Doors stay open as Russian consumers ‘panic buy’ luxury goods

Big brands shut down operations in Russia after Vladimir Putin invaded Ukraine. This week, major consumer-facing companies announced they were halting regular business operations in Russia, with Nike, for example, confirming on Tuesday that it was blocking online sales because it “cannot guarantee delivery of goods to customers in Russia.” Around the same time, Apple expressed “deep concern over the Russian invasion of Ukraine,” with a spokesperson saying, “We support humanitarian efforts, provide aid for the refugee crisis that is taking place and are doing everything we can to support our teams in the region.”

Meanwhile, a growing number of mainstream fashion companies are going out of business. British retailer ASOS said on Tuesday that “in the context of the continuing war, ASOS has decided that it is neither practical nor fair to continue to do business in Russia.” Fast fashion group Boohoo, which owns PrettyLittleThing, Nasty Gal, Dorothy Perkins and its eponymous brand Boohoo, has also revealed that it has ceased operating its e-commerce business in Russia. Still, Swedish giant H&M Group said on Wednesday that following “tragic developments in Ukraine” it has temporarily closed its nearly 200 stores in Russia.

Brands that occupy the luxury goods segment seem to move more slowly when it comes to closing up shop in Russia. While more and more luxury groups have hastened to promise humanitarian aid in connection with the ongoing crisis (LVMH, for example, recently announced a donation of 5 million euros from the International Committee of the Red Cross to come aiding victims of the war in Ukraine), few – if any – have announced that they will halt operations in Russia, although current conditions are expected to make business difficult to conduct from a supply and logistics, especially since transportation giants like UPS, DHL and FedEx have halted their services for the time being.

The brands did not comment on their decisions to continue operating as usual in Russia, but it should be noted that spending on luxury goods was in high gear in Russia this weekend. Bloomberg has reported since that a similar consumer episode is underway, with sales at LVMH-owned Bulgari stores in Russia, for example, up “in recent days,” CEO Jean-Christophe Babin said on Wednesday. Cartier, owned by Richemont, “still sells jewelry and watches” in Russia, according to Bloomberg, as do companies like Omega and Rolex.

Winking at looming supply issues, Babin said it’s unclear how long this spending spree will last, especially in light of the implementation of SWIFT measures, which “could make it difficult, if not impossible, to export to Russia”. The United States and the European Union, along with several allies, have confirmed that they will block certain Russian institutions from accessing the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) international payments system. On Wednesday, European Union officials revealed that the 27-member bloc would exclude seven Russian banks from the SWIFT messaging system, a move that is expected to have an effect on Western businesses and banks in addition to proving capable of isolate Russia when it comes to international trade.

Since luxury watches were already scarcer than usual before the start of the Russo-Ukrainian war thanks to the influx of money amassed – and spent – by wealthy consumers, who were forced into induced lockdowns by the pandemic (thus leading to less travel and other social activities, and therefore more time and money to spend on things like buying watches) and large-scale supply chain disruptions, the frenzy luxury-centric spending in Moscow may not last long.

Regarding the drivers of the surge in luxury spending, the director of the European Institute Adam Tooze revealed that over the weekend in Moscow, consumers were “freaking out buying luxury goods that may have high resale value” in anticipation of a falling rouble. (The value of the Russian currency fell about 30% against the dollar on Monday, making it worth less than 1 US cent. It hit “a record high of 110 to the dollar in Moscow on Wednesday.” by Reuters.) Babin echoed that sentiment, noting that Bulgari’s jewelry is a “safe investment,” suggesting ruble-holding consumers were looking to park their cash in luxury goods to maintain its value amid strong currency fluctuations in Russia.

“Like gold, which can serve as a store of value and a hedge against inflation,” notes Bloomberg, “luxury watches and jewelry can maintain or even increase in price amid economic turmoil caused by the war and conflict”. This phenomenon has been steadily established thanks to the robust luxury watch resale market, with a recent report from consultancy Art Market Research, for example, revealing that auction prices for watches have soared by 15, 7% in 2021, beating other collectibles categories. (Just last monthBob’s Watches, which is the premier online marketplace for buying, selling and trading pre-owned Rolex watches, revealed that Swiss watches have outperformed stocks, bonds, real estate and gold in the over the past decade.)

The same is true for certain models of handbags, including those from Hermès or Chanel, which notoriously maintain their value in resale capacity and, in some cases, appreciate in terms of the values ​​attributed to them in the secondary. . Marlet.

As for how much brands are actually earning from the apparent uptick in sales in Russia, that’s probably not significant, as brands’ annual sales in the country are typically under 5% – and are in fact closer to 2. or 3% for most groups. . However, by continuing to keep their doors open, brands appear to be signaling that the benefits of continuing to operate as usual outweigh the potential for long-term damage from a public relations perspective and ESG concerns.