Russians say nyet to luxury
Moscow's fashion district starts losing its shine - Recovery depends on commodities
April 5, 2009
By Amie Ferris-Rotman and Maria Plis
Kerchiefed women peddle fake deisgner handbags in front of the pitted Alexander McQueen and Stella McCartney stores, whose signs have beens scratched off by hand less than 18 months after their grand openings.
The British designers' stilettos, diaphanous gowns and Italian-made wool coats were stuffed to the back of the adjoined stores and sold at a 70 percent discount before the financial crisis sealed their doors for good earlier this month.
The Russian capital, notorious worldwide for its exorbitantly priced restaurants, gridlocked traffic of sport utility vehicles and love of excess, is taking a massive hit as recession bites in the world's fourth-largest luxury buyer.
Analysts say this year's profits will be slashed by about a third in the country's luxury clothes and accessories industry, which is estimated to be worth between $4.5 billion (R41.1 billion) and $9 billion.
Moscow buys more than 80 percent of Russia's luxury goods.
The sudden sobriety is a far cry from just over a year ago, when Donatella Versace and Tom Ford jetted in to talk of expansion plans in Russia to enthusiastic crowds.
Now Sweden's Hennes & Mauritz, famed for its low retail prices, is eyeing the spot Alexander McQueen occupied, according to its chief executive, Rolf Eriksen.
Russia's Crocus Group, which owns a palm tree-lined shopping centre selling diamonds and limousines and about 100 luxury boutiques in Russia and Azerbaijan, is also feeling the pinch.
Slowdown
"In Moscow we have started to experience the slowdown and I must say it is substantial," said commercial director Emin Agalarov.
"Overall, my expectations are very pessimistic, so I will not scare anyone with the figures, but trust me - in the first half of 2009 we (retailers) will all suffer."
Cobbled and dainty Stoleshnikov Pereulok, Moscow's answer to London's Bond Street, is awash with industry rumours of crisis-spurred shutdowns.
A single sheet of paper taped on the whitewashed windows of Vivienne Westwood's sole Russian store says it is closed for "repairs".
Its London-based spokeswoman said the Russian agent for the store had pulled out of retail.
Russian franchiser Aizel, which manages a group of boutiques, including US designers Diane von Furstenberg and Marc Jacobs and British lingerie firm Agent Provocateur, says sales at its stores are falling by up to 10 percent.
Organisers of the biannual Russian Fashion Week, which opened last weekend, said they would scale back the number of shows by 20 percent from October, due to fewer participants. That is a ripple effect from Paris welcoming fewer Russian jets at this month's fashion week than previous years.
"We decided … to concentrate on quality," said Olga Sorokina, a creative director of Russian luxury label Ifre. "With the crisis, you have to put everything you have into production."
The former model nixed debut catwalk shows in the French capital and Moscow and instead presented her collection of python skin bags, leather bustiers and fur coats in a modest showroom in Paris.
As the chairman of Emanuel Ungaro, Mounir Moufarrige, put it backstage at his Paris show: "Russian clients are buying less."
Analysts say recovery in the luxury market hangs on commodities and energy prices on which the Russian economy heavily depends.
"How quickly commodities and energy prices recover will determine the pace for luxury," according to an independent consumer analyst Andrei Verkholantsev.
Russia's equity market has been in recovery mode for the past three weeks as crude oil prices have nudged back from devastating lows below the $40 a barrel level crucial to Russia's budget, fuelling a rise in the rouble rate.
Recent rallies at Moscow's two main bourses have started to reassure investors, and crude oil's price rise to more than $50 this week has lifted on rouble assets.
But the overall economic downturn suggests oil's recovery will be more of a slow crawl than a sprint to last July's record peaks of near $150 a barrel.
Magram Market Research, which analyses the Russian luxury market, believes it will get worse before it gets better. "It's only the beginning," warned Marina Malykhina, the firm's chief executive.
Billionaires halved
Though the number of Russia's billionaires halved in the past year, some luxury brands are surviving and even flourishing.
"The behaviour of our Russian clients has not changed recently," according to the president of fashion at Chanel, Bruno Pavlovsky.
"We have witnessed more and more very young women buying their first Chanel bag or accessory."
He says the century-old fashion house, which recently laid off 200 temporary workers, is about to open a new boutique in the Urals city of Yekaterinburg, home mainly to machine building and defence industries, and one of Russia's richest and fastest growing cities.
French fashion and leather goods firm Louis Vuitton is also opening a store in Yekaterinburg this month as Russian demand for its accessories is stable. - Reuters
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