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Explainer: How Russia’s Wartime Fashion Market Works

Russia’s invasion of Ukraine has been devastating for businesses in Kyiv and changed the dynamics of the fashion industry in Moscow more profoundly than anyone expected early last year.
Global luxury brands have closed their stores across Russia including many in Moscow's landmark Tsum department store.
Global luxury brands have closed their stores across Russia including many in Moscow's landmark Tsum department store. (Getty Images)

Key insights

  • From supply chains to ownership structures, Russia’s fashion market has changed in more ways than anticipated 18 months ago at the start of the war.
  • The impact of sanctions has been significant for some companies but hasn’t completely stopped Western brands being available to Russian consumers at home and abroad.
  • The exodus of Western brands from Russia has created or expanded opportunities for companies from Russia and countries like China and Turkey looking to fill the void.

It has been 18 months since Russian president Vladimir Putin invaded Ukraine, a move that caused incalculable suffering for ordinary Ukrainians including thousands of civilian casualties, a refugee crisis and financial hardship for both individuals and businesses alike.

Following the outbreak of war in February 2022, a flurry of fashion’s biggest names were quick to voice their support for Ukraine, with companies from LVMH to Valentino spearheading philanthropic efforts to provide essentials to the country. Industry figures rallied to raise awareness and support for Ukrainian designers and other creatives but there is only so much that can be done in a warzone.

In December, Olya Kuryshchuk, the Ukrainian-born, UK-based founder of industry platform 1 Granary, reminded the global fashion community of the gravity of the conflict. “Literally right now, most of my brothers, our families, our childhood friends [back home], they don’t have electricity, water, heating, internet [or a] phone connection,” she said on stage at BoF VOICES.

Prior to the war, Russia and Ukraine together accounted for around four to five percent of global luxury sales, according to Sanford C. Bernstein luxury goods analyst Luca Solca, and both were seen as attractive emerging markets for global fashion and beauty brands across most price points. Now, a significant share of that spend has shifted to other international markets, in particular the UAE and Turkey, where many wealthy Russians travel to shop.


How have multinational firms been affected?

In Russia, the much larger of the two markets, the political and economic consequences of the war have been costly though not as severe as some expected. Unprecedented sanctions, designed to undermine Russia’s military might by crippling its economy, were imposed by the US, UK, Europe and others, hitting sectors from banking, technology and transportation to luxury goods and cosmetics.

For some Western companies, the embargos made doing business in Russia logistically challenging: the impact of sanctions on international shipments, payment systems and travel meant that many brands were unable to process transactions or fulfil orders in Russia. Burberry and Net-a-Porter were among the companies that were quick to pause shipments to Russia even before sanctions on the export of luxury goods were introduced, due to operational challenges.

But companies across the board faced mounting pressure from consumers, activists and investors to publicly take a stand and cut off the Russian market.

Apple, Disney and Exxon were among the earliest to pause business in Russia after the invasion, openly citing moral grounds in statements to the press. In the following months, brands from Ikea and Coca-Cola to Levi’s and H&M exited the market, often taking a significant financial hit in the process. Among luxury players, major companies from LVMH, Chanel and Hermès to Kering and Richemont swiftly withdrew from the market, with some even placing restrictions on selling products to Russian nationals abroad.

The impact was on overall Russian retail trade has been significant as boutiques along some of the country’s most prestigious shopping streets remained boarded up for a year or more. Oleg Klimov, the president of Russia’s Council of Shopping Centres, told Reuters in May that total retail sales fell by about 200 billion roubles ($2.2 billion) in 2022, as high inflation, falling wages and the exit of Western brands saw consumer spending slump.

The domestic apparel industry took a notable hit: In 2021, Russia was the fifth largest apparel market in Europe, worth $46.4 billion, according to market research firm GlobalData. It estimated that last year, the conflict erased $18.8 billion off Russian apparel sales, which are not set to recover to pre-war levels until 2025, the firm forecasts.

Have all Western brands fully exited Russia?

While many fashion companies have formally withdrawn from the market, legacy contracts and relationships with third parties can make a total exit more complicated for others.

Hugo Boss, for example, has a sizeable wholesale business in Russia. While the company suspended its own retail and online businesses and paused all marketing activities in March 2022, it was required to fulfil contractual obligations to partners that predated the outbreak of war, the company said in a statement to BoF. Overall, brand sales in Russia last year fell just under 20 percent year-on-year and the company is currently reviewing how it will handle its business in the market over the long-term.


“The company has not changed its position since the beginning of the conflict,” a Hugo Boss spokesperson said. “The safety of our 157 employees and compliance with all sanctions have always been and will remain our top priority,” the statement added.

Many other companies sold their Russian businesses to third parties. Spanish fashion retailer Mango, which ceased direct operations in the Russian market in March 2022, transferred control of most of its directly operated stores to franchise partners — a move that provided continuity for many of its employees — and closed the rest. Before the war, Mango had 120 stores in Russia, 65 of which were already franchises. Now, the company has just 90 stores in the region, all of which are run by franchise partners.

The company took a €20 million ($22 million) hit as a result. Before the war, Russia accounted for about 8 percent of EBITDA profit, and was among the company’s top five markets.

“Our brand remains present in Russia through franchises,” the company said in a statement to BoF. “Our business model, based on an ecosystem of channels and partners is diverse, and has allowed us to come up with this formula, which is the same one we use in several other countries around the world.”

How has the war impacted luxury companies’ bottom lines?

At the luxury end of the spectrum, the impact on brands’ bottom lines has been less pronounced even if exiting the market was an operationally expensive event.

While more complex and expensive to secure, Russians who can afford to are still able to get their hands on designer handbags and shoes at home despite sanctions, thanks to a thriving grey market.

Others simply go abroad: in the wake of the Ukraine invasion and ensuing sanctions, there was a strong increase in Russian consumers splurging on luxury goods in the Middle East, a shift that was “strongly driven by the relocation of Russian citizens in the area,” said Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain & Company. “The primary region which benefited from the increased spending has been Dubai,” she said.

It mirrors trends seen in the property market: over the past 18 months, the UAE — and Dubai in particular — has seen an influx of wealthy Russians purchasing multi-million pound homes. Turkey, too, has been a beneficiary, D’Arpizio added.


Consequently, the luxury industry has been able to recover most of the Russian luxury goods demand elsewhere, said Bernstein analyst Luca Solca. The overall impact to luxury brands’ bottom line has been modest at worst, negligible at best, he said.

“Sales in the Gulf — and in Dubai in particular — have been booming, supported by [high net worth individuals] from Russia relocating there,” he said. “Sales in Turkey, in Israel, as well as in the UK and Switzerland are benefiting from Russian expats spending there.”

Even though top-spending clients from Russia have long been a front row fixture at fashion week and couture shows, Russian luxury consumers consist of a relatively small pool of extremely wealthy individuals that splurge on high ticket items. Today, Russian consumers globally are estimated to drive between 2 to 3 percent of the personal luxury goods market, said Bain’s D’Arpizio.

At the mass end of the market, brands with a much larger portfolio of stores and less mobile customer base took a more significant hit. H&M Group, for example, had 170 stores, and while Russia only accounted for about 4 percent of global sales, the cost of unwinding its business in the country was 2.1 billion Swedish Korona or $203 million.

How easily can Russians buy Western luxury labels domestically?

Sanctions haven’t stopped luxuries from becoming available to wealthier locals. While most major branded boutiques are officially closed, goods are still entering the market through third parties via countries that haven’t imposed sanctions, such as Turkey, Kazakhstan, Belarus and UAE. In other sectors, China and India have also been beneficiaries of the re-export trade.

Many new accounts have popped up on social media platforms Instagram and Telegram, offering the services of personal shoppers who purchase luxury fashion abroad and resell them to wealthy Russians, akin to China’s daigou trade.

In fact, the Russian government has fostered a thriving grey market for popular Western goods by essentially legalising parallel imports, which allows certain products to be brought into the country without the authorisation of their manufacturers. The move was announced in the wake of the invasion, with government officials keen to mollify its wealthy supporters that the war would not impact their lifestyles.

“Nothing will change,” Putin told attendees at an economic conference in Moscow as early as May, 2022. “Those who want to bring in some luxury goods, they will be able to do so.”

Russian customs declaration figures produced for Inews indicate that between March and August last year, fashion and perfume products from 36 international designer brand companies including Chanel and LVMH worth $90.2 million were cleared for entry into the country.

The New York Times reported brand new luxury cars and the latest iPhone models are fairly easy to find in Moscow, while department stores like Tsum still sell brands like Gucci, Prada and Saint Laurent.

Who is moving in to fill the void left by Western brands?

The mass exodus of Western brands has nonetheless left a void in the market that new and old players alike are moving in to fill.

The Russian Union of Shopping Centers, a trade group representing developers and retail operators, quickly turned to brands China, Turkey, India and Brazil to find alternatives to substitute. The trade body is also working with Iran to support expansion of Iranian clothing and footwear chains in Russia over the next couple of years, according to Turkish media outlet TRT.

Some have been able to take advantage of the opportunity to acquire highly valuable assets on the cheap and quickly expand their businesses. Many Western companies accelerated their exit from Russia amid talk of plans that would allow the government to seize foreign businesses’ Russian-based assets — a move that was passed as law this April.

UAE-based Daher Group, which acquired 502 Russian stores from Zara parent Inditex, is one of many fashion players that has been able to expand in the country and upgrade its operations. Stores are reopening under new names: Maag, Dub, Ecru, and Vilet, Russia’s Ministry of Industry and Trade told local news agency TASS.

Meanwhile, Turkish footwear and accessories companies like FLO Magazacilik have reportedly been in talks with western sportswear brands looking to offload their Russian units. And LVMH-owned beauty giant Sephora announced it would sell 100 percent of the shares of its Russian subsidiary to the business’ local general manager in July 2021. After the transaction closed in October, the network of 88 former Sephora stores began reopening as “Ile de Beauté” shops, a local chain acquired by Sephora in 2016.

How have Russian fashion brands been affected?

To be sure, there are many in the Russian market, such as smaller brand leaders and local design talent, who have faced major setbacks as a result of Western sanctions and shifting market dynamics.

In the wake of the war, Mercedes Benz Fashion Week Russia, which was due to take place in March 2022, was swiftly cancelled, leaving local designers without the critical business platform; another Mercedes Benz Fashion Week event has not taken place since. In Paris, the late Russian designer Valentin Yudashkin, who died earlier this year, was removed from the official Paris Haute Couture Week schedule.

Consumers, too, say they have felt unfairly targeted. In April 2022, a number of Russian celebrities and influencers took to social media to protest against “Russophobia” by brands, arguing that international screening policies from some luxury brands went beyond sanction compliance and instead discriminated against all Russian people.

Others, however, have managed to find opportunity, including leading Russian apparel retailer Melon Fashion Group, which owns Zarina, Befree, Love Republic and Sela brands. The group doubled down on expansion, snapping up prime retail real estate following the Western brand exodus to open 103 new stores and relocate 33 existing stores to bigger locations. The move brought its store count up to 867 locations across Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

In 2022, group sales reached 46 billion roubles, up 23 percent year-on-year, while net profit more than doubled to 7.8 billion roubles.

“Sanctions, broken delivery chains, uncertainty and informational noise created a new unfamiliar fashion retail field,” group CEO Mikhail Urzhumtsev said in a statement in July. “In spite of high economic volatility and decrease of traffic in shopping malls caused by the exit of international brands, financial indicators of the company have demonstrated positive dynamics.”

Further Reading

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