The luxury lockout of Russia continues, with Washington and Brussels formalizing and broadening actions already taken by many companies.
In many cases, export controls on luxury goods to Russia offer mostly a strong symbolic rebuke to President Vladimir Putin’s invasion of neighboring Ukraine.
Companies from LVMH Moët Hennessy Louis Vuitton to Levi Strauss & Co. have already halted operations or adapted their approach to Russia in support of the Ukrainian people — with a strong push from consumers who are speaking out against the war.
Now governments are ramping up the pressure, particularly trying to put screws to Putin’s high-rolling friends.
A White House statement said: “Russia has now become a global economic and financial pariah” and that “The elites who sustain Putin’s war machine should no longer be able to reap the gains of this system and squander the resources of the Russian people.”
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As President Joseph Biden works with Congress to deny Russia the benefits of being a member of the World Trade Organization, his administration is coordinating with Canada, France, Germany, Italy, Japan, and the United Kingdom as the West seeks to use economics to end violence.
The U.S. last week put export restrictions on luxury items, including high-end watches, apparel, high-end alcohol, jewelry and other goods to Russia and its supporter in the invasion, Belarus.
The product categories targeted account for annual exports of $550 million from the U.S.
While the actions to cut Russia out of the global community — from the international financial systems to social media — are clamping down on the Russian economy, the country is not a big U.S. trade partner.
Russia accounted for just $6.4 billion of the U.S.’s nearly $1.8 trillion in total exports last year. And U.S. to Russia apparel exports amounted to just $58.6 million last year.
Business groups tend to resist any kind of restriction to trade — even on principle — as so many companies today are not just big, but global and looking to expand everywhere.
But the war in Ukraine, which has displaced millions and brought the post-Cold War world order to the brink, has business and government moving in lockstep.
Steve Lamar, chief executive officer of the American Apparel & Footwear Association, said the group’s members were “deeply saddened by the ongoing violence and destruction in Ukraine.”
“We continue to find ways to support the people affected by this tragedy, including those working in apparel and footwear supply chains,” Lamar said. “Our individual members have taken measures to assist their local teams as well as provide aid to international humanitarian organizations. Together we support coordinated and global efforts to bring about a swift and peaceful end to this crisis.”
Carlo Capasa, chairman of the Camera della Moda, said: “In regard to the sanctions announced by the President of the European Commission Ursula von der Leyen, we fully trust the Italian and European institutions and are completely aligned with the decisions that they are taking. As Camera Nazionale della Moda Italiana we will implement the sanctions as far as they concern the fashion business.”
The list of goods the U.S. said can no longer be exported, reexported or transferred in-country en route to Russia includes:
• Lip and eye makeup preparations.
• Women’s swimsuits valued at $1,000 or more, wholesale.
• Sneakers valued at $1,000 or more, wholesale.
• Patent leather trunks and suitcases and handbags.
• Sweaters valued at $1,000 or over, wholesale.
• Track suits valued at $1,000 or over, wholesale.
• Manmade fiber ski suits valued at $1,000 or more, wholesale.
• Mink fur skins.
• Silkworm cocoons.
• Cultured pearls.
• Diamonds, rubies, sapphires and emeralds.
• Gold bullion
• Watches
• Paintings more than 100 years old.
Some of the export restrictions will bite more than others.
A Commerce Department spokesperson said diamond exports to Russia were valued at $40 million in 2020, while jewelry tallied $33.5 million and art and antiques totaled $13 million.
Although nobody imagines that a lack of fancy tracksuits for Russian billionaires is going to bring the military action to an end, the sanctions are indicative of how Russia’s stock has fallen on the world stage.
“Before today, controls on luxury goods only applied to rogue state North Korea — a regime where its leaders and their political cronies live in opulence while their people struggle,” said Thea Rozman Kendler, assistant secretary of commerce for export administration, as the restrictions were imposed. “Today’s action should remind Putin and his Russian and Belarusian cronies that the world strongly condemns the horrors they have wrought. The U.S. and our allies and partners will continue to stand together in imposing severe consequences on Russia and Belarus for the continued invasion of Ukraine.”
On the front lines of the conflict, Europe has repeatedly hit Russia with sanctions that von der Leyen said have already hit Russia’s economy “very hard.”
“The ruble has plummeted,” von der Leyen said. “Many key Russian banks are cut off from the international banking system. Companies are leaving the country, one after the other, not wanting to have their brands associated with a murderous regime. Tomorrow, we will take a fourth package of measures to further isolate Russia and drain the resources it uses to finance this barbaric war.”
The European Union is also banning the export of luxury goods to Russia, with von der Leyen noting: “Those who sustain Putin’s war machine should no longer be able to enjoy their lavish lifestyle while bombs fall on innocent people in Ukraine.”
However, Russia is no longer the market for European luxury goods it once was. According to a report from Morgan Stanley issued earlier this month, 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 of 1,215 euros per transaction in Italy, up 78 percent compared with 2019. Ukrainian tourists spent an average of 1,088 euros per transaction, up 45 percent compared with 2019.
Still, the sanctions are another sign that the West will continue tightening the economic screws on Russia. Europe is also denying Russia “most-favored-nation” status for its markets and is working to suspend Russia’s rights in the International Monetary Fund and the World Bank.
“Russia cannot grossly violate international law and, at the same time, expect to benefit from the privileges of being part of the international economic order,” von der Leyen said.
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