LONDON — Luxury goods companies — especially those operating in the top end of the market — should brace themselves for a tough start to the fiscal year, due partly to “a very dry quarter” in Russia.
Exane BNP Paribas said Wednesday in a report that luxury price increases in the eastern nation coupled with the falling ruble — not to mention international sanctions, a shrinking oil price, and a declining overall economy — would damage already weak demand.
The report said that, in anticipation of higher prices in the New Year, Russians brought forward their spending in the fourth quarter.
“High-end car sales in Russia rose strongly in Q4 (e.g. Porsche), Richemont indicated that Russian demand at home was offsetting significant Russian withdrawal from their traditional foreign markets. We believe this was due to the fact that Russian consumers were keen to part from their falling cash rubles, and expecting significant price increases down the road,” the report said.
The ruble fell by about 40 percent against the euro in 2014.
The bank pointed out that those price increases have already materialized, with Cartier increasing its prices in Russia by 40 to 50 percent at the end of December 2014.
The bank said the first quarter would be “tough going” for luxury companies due also to tough comparisons with last year. Exane pointed to Japanese shoppers’ early consumption of luxury goods before a VAT increase in the country on April 1 of last year.
Russian demand is estimated to be worth about 4 percent of the global luxury market: 2 percent in Russia and 2 percent abroad, driven by relatively few consumers with very high discretionary spending power, and a taste for brands such as Brioni, Stefano Ricci, Graff, and Cartier, according to Exane.
According to Global Blue. Russian tourist spending declined every month in 2014, culminating in a decline of 43.8 percent year-on-year in December., as reported. The overall fall in Russian tourist spending was 16.8 percent in 2014, reflecting the weakness of the ruble and ratcheting up of international sanctions.