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What Recession? Wealthy Russians Snap Up Luxury Goods

Luxury brands are seeing strong sales even as mass market plunges.
Cartier boutique on the Moyka river in Russia | Source: Shutterstock
  • Bloomberg

MOSCOW, Russia — With the recession heading into its second year, most Russians are cutting back. Not Yaroslav Gafurov. The 25-year-old Muscovite said now is the perfect time to stock up on his favorite toys — luxury cars and expensive watches.

He spent the ruble equivalent of about $1 million on new autos in the last year, snapping up a $250,000 Rolls-Royce and a pair of Bentleys, one of which is still on order, as well as a top-of-the-line Mercedes and BMW, he said. Another 70,000 euros went for watches, he said.

“The crisis hasn’t affected my daily consumption or my vacation habits at all,” said Gafurov. He said his corporate-law practice has taken off as the pain of the economic crisis has deepened for Russian companies.

Conspicuous consumers like Gafurov helped some luxury brands report their best-ever results in Russia in 2015, even as overall retail sales dropped 10 percent. About half of Russians can barely afford purchases beyond food and other basics, according to national polls.

New Stores

Some global luxury brands are betting the trend will continue, opening new shops across the Russian capital. GUM, the ornate department store across Red square from the Kremlin, saw Bulgari and Jimmy Choo boutiques open late last year, while Hermes doubled its selling space, according to a GUM spokeswoman.

"Sales are up not only in rubles but in hard currency," said Alexander Pavlov, vice president at Mercury, Russia's largest luxury retailer and operator of TsUM, Moscow's main high-end department store. Some rich buyers have cut back on trips to Europe and are doing more of their shopping at home, according Moscow's Fashion Consulting Group.

Prada said Russian sales last year “registered significant growth.” Russia was the strongest market in mainland Europe for Rolls-Royce, the company said.

Helping drive the growth is a sharpening polarization between the very rich and the expanding ranks of the poor — government data showed about 4 million fell below the poverty line in the first nine months of last year. Those lucky enough to have spare rubles often don't have many attractive options.

Typically Russian

“Over the last two decades under a market economy, the country has had three financial crises,” said Vladimir Kholyaznikov, chief executive officer of KupiVIP Group, an online retailer that sells high-fashion goods. “This has taught Russians that when you have money, the safest thing to do with it is to spend.”

He said orders at his company were up 55 percent last year. Ordinary Russians joined the buying binge when the ruble began its latest declines in late 2014, but appear to have spent most of their savings before the drops resumed in the last few months.

"It's what the Russians would typically do," said Zuzanna Pusz, an analyst at Berenberg Bank in London. "Historically, there's so much volatility in their currency but also in an individual's wealth — you have money one day and can lose it the next. So they try to store it, so often they invest in watches or other items that store value."

The recession and the halving of the ruble’s value during the last two years also have thinned the ranks of high-end shoppers in Russia, according to Fashion Consulting Group. That has left mainly the wealthiest, for whom looking good remains a top priority.

Big Spenders

“It’s hard for luxury-segment buyers to give up their lifestyle,” said Maria Vakatova, partner at Watcom Group, a Moscow retail consultant. “Even in hard times, there are people who are ready to spend up to half a million rubles on a trip to the store.”

Fashion retailers said expensive bags and shoes with clearly visible brands have been particularly good sellers amid the crisis. Lower-end names have taken the hardest hit, said Denis Bogatyrev, CEO of BNS Group, which operates 180 fashion stores across Russia and opened four new high-end Michael Kors shops in Moscow last year.

"I love brands like Gucci, Chopard and Galliano and don't want to switch to cheaper ones," said Irina Valiulina, 42, who said she lives off the income from her real-estate holdings. "If I have less money, I'd rather reduce the number of items I buy."

Among autos, Bentley’s local dealer Avilon said it expects Russia to be one of the main markets for its new sport-utility vehicle, which launches this spring.

Ruble Bargains

The plunge in the ruble has also created some bargains of sorts for the discerning shopper, as prices don’t always keep up with the currency’s declines. Fashion retailers say they’re keeping prices down to retain consumers.

“When people can either buy dollars at rates as high as 80 rubles each or buy luxury goods at a lower exchange rate, they often view this as a better bargain,” said Kholyaznikov of KupiVIP.

Some brands report that Chinese tourists, whose numbers have surged in Moscow in the last two years, have also helped boost luxury sales in Russia, where the exchange rate makes prices lower than at home.

Gafurov, the lawyer, said his new fleet of cars cost far less than what he would have had to pay in Europe. Though he said he’s on the waiting list for the new Bentley SUV, he admitted the shopping boom among the rich could be running out of time.

“It’s possible this is a sort of ‘death throes’ for these consumers, an attempt to prove to themselves and perhaps their partners that they’re still doing great,” he said.

By Ilya Khrennikov, Andrey Lemeshko, Corinne Gretler; editors: James Hertling, Gregory L. White.

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