Second only to China in terms of size and dynamics within the BRIC group, Russia’s luxury market remains defiant to economic and political hardships which have been impacting the country’s economy in the past 4 years.
Retail is by far Russia’s most developed luxury sector, with the majority of international luxury brands present with mono-brand stores (fashion, accessories, jewellery, watches). It is the growing potential of the Russian market which provided the confidence and motivated some of the leading international luxury brands to switch from a franchise operation to a direct operation (directly operated stores) during the past 5 years. This shift in business model has been both a challenge, due to rising operational costs, but also an opportunity to improve customer service, marketing and buying.
Even for the luxury brands which have remained in franchising operations, there has been a visible progress boosted by the directly operated stores. From merchandising to customer experience, the progress is vwidely isible throughout the entire Russian luxury retail market, most stores in Moscow keeping up with the flagships in Paris, London, Milan or New York. Major international brands such as Louis Vuitton, Chanel, Prada, Ermenegildo Zegna, Tom Ford or Max Mara boast their latest international store concepts in Moscow, some even ahead of other Western European locations.
Despite losing some of the international top brands from its huge portfolio of franchises, Mercury has maintained its influential position thanks to the fact it owns and manages the largest luxury real estate retail space in Russia. And real estate is indeed a turning point for the business feasibility of any luxury brand in Russia. That is why, none of the major international luxury brands could not afford not to be present within Gum or Tsum, Moscow’s two luxury department store which Mercury owns and manages.
The number of new openings expected this Spring, in Moscow, at Gum and Tsum department stores far outpaces openings in street locations. Juicy Couture, Manolo Blahnik, Ballantyne, Christian Dior, Versace Collection are among the brands opening mono-brand stores within the GUM Department Store , while Valentino and Versace are due to open shop in shops at TSUM Department Store. As for street locations, Prada is due to open next month its first flagship store in Moscow on the corner of Bolshaya Dmitrovka and Stoleshnikov Pereylok covering 1.700 sqm over three floors. Ralph Lauren, Chanel and Cartier will open additional mono-brand stores in Moscow, by the end of the year.
The second largest city in Russia, St Petersburg is challenging Moscow’s leading position as a luxury shopping destination, with the opening this Summer of DLT, a large luxury mall operated by a division of Mercury Group. Most international luxury brands present in Russia are due to open, gradually, mono-brand stores at DLT, first stores being expected this summer. Expected to open by the end of May, the Four Seasons Hotel in St Petersburg (first Four Seasons in Russia) will also feature luxury retail spaces. Among the brands which already signed leases are Stefano Ricci and Brioni.
The biggest challenge facing Russia’s luxury market nowadays, especially in the sectors of fashion, jewellery and watches, is the exodus of Russians who increasingly prefer to shop abroad. Dubai has been the fastest growing luxury shopping destination for Russians in the past 5 years. Lower air fares, due to competition of charter flights) and accommodation rates in Dubai as well as attractive residential real estate have been attracting an increasing number of Russians. A two day shopping trip to Dubai, from Moscow, Kazan or Yekaterinburg with return flights and 5 star hotel accommodation costs at least 30% less a similar trip to Paris or Milan. Plus there is the visa advantage, which is much easier to take for the UAE than for European countries.
Another growing challenge for luxury brands in Russia is the need to adapt marketing communications to new segments of luxury consumers. There are important differences between Russian consumers of luxury Moscovites versus shoppers from outside Moscow, which can be split into very distinct categories – on the one hand sophisticated consumers with diversified preferences, from cities such as Kazan or Ufa which are drawn mostly by Moscow’s department stores Gum and Tsum, as well as smaller galleries such as Petrovsky Passage and, on the other hand, cash rich consumers from smaller cities, called ”provincials” who prefer to shop cash in the major flasghip stores of the luxury brands. Classic advertising through glossy magazines no longer suffices, as there is a growing number of bloggers and a need for increased investments by the brands in private events, ideally mixing brands from different luxury sectors.
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