Amongst the world’s most promising markets for fashion, Russia is the sixth largest market in retail, which is seeing continuous unabated growth. According to the 2014 Global Retail Development Index by A.T. Kearney, Russia has leaped 11 positions to be at the 12th place, based on rising incomes, an urbanizing population willing to spend more, improving infrastructure, and increasing investment in real estate, yet the uncertain political conditions and weaker currency pose a threat to the market.
With the collapse of the Soviet Union that marred commercialism, luxury and indulgence, Russia has grown to become one of the largest emerging markets in the world for fashion. In 2013, the country’s fashion market was worth US $ 53 billion, according to Fashion Consulting Group. Although Russia’s GDP growth slowed to 1.2 per cent in 2013, consumer spending remained the same, with disposable incomes and retail sales expanding by 3.5 per cent and 5.5 per cent, respectively. Per capita consumer spending is forecast to accelerate, and give further impetus to retail growth. The Government’s plan is to invest billions in transportation and infrastructure. This will facilitate better logistics and encourage expansions beyond Russia’s major cities into other regions. Projections for 2014 included addition of as much as 1.5 million square metres of new retail space.
Euromonitor International claims that retailing in Russia is expected to increase in value at a CAGR 5 per cent in constant 2013 terms as retailers continue to develop in less developed regions of Russia; opening new outlets in small cities and towns. From luxury brands such as Prada, Chanel, Louis Vuitton, Emilio Pucci, Givenchy, Armani, Fendi, Tod’s, Gucci, D&G, etc. to others such as ZARA, GAP, M&S, etc., Russia is satiating its fashion thirst through well-established international retailers. Analysts expect that over the next five years, retail in Russia will grow by 1 to 4 per cent each year.
Further, Russia’s online market is rapidly growing due to an urbanized technologically equipped population, which is being tapped by brands like Zara, Massimo Dutti, Motivi, Adidas, Reebok, Auchan and OBI, which are amongst the first entrants in the online space of the Russian market. Lamoda, an online fashion retailer, has also set up its own logistics and courier service to enable next-day delivery of clothing, shoes and accessories to 25 cities. Similarly, Ozon has established its own distribution network of 2,100 pickup points in 130 cities as well as a huge warehouse in Yekaterinburg to fulfil customers’ orders outside of Moscow and St. Petersburg.
Despite the constant expansion by brands such as French retailer Auchan, experts believe that Russian retail seems to be reaching its zenith. In the last few months, Russia’s economy has been plummeting due to Vladimir Putin’s foreign and economic policies. Increase in tariffs on imported goods, banning imports of certain products, and sanctions imposed by international community due to Russia’s military action in Ukraine and Crimea, has resulted in an increase in inflation to above 8 per cent. Also, the Rouble is at its weakest since 2008, and many of the country’s billionaires are moving their money abroad as fast as possible.
The current turbulent – Russia’s political scenario – is resulting in high-street fashion brands such as New Look, Esprit and River Island exiting the Russian market, whereas others such as Uniqlo have put their expansion plans on hold. “Russia is becoming a more complicated and difficult market, which is making it less attractive,” commented Anna Lebsak-Kleimans, Chief Executive of Fashion Consulting Group. “A big problem is that international companies and brands, are really reluctant about development in Russia because you don’t know what you will have tomorrow,” added Ekaterina Petukhova, Retail Specialist at international consultancy Texere Advisors.
Interestingly, various brands are showing positive growth despite the political conditions in the country. These include ZARA, which entered the Russian market in 2003 and has plans to open 50 to 60 shops each year since 2012. Italian fashion brand United Colors of Benetton has recently opened a flagship store in Moscow, and plans to open 40 stores in the country in the coming 3 years. Luxury brands are also showing positive growth; Prada announced 30 per cent surge in sales in Russia for the first quarter of 2014. “We look at Russia as a market with significant long-term potential. Russian luxury consumers are some of our most knowledgeable and loyal customers,” said a spokesperson of Gucci, which has recently opened two new outlets in the country’s capital.
But beyond the existing political climate in the country, it is also how a brand markets and positions itself that determines its success. “Many brands try to say that it’s the wrong political situation and that’s where our problems come from. But I think the situation is more complicated; it’s combined with mistakes of retailers in positioning themselves and their business strategy,” observed Ekaterina. It is important for international brands to balance their presence in Russia in order to tap their true growth potential, despite the devaluation of the currency and the political scenario.
