“Since the Tsarist period, the reference to luxury has always been very present in Russia. However, consumer habits are evolving: today they are less ostentatious and closer to those of Western Europe.” President of the French survey institute IFOP and a luxury-sector expert, Stéphane Truchi notes a real change in recent years in the relationship of Russians to splendour: ”What prevailed after the fall of communism was to show off one’s wealth. Today, Russians have a more exclusive attitude towards luxury: they are looking mainly for rare and expensive pieces of art.” Are we witnessing the end of the cliché depicting the vulgar and proud, nouveauriche Russian? In Stéphane Truchi’s view, it’s more a matter of generation change: “Russia has always accepted the notion that only a ‘happy few’ exist. Even during the communist era, there was a divide between the apparatchiks and the rest of the population. The difference is that today luxury is aimed at a larger public, for the most part educated people who have travelled extensively. They know the history of French or Italian brands, having lived in those countries.” Therefore, whether jewellery, haute couture, or tailor-made material, the most popular items are no longer those that glitter most, but those that are rarest.
“For Russians, luxury’s ultimate reference is France,” says Stéphane Truchi.
“Firms such as Hermès, Louis Vuitton or Chanel are particularly trendy. On the other hand, Russians are less interested in brands and accessories that are more prone to forgery, such as Dolce & Gabbana or Armani.” However, reminiscences of the past still persist: wealthy Russians continue to favour the most expensive articles. Elena Kudozova,manager ofMoscow’sMillionaire Fair (which, since its creation, has seen the number of its exhibitors rise from 21,000 to 38,000), also notes an increasing preference for sophisticated products and limited editions: in the automobile sector, for example, this translates into “the desire to acquire a Bugatti rather than a Mercedes,” according to Kudozova.
Increase in wealth “The growth of wealth in Russia is one of the most important in the world, and creates excellent perspectives for the luxury sector,” says Lucia E. Würmli-Kryenbühl, Russian-market specialist for Zürich’s Clariden Leu bank. Forecasts by the International Monetary Fund confirm the boom: GDP per capita in Russia, though relatively modest, should double in 2007 (from 7,000 to 15,000 dollars).
In comparison, the indexes remain stable in Switzerland (52,000 dollars), in the United States (44,000), in France (35,000) and in Italy (32,000). As for the Russian’s available income, it went from 3,000 dollars seven years ago, to 8,000 last year, and should reach 12,000 dollars in 2010.
This sudden surge in wealth cannot be explained merely by the multiplication of millionaires and billionaires. Russia is witnessing a marked consolidation of its middle class, which is increasingly attracted to luxury. Although glaring disparities continue to exist, they are less than one might imagine: a recent UNO report ranks Russia on the same level as the United States, equidistant from countries like Denmark, Japan and Germany, and from others, where inequality is much greater, such as South Africa or Brazil. “This middle class is progressively becoming Europe’s largest consumer base,” notes Lucia E. Würmli-Kryenbühl.
“Increasingly educated, it is playing a major role in the country’s stabilisation.” It is thus not surprising that in the midst of this transition a growing number of European companies are attracted by this new Eldorado. The finance sector has recognized this and is investing progressively more in Russia. For example, although the total of funds managed by Swiss banks amounted to about seven billion francs in 1999, the figure tripled by October 31, 2007 to 21 billion. The financial information agency Lipper ranks the main investors in the following order: UBS, Credit Suisse, Pictet&Cie, Swisscanto, Julius Bär, LODH, Clariden Leu, Zürich Cantonal Bank, Syz and Vontobel.
4th luxury market in the World Although Russia’s luxury sector is limited in global terms - Burberry or LVMH make only 5% of their sales there – the sector’s growth is far too important to be ignored by the great names. Most of them now have a shop window at their disposal in Moscow, where the sale of luxury goods is becoming far more global than before. For example, Mercury, the most important retailer of luxury products in Russia (the firm works in partnership with brands such as Dolce & Gabbana, Giorgio Armani, Prada, Gucci, Tiffany, Bulgari, Lamborghini, Ferrari, Maserati and Bentley), recently opened the country’s first two Ralph Lauren shops.
Quoted in the Financial Times, Jacques- Franck Dossin, analyst for the bank Goldman Sachs, expects the Russian luxury market to grow by about 15% over the next five years. But don’t expect “easy money,” warns the British newspaper: to limit their exposure in a market still considered risky, the important luxury groups often operate through franchises or local partnerships, which can mean important decreases in their profits.
That said, the situation is evolving rapidly.
Firms such as Dior or Chanel are now managing on their own, a sign that confidence in this sector is growing. After the United States, Japan and China, Russia has thus become the fourth luxury market in the World, even though half the luxury goods bought by Russians are purchased outside the country.
Alongside China, the Russianmarket therefore offers a vital growth potential for a luxury industry seeking to spread beyond traditional markets that have reached their maturity.
Russia’s “In 2007, Richemont enjoyed marked growth thanks to its inroads in emerging markets and the very strong demand for high quality watches,” according to Maximilian Münch, an analyst for UBS. “By virtue of its strong presence in Russia and China, where the group’s growth rates are close to 50%, it is well positioned to compensate a potential slowdown in the United States, where 12%of its sales aremade.”
Strong foreign investments A total of no less than 40 billion dollars worth of foreign investments were injected into Russia in 2007. Moreover, according to Euromonitor, nearly 300 billion dollars will be allocated to infrastructures between 2007 and 2011. Around 58 million households will then have an available income of 25,000 at their disposal. In addition, there is the country’s weight in terms of primary commodities.
All these parameters converge to favour long-term growth in Russia and its luxury sector: “Tomorrow’s consumers, notably Russian, will want higher quality products which they can pass on to their children,” says Lucia E. Würmli-Kryenbühl.
“A new type of luxury consumption emphasizing quality, design and ethical considerations will take over and combine with the imperatives of durable development.” Seen from this angle, Russia is following the general trend in the perception of luxury, away from mere assertion of social status to the search for a new experience and a greater feeling of well-being.
