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MOSCOW — United Colors of Benetton is defying an economic slowdown, a tumbling local currency and political tension, betting that long-term growth opportunities in Russia will outweigh short-term pain.

This story first appeared in the October 14, 2014 issue of WWD. Subscribe Today.

Opening its flagship in downtown Moscow last week after a major redesign, the Italian retailer said it was planning to roll out about 40 more stores across Russia by the end of 2017.

“Our commitment to Russia has stepped up over the last year,” said Marco Airoldi, the company’s chief executive officer. “We want to be associated with this market and we want this market to be an important part of our portfolio.”

Russia has been hit with waves of Western sanctions this year over its annexation of the Ukrainian region of Crimea and support for separatists in eastern Ukraine. The country’s economy is hovering on the brink of recession and the ruble has fallen more than 20 percent against the U.S. dollar since January.

Benetton executives said the current crisis was actually an opportunity, and consumer growth would eventually pick up again.

“We think it is a temporary phase,” said Airoldi.

Until earlier this year, Benetton relied on local partners and franchisees. Now the retailer is breaking with its established practice over 22 years in Russia and is gradually building up a direct presence.

With stores in Saint Petersburg, the southern Russian city of Krasnodar and Moscow, the company has eight units under its direct control. There are another 100 Benetton stores across Russia run by local partners, including one on the Far Eastern island of Sakhalin.

The company’s annual turnover in Russia is about 100 million euros, or $127 million at current exchange, and investment has increased steadily in recent years, said Airoldi, who declined to give more exact figures.

Benetton’s flagship occupies a prime location in the heart of downtown Moscow and was officially reopened last week with a new layout, known as “On Canvas,” which the company is introducing across the world.

Screens showing different clothing combinations are hung around the new Moscow store, which sells men’s, women’s and children’s items. Small carpets and sofas are placed in discrete locations.

“It is a very rational system and rational concept,” said Benetton’s creative director Valentina Soster. “The speed at which we sell our items is twice as fast as in a traditionally laid-out store.”

Soster, whose only previous trip to Russia was in 1975 when she was a 13-year-old girl, said she expected to come to the country more frequently.

Building up Benetton’s direct presence in Russia allows the company to finance “novelties” such as the “On Canvas” stores, which increase brand awareness and boost sales, said Airoldi. With Benetton in the midst of restructuring, Airoldi said the timing of the Russian expansion was the result of the company’s internal changes.

Some foreign firms have scaled back their presence in Russia as a result of the current economic downturn and political problems, or even withdrawn completely. Benetton is one of those that has chosen to “raise the stakes” through new investment, said Airoldi.

That is not to say that the company is not suffering. Benetton’s lack of manufacturing operations in Russia means it is losing heavily from the ruble’s sharp devaluation. “We buy in dollars and euros and sell in rubles,” said Airoldi. “It’s not fun.”

Foreign clothing retailers in Russia were put on their guard last month when a Kremlin aide suggested the country could forbid imports of foreign clothing in retaliation for Western sanctions on Moscow. The Kremlin banned imports of foreign foods from the European Union and U.S. in August.

Airoldi said that the company was very concerned about a possible escalation of tit-for-tat sanctions, but that they could do nothing about it. “It’s like the weather — you are not planning a storm but sometimes a storm happens,” he said.

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