MOSCOW — If Russia’s challenging retail scene were a retro game show, it would definitely be “The Price Is Right.”
Lower markups, affordable luxury brands and collectible streetwear are all part of a gradually brightening picture as consumers adapt to the weakened ruble, prolonged oil crisis and international sanctions — factors that are keeping them home.
Spending by Russian tourists abroad is entering its third year of decline.
Even tourist spending, though, is starting to pick up — despite the growing tensions between Russia and the West over everything from cyber hacking during the U.S. presidential election to sports doping and the ongoing crisis in the Ukraine. According to tax-free shopping firm Global Blue, the steep declines in Russian tourist spending have started to moderate — in August, spending declined 7.7 percent, its best figure year-to-date.
The pull back in travel by many consumers seems to be translating into pent-up demand at home as European luxury firms and Russian retailers report solid business.
“Our business in our Russian boutiques is doing quite well,” said Bruno Pavlovsky, president of Chanel fashion. “The challenge for all of us is to see the Russians traveling again and buying abroad.”
On the plus side, “our Russian clientele is very interested by ready-to-wear so that’s good news.”
The executive also noted that Russian clients continue to invest in Chanel’s couture. To wit: The house aims to bring its high-fashion collection to Russia as early as 2017. At present, cities in its sales circuit include New York, Los Angeles, London, Dubai, Hong Kong and Tokyo.
Giorgio Armani also had sweet words for Russia. He visited Moscow last April to present his book “Giorgio Armani.” He had last visited the country in 2009.
“I was glad to be back in Moscow after so many years,” the designer said. “Russia is a key market, with many special customers who have always embraced my vision of style and lifestyle with great enthusiasm. This is why I wanted to create a special event to present my latest collections, and my book, which sums up my aesthetic through images.”
The first Giorgio Armani boutique in Russia opened in 2001. Today, there are 86 stores in the country.
“Russia is a good market,” said Michael Burke, chairman and chief executive officer at Louis Vuitton, which has relocated and is tripling the size of its Saint Petersburg store. “And we are considering opening up a fourth location in Moscow.” He noted the forthcoming unit would likely be outside central Moscow.
In Saint Petersburg, the boutique on Nevsky Prospect opened in the middle of last month and offers men’s wear, fine jewelry and perfume for the first time in the Russian city.
Fellow stablemate in LVMH Moët Hennessy Louis Vuitton, Italian brand Loro Piana, also opened a Moscow flagship on Nikolskaya Street in September.
High-end Russian retailers are also sanguine, with some reporting robust business.
Landmark department Tsum, for example, is reaping the rewards of its new policy of “Milan prices” in Moscow. It is understood that the retailer reduced its markup to 2.4 times from 3 times the wholesale price.
The Milan handle rings home with consumers since before the economic crisis, well-heeled Russians would routinely travel to the Italian fashion capital to snap up designer goods at prices as much as 40 percent cheaper than at home.
Riccardo Tortato, fashion director of Tsum’s e-commerce and men’s fashion director, said the new pricing policy is a huge success.
“This allowed us to attract a considerable quantity of new clients for the spring 2016 season and we expect even more new customers for fall 2016 since the purchase for that season was significantly increased,” he said, noting that “accessories, bags and shoes are doing great in terms of sales.”
Tsum’s new policy not only brought back Russian consumers, but also attracted consumers from China.
“By decreasing prices, we were planning to raise sales to Russian customers who started traveling less and to Chinese clients as well who are very sensitive to prices. Tourist flows from China have doubled in 2016,” Tortato said.
While prices are lower, Tsum continues to stock leading international designer brands including Valentino, Loro Piana, Kiton, Céline, Brioni, Bottega Veneta and Ralph Lauren.
The retailer is also enticing local customers with an array of new names.
“For spring 2017 on the men’s floor, we will open a ‘concept store’ area where we will host the most fashionable designers collections displayed in a unique way,” Tortato said.
Brands are to include Balmain, Loewe, Thom Browne, Issey Miyake, Haider Ackermann, No. 21, Philip Lim, Calvin Klein, Marni and Maison Margiela along with a smattering of urban, streetwear purveyors such as Off-White, Marcelo Burlon, Palm Angels, Undercover, Public School and Hood by Air.
According to Tortato, “any sales associate in any top department store in New York, London or Paris will tell you that the best spender and fashion-forward clients are Russians.”
Locals also seem to be at ease buying fashions online, with Tortato reporting that Tsum’s e-commerce business is set to double this year.
He noted Tsum projects like NATA4TSUM — a concept area for women overseen by Natasha Goldenberg and an upcoming concept store for men directed and overseen by Tortato — shows that consumers are still willing to spend on something unique and different.
Affordable luxury is emerging as a sweet spot at retail.
“Nowadays you can see that customers prefer to buy less-expensive clothes and today we are successfully cooperating and developing in the segment of ‘affordable luxury,’” said Polina Kitsenko, creative director at Podium Market, which carries brands such as Sandro, Maje, See by Chloé, Whistles, Tommy Hilfiger, Pierre Balmain, Paul & Joe Sister and Etoile Isabel Marant. “Today, even rich people do not shop only in luxury shops. That period when people used to buy a T-shirt for 400 euros is over. The trend today is the mix-and-match one and our customers range from wealthy individuals to those with limited financial possibilities.”
Established as a multibrand designer shop in 1994, Podium introduced its Podium Market concept in 2012, spying a business opportunity to sell desirable but less-expensive fashions amid the steep devaluation of the ruble and the recession.
Today, the retailer operates a total of eight department stores and maintains its expertise in fine jewelry.
“No matter the crisis, we opened two stores in Moscow and we are planning to open another store in 2017,” Kitsenko said, noting Podium Market is also expanding its online business. “We are doing our best to satisfy our customers requests.”
Kitsenko said the formula is working as interest in luxury brands wanes amid the devaluation of the ruble and as consumers realize the shortcomings of very low-priced items.
“We all know that the majority of goods sold by fast-fashion companies last for few washes, and that the luxury industry is getting saturated,” she asserted, describing Podium Market’s mission as giving people “quality with a reasonable price without excluding good design and trends.”
“Inside our niche market we target a different class of Muscovites, from people with an average income to the wealthy class,” she added.
This trend was confirmed by Daniel Lalonde, president and ceo of SMCP Group, parent of the Sandro, Maje and Claudie Pierlot chains, who said sales are “starting to pick up” in Russia, where the company operates about 20 stores and shop-in-shops, concentrated in Moscow.
“We’re seeing some nice increases in our business there,” he said. “It’s a market we think will be important. The customer is definitely there.”
To be sure, even if the economic backdrop is far from rosy — with the European Union extending sanctions on Russia and the oil and gas industry still shackled with anemic demand and prices — the local fashion scene is surprisingly dynamic.
A new generation of fashion lovers, especially young men, is following the international fashion scene very carefully, particularly local hero Gosha Rubchinskiy and Vetements’ Demna Gvasalia along with Supreme New York.
These young customers are willing to spend more on niche brands in order to look good, be different and be on track with the latest trends.
Consider the scene last June at Moscow specialty retailer KM20, which stocked the coveted Yeezy 750 by Kanye West in a new Gum Gray color with glow-in-the-dark soles. Hundreds of sneaker heads queued for hours in front of the store to try their luck: Only limited pairs were available.
“We are here because we love hype and fashion,” said Pavel Shin, a 19-year-old decked out in Gosha Rubchinskiy and Adidas sneakers.
“In Russia, we feel the crisis, therefore price plays a big role,” said Shin, interviewed as he waited outside KM20 for the sneaker raffle results. “In fact, you cannot easily find people spending freely on brands like Vetements, Off-White or Adidas Yeezy. I am a student so sometimes I have to make decisions and priorities as to what to buy. I follow hyped-up brands like Gosha Rubchinskiy, Acne Studios, Supreme, Cav Empt — I always try to pick the right look. I also buy affordable brands like Nike and Uniqlo and try to mix and match.”
“We do not care about the crisis. Actually we buy more today as there is more competition to have the coolest things,” agreed Artem Famesov, 19, an interior design student who covets such streetwear brands as Vetements, Supreme and Fear of God. “Of course, we always look for a discounted item and best offer.”
KM20 is a concept store founded and owned by Olga Karput. It stocks brands including Raf Simons and J.W. Anderson and has a vegan cafe in sync with the new trend of healthy lifestyles.
Karput said the store has weathered the crisis well.
“‘If we speak about our business, I can’t say we could feel changes that much. Our business is quite small and very flexible, which allows us to adjust and make buying corrections in time,” she said. “Our business has been growing throughout this time even in international currencies. I would connect this with few factors: people don’t want to buy basic pieces anymore — especially our clients. If they want to invest into clothing, that would be a truly exceptional piece, not a basic cashmere jumper…and our online store allowed us to reach the fans of our fashion choice all over the world. Amid the crisis, basic high-end pieces might not sell because of the ruble devaluation.”
Karput decided to bet on limited editions and smaller brands. “In the field that we operate in, we did the best with all the limited-edition releases and everything that makes the person forget about the crisis so much he wants it….It’s more about the brands not categories.”
She noted that Vetements and Gosha Rubchinskiy typically sell out before the sales period. “Yeezy and Raf Simons did very well,” she added. “We are also happy with young brands like Marques’Almeida, Jacquemus, Hyein Seo and Études. Among Russian brands, Nina Donis collections are normally sold out in days. Pretty much anything that can make a person look cool instantly — it doesn’t matter how much it costs.”
Only a decade ago, Russians were primarily interested in high-end luxury brands, which they considered a sure and safe bet.
“In general, Russians feel more comfortable with more established brands,” Karput said. “But this has changed a lot recently. I can see it among our clients. A lot of them stopped buying what is supposed to be ‘luxury’ and prefer to choose more niche brands in which they feel comfortable.”
Indeed, the retailer spies a “huge potential” for the nascent local fashion labels.
“Have a look at London — every little designer attempt there meets so much support and everyone has lots of opportunities to be launched as brands, to be seen and sold and worn. There is absolutely no system of support for young talents in Russia and this is something to be done,” she said.
KM20 has already put its weight behind new Russian designer Tigran Avetisyan and “we have some exciting plans in terms of helping and promoting young talents in Russia. All the coolest young kids with bright ideas but no experience in fashion industry are coming to us for help, support and advice,” she added.
A similar shift in fashion tastes is also being felt in neighboring country Kazakhstan, a key economic partner of Russia.
“We’ve changed the buying strategy,” said Elena Kudina, general merchandise manager at Saks Fifth Avenue in Almaty, Kazakhstan, which opened in 2012. “We’ve decreased a penetration of basic classic products for women’s in favor of ‘wow’ styles since the buying behavior has changed. Today, most of our female customers want to buy extraordinary fashion instead of boring basic staff.”
Kudina acknowledged “‘it is a difficult period, as the local currency is devalued by 50 percent. We do not have Chinese customers but only locals. Our business is driven by brands like Gucci and Loro Piana. The men’s business is the one that performed better. The most resilient to the crisis turns out to be men’s classic wear, featured by brands like Brioni, Canali, Kiton and Hugo Boss. Fashion clients are also showing affection for contemporary brands, which boast additional cachet today, and affordable prices.
“It’s the same as in Russia. Middle-class customers spend much less for luxury products. Contemporary fashion sales volume has not dropped at all,” Kudina said.
“The market is picking up, step by step,” concurred Reinhard E. Döpfer, an international textile and fashion marketing consultant. “Growth is expected to return at moderate fates of 1 to 2 percent until the end of this year.”
Exports of premium and luxury women’s wear from Italy to Russia declined 6 percent in the first quarter of the year — a dramatic improvement over the 30 percent decline registered in 2015, said Döpfer, quoting data from the European Fashion and Textiles Export Council, of which he is chairman.
France logged a 6 percent decline in the quarter versus a 41 percent drop last year.
Question marks continue to hang over the medium-to-upper-medium priced apparel market in which German clothing brands play an important role, however. Consumers purchasing in this segment continue to suffer under the recession from rising unemployment and salary cuts.
“There will be some pent-up demand for clothing of the medium-priced segment, but still not enough for a feasible turnaround,” Döpfer said.
Russian retailer attendance improved in Dusseldorf showrooms recently, though buyers placing orders for pre-spring collections “appeared to be very selective and price-conscious when they placed their orders. Some companies that sell to Russia since the mid-Nineties said that they increased sales to Russian customers at single-digit growth rates, and that they had to stop buyers from ordering too much,” he said.
Declining imports of private-label garments from China also point to “a normalization of the Russian clothing market,” according to Döpfer.