter, with the expected proceeds of 1 billion euros, or $1.38 billion, to be reinvested in the group. Reports now suggest that Metro is considering delaying the IPO due to the crisis.

The company declined to comment on Tuesday.

While international brands and retailers may well avert any major pain if the Russia-Ukraine crisis is resolved peacefully, they will still have to grapple with a slowdown in the Russian economy and a weak ruble that is making foreign travel — and imports — expensive for Russians.

“The growth rate last year was predicted to be close to 3 percent and turned out to be less than 2 percent,” said Rodzianko of the American Chamber of Commerce in Russia. “The result is consumers are being more cautious, and I think that that trend was expected to carry into 2014. To some extent, people adjust their spending to their mood and expectations.”

Andreas Kurz, founder and president of Akari Enterprises, a global retail consultancy, M&A advisory and executive search firm, said he would not advise any company to open in Russia given the current situation.

“The most recent developments have only aggravated the situation: The ruble has lost 16 percent of its value against the dollar over the past year. That means the price of goods has risen 19 percent,” he said.

“Russian distributors and retailers who are buying directly from [foreign] brands in euros and dollars are absorbing those price increases. There are vacancies in the good malls — spaces have recently become available — and with the current situation people are panicking because the ruble might fall further.”

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