LONDON, United Kingdom — Yesterday in Saint Petersburg, international politicians, diplomats and representatives from over a thousand companies gathered for the first day of the city's annual International Economic Forum, a three-day event aimed at helping Russian businesses connect with the rest of the world — and, Russian officials will be hoping, a boon for the nation's beleaguered economy.

In the last few years, Russia has buckled under low oil prices, the tanking Ruble and international sanctions over president Vladimir Putin’s annexation of Crimea. Real incomes have been falling since 2014, and poverty in the country is expected to return to 2007 levels this year.

The latest figures suggest the overall economic situation is still bleak, but not as bad as it has been in recent years. Last year, Russia's economy shrank 3.7 percent. Forecasts for this year range from 1.9 percent contraction (according to The World Bank), to 0.3 contraction (according to Russia's finance minister). Last week, Russia’s central bank lowered interest rates for the first time since July, predicting that inflation will fall and growth rates could turn positive in the second half of the year.

Some sectors of the economy are also showing small signs of life — including luxury goods. Bain & Company’s 2015 luxury report noted an “improving situation” in Russia’s luxury market. Indeed, while economic turmoil has dented overall consumer spending in the country, “Luxury is the most stress resistant segment of the fashion market,” says Anna Lebsak-Kleimans, chief executive officer of Fashion Consulting Group Russia, who notes that most luxury players have remained in the Russian market in spite of the crisis.

Among some luxury brands in Russia, a sense of “relief” is resulting in more positive investment, says Ekaterina Petukhova, a partner at international consultancy Texere Advisors. Some international companies, she notes, are taking advantage of Russia’s weak economy to score prestigious retail space at cheap prices.

This year, brands including Fendi, Valentino and Bulgari have opened new stores in Moscow, with Bulgari announcing plans to add four more in the next ten years. "Russia is an area in which we want to expand," Pietro Beccari, chief executive officer of Fendi, told BoF. "I think we will open more stores in Russia."

Meanwhile, Louis Vuitton has plans to open a second store in Saint Petersburg, where Eres also opened a flagship earlier this year. And other brands are courting the Russian luxury consumer. In April, Giorgio Armani travelled to Moscow for a run of events, including a fashion show for 480 guests.

Hope from China

Chinese tourists are the Russian luxury market's “great hope,” says Petukhova. According to the Russian tourism department, the flow of Chinese tourists into the country increased by 67 percent in 2015, mostly to Moscow and Saint Petersburg, (which, together, comprise 74 percent of Russia’s luxury market).

The Yuan to Ruble exchange rate has also increased, making Chinese prices for luxury 70 percent higher in China than in Europe (including Russia). Russia, being closer to China and cheaper to visit than other European shopping destinations, has become a bargain — especially as the exchange rate has eased the impact of Russia’s high import taxes on luxury goods. Fifteen to 17 percent of customers in DLT, a luxury department store in Saint Petersburg, are Chinese. At Moscow’s high-end department store TSUM, purchases by Chinese tourists have increased four-fold in the last month.

Spending at Home

Russians are travelling less and spending less in historically relevant markets like Italy, as the weak Ruble makes prices in Europe bite. In 2015, Russians cut their European luxury spending by 37 percent, according to Bain & Company. “Russians are spending more money at home, as a consequence, leading to a revival in luxury sales in the country,” says Luca Solca, head of luxury goods at Exane BNP Paribas.

"Our prices are the same as in Milan or Paris now," says Alexander Pavlov, chief executive officer of TSUM, which has been marketing this with Russian, English and Chinese-language campaigns. "This has seen us significantly increase the flow of new customers by about 35 percent, increase sales by 18 percent in TSUM and increase sales by 27 percent in DLT (which is also operated by the company)."

Luxury brands including Chanel and Patek Phillipe are also fixing price differentials worldwide, giving Russians an incentive to buy at home. "People are cutting back their trips to Europe and spending large amounts at home, particularly on safe investments such as one of a kind luxury items," says Miroslava Duma, founder of culture website Buro 24/7.

Last year, Moscow department store TSUM’s revenue rose 2 to 3 percent, and the retailer forecasts 10 percent growth in sales for 2016. Some of this uptick may also be due to delayed demand, particularly in luxury watches and jewellery, where consumers who have held off purchases during long periods of speculation and uncertainty are feeling more confident.

Wider Fashion Market

While Russia’s high-end fashion market is stable, maintaining a 10 percent share of Russia’s overall apparel market from 2014 to 2016, disposable income for most Russians has dropped 30 to 50 percent, with the middle class badly affected and middle-market brands rapidly losing market share to value players. Fashion Consulting Group estimates the middle segment will shrink to 20 to 25 percent of the overall apparel market in 2016, down from 39 percent in 2014. The lower-priced segment will climb to 65 to 70 percent, up from 51 percent in 2014.

For middle class Russians "there will be no return to the pre-crisis income and expenditure habits," says Lebsak-Kleimans, who warns that high-street brands like Zara and Gap are now too pricey for this consumer and "need to change their strategy radically" to compete in Russia's new reality.

For bargain brands, this is good news. “Several new companies came to the market and developed really fast,” says Petukhova, pointing to French label Kiabi, which sells women’s t-shirts for €3 and dresses for €10. Kiabi opened its largest Russian flagship in March, with plans for six more stores this year.

H&M, too, is investing heavily. Since entering the market in 2009, H&M Group has rolled out 105 stores in Russia and, undeterred by the crisis, launched 25 stores and Russian e-commerce last year, making it the company’s third-largest market for store expansion in 2015. A H&M spokeswoman declined to comment on whether the Russian market was on the mend, but said the company saw “great potential” in Russia, and H&M sales in Russia increased by 40 percent during the first three months of this year.

Russia’s cash-strapped middle classes are also becoming more discerning shoppers — trying on more clothing, returning goods more often and waiting for discounts. “Big stores enjoy enormous possibilities to benefit from this situation,” adds Petukhova. Fashion House Group, the largest outlet developer in Russia, expects 30 percent sales growth for 2016.

So, is the worst over for Russia’s fashion market? “The situation in the luxury sector in 2016 is getting more stable, but only for strong, huge players,” says Petukhova, referring to classic brands like Chanel and Louis Vuitton, which luxury customers see as safe investments during economic crises.

While the economic forecast for Russia looks marginally better than it has since 2014, even if international sanctions are lifted (sanctions are currently in place until July 2016, and do not directly impact luxury goods or clothing imports) and geopolitical tensions between Russia and the West do not escalate, the long-tail of the nation’s economic downturn will keep most Russian consumers poor, and both high-end brands and middle-market players on thin ice.

“I think the current situation with currency exchange rate will of course help a lot,” says Petukhova, who says luxury brands investing in the country are “thinking long-term.” As to whether there is cause for optimism in the market, “In Russia it’s always more or less turbulent times,” she says.