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A luxury car parked outside Moscow’s swanky Ritz Carlton Hotel. Photo by Serge Kutuzov on Unsplash.com.

LUXURY BRANDS SHUT THEIR DOORS IN RUSSIA,
BUT ALSO PLAY WAIT AND SEE

 

With sanctions limiting the exports of diamonds and other precious items from Russia, there has been less attention of what the economic blockade is doing within the country, which over past two decades has evolved into an important outlet for luxury products brands.

In meantime, at least, according to their head offices, a spate of luxury brands are closing their doors in cities around the country. On Friday, March 2, LVMH told Reuters that it would be temporarily shuttering its 124 stores, and this was followed by similar announcements from the Kering Group, Chanel, Richemont, Hermes International and Prada.

Earlier, with the Russian ruble in free-fall, the Bloomberg new agency had reported that wealthy Russians were investing in luxury jewelry and watches. These rumors were backed up by a statement by Bulgari’s CEO that, in the short term at least, the imposition of sanctions appeared to have increased its business in Russia. He added, however, that the lack of access to international financial tools would ultimately make it difficult to export to the country.

Analysts quoted by the Wall Street Journal estimated that the luxury sector received less than 5 percent of its total revenue from Russia. This is significant, but less so than the potential consumer backlash and loss in sales that may it risk elsewhere if they do not shut down Russian retail operations.

The famous GUM shopping mall store facing the Kremlin in Moscow’s Red Square.  Traditionally the trading center of the Russian capital, it today is home to more 100 different brands. Photo by Boros Bobrov on Unsplash.com.

BOTH GUNG HO AND CAUTIOUS

Because of the public anger over the Russian invasion of Ukraine, retail brands have been usually gung ho when it comes to voluntarily cutting back on business in Russia. But there are practical considerations as well, including the precipitous decline in the value of the ruble and consequent restriction on trading in foreign currency imposed by the Russian government, as well as the difficulty that now exists in making and receiving cash transfers to and from Russian entities.

“The sanctions on banks in particular have made it very difficult to get money into Russia to pay employees or pay utilities, landlords, suppliers,” said Tahlia Townsend, a partner and co-chair of the international trade compliance group at Wiggin & Dana, speaking to the New York Times. “It’s not straightforward to get money back out of Russia, and so even if they can be paid for their goods they may not be able to then consolidate that revenue back into the United States or wherever else they’re headquartered.”

In the meantime, few companies are talking about pulling out of the country, preferring to suspend operations an await developments. Many are continuing to pay salaries, although what happens when their Russian bank balances are drained it is too early to say.

But what started out as a temporary halt in activity could become more permanent if the Russian economy really tanks, and attractiveness of the country’s market is tarnished.

RUSSIA’S MOST FAMOUS BRAND NOT RUSSIAN

An interesting case if the jewelry brand most probably more associated with Russia than any other – Fabergé.

Founded in 1842 in St. Petersburg, by Gustav Fabergé, the House of Fabergé was became the jeweler of choice to the Russian royal family. Following the Russian Revolution it was nationalized by the Bolsheviks in 1918, although, the founding family also relaunched the brand in Paris as Faberge et Cie.

Today Fabergé is based in the United Kingdom and is a wholly owned subsidiary of Gemfields Group Limited, the colored gemstones company that is listed on the London (AIM) and Johannesburg stock exchanges.

Still Fabergé company executives are nervous about fallout from the crisis and released a statement that it no longer has any ties to Russia.

“Like so many others,” it stated, “Fabergé is appalled by the developments in Ukraine. We hope and wish for a swift end to the suffering, and our thoughts and prayers go to all persons – of any nationality – who are caught or involved in the hostilities against their will.”

To aid the Ukrainian people, the company said that it making donations to Save The Children, Médecins Sans Frontières and UNICEF; adding £9 for every £1 donated by its staff. It said that would also making available two London internships to refugees.

It should be noted that there remains a Fabergé Museum in Saint Petersburg,but it has no connection, other than the name, to the London-based jewelry brand.

The Fabergé Pearl Egg, created by 2015, the Russian Imperial tradition, was crafted by the company that is no longer Russian, but rather British-South African owned, in collaboration with Qatari  pearl collector Hussain Ibrahim Al-Fardan.

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