Russia’s long time love affair with Made in Italy luxury pursues at an impressive rate reaching 5,5 billion euro in sales for 2012 (excluding sales to Russians abroad), a 9 percent increase compared to the previous year, according to data by SMI Sistema Moda Italy.
Beyond Moscow, cities such as St Petersburg have been seeing a boom in new luxury store openings, including the DLT Department Store (owned by Moscow based Tsum) as well as several other mono-brand street level openings, in the past 10 months alone, such as Stefano Ricci, Paul & Shark, Moreschi (all Italian brands).
From a destination known as ‘secondary’ to Moscow, not only in size, but in number of rich local residents, St Peterburg has been slowly but surely redefining itself as an upscale destination, for both Russians and foreigners alike. This has been greatly helped by the introduction of the Emirates direct flight from Dubai to St Peterburg but also by new landmark luxury hotel openings such the Four Seasons Lion Palace (due to open June 2013), the first Four Seasons hotel in Russia.
The third city in Russia with the most developed luxury market is Yekaterinburg, with the majority of international top luxury brands being present with mono-brand stores, including Chanel, Dior, Gucci, Louis Vuitton etc. Krasnodar, Yekaterinburg and Ufa are Russia’s third tier luxury market cities, a potential which has already been tested by successful multi-brand stores. While Yekaterinburg has been witnessing a stagnation especially given its proximity to Dubai (less than 2 hour flight), the other three Russian cities are still incipient luxury markets.
To illustrate the potential of the Russian luxury market, an increasing number of major luxury brands are switching from franchising operations to directly operated stores. Hermes, Chanel, Louis Vuitton were followed by Prada, which took control of its operations last year. Gucci is currently in the process of switching from its franchising operated stores to direct operations, having set up a local company earlier this year. Gucci stores have been operated in Russia with different franchise partners in Russia and Yekaterinburg, making the operations change more complex.
Other luxury companies such the Aeffe Group (Alberta Ferretti, Pollini etc), Burberry , Giorgio Armani and Ermenegildo Zegna, are, at least for now, pursuing their long-term franchising agreements with Russia’s largest luxury retailer, Mercury Group.
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