Sanctions on Russians related to luxury will not stop the war

International luxury brands have a moral obligation to show care about the ongoing war and the massive loss of life. As the war continues to escalate in its 5th week with over 4,3 million refugees and millions dislocated, silence is not an option. Condemning the war without necessarily taking any side, is a message which must be communicated and repeated consistently. Showing care for those suffering will not mean losing clients from the ”other side”.

Showing genuine care is not about issuing an empty statement or a press release but supporting professional organisations who provide aid to refugees and to all those affected by the war. There are organisations focusing on those who are still in the war zone but also organisations who provide assistance to the refugees.

Complying with sanctions is not an option, whether it is shutting down a store or sourcing raw materials. The majority of luxury brands have indicated that sales in Russia represent less than 5-7% of their turnover, but sales to Russians abroad could be bigger in volume, although this is difficult to estimate. Under the current sanctions, wealthy can still fly directly to Istanbul and Dubai and onwards from there.

If all international luxury fashion / jewellery and watches brands have already shut down their stores  in Russia, international luxury hotel groups should also withdraw from Russia. While luxury hotel groups do not necessarily own the respective properties, they act as a third party operator, making a profit in the form of a management fee and a percentage from revenues. Yes, this may impact their employees, but this is exactly the pressure sanctions are aimed at.

Similarly to other emerging market countries, the ultra rich would be living abroad and they would safeguard their assets by registration and actual ownership. The ultra rich would not normally shop locally, to avoid exposure. However, even they would be targeted if they were in a country which is part of the block that imposed sanctions on Russians.

It is unacceptable for Turkey, a NATO country member, not to impose sanctions on Russians, instead taking advantage of the war by continuing to operate direct flights to Russia. It is beyond comprehension why NATO would tolerate that one of its members (Turkey) even puts out public statements welcoming Russians to invest, primarily in real estate, but also to hide their assets which otherwise will be confiscated in other countries. Short term, Turkey is also looking to secure the upcoming tourism season, which is known to be heavily dependant on Russians.

The U.A.E. is not a NATO member however, it is one of the very few Western type countries which has taken sides, overly supporting Russia. Similarly to Turkey, the U.A.E. is warmly welcoming Russians to invest in real estate, but also possibly relocating their businesses or starting new ones. Dubai’s luxury retail sector could also benefit from a larger number of Russians shopping. Dubai is also encouraging Russians relocate or start new businesses.

The biggest negative impact on the global luxury industry is the fact that Russia is now accessing the international grey markets. Major wholesalers of luxury goods outlet stock have also ceased the opportunity. The counterfeit market is also expected to increase. Sales intermediaries (sales ”agents” – known as ”daigu” in China) travel abroad to purchase specific items. Confiscating luxury goods by Russians is a negative precedent. Most resounding example is an import stock of Audermars Piguet watches which was confiscated by Russian agents.

Blaming and shaming a luxury lifestyle or hunting and confiscating a yacht – can also be damaging to the luxury industry as a whole – because few are aware these are singular and specific cases. There is nothing wrong with purchasing / owning luxury goods. Often certain luxury branded goods increase in value over time, similarly to art. The global luxury industry is a major employer globally.

This opportunistic approach should take into that the longer the war takes, the worse Russia’s economy will perform, many Russias losing out financially. Not to mention, the global spending ”inhibition” when it comes to buying luxury goods or services

Oliver Petcu

 

 

 

 

 

 

 

 

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