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Seeking Russian Gold: Despite Turmoil, Brands Rush to Booming Market

Fashion and retail firms are heading to Russia in droves, attracted by a vibrant economy, a free-spending elite and a demand for style and status.

The Benetton store in Moscow

The Benetton store in Moscow.

Photo By WWD Staff

PARIS — When “Jenny From the Block” — better known as Jennifer Lopez — decides to open her first store in the world in Moscow, you know something is going on in the neighborhood.

Indeed, fashion and retail firms are heading to Russia in droves, attracted by a vibrant economy, a free-spending elite and what’s perceived as pent-up demand for style and status. While there is nervousness about the market and its stability — fueled by the Beslan terrorist attacks earlier this month, the murder of the American editor of Russian Forbes and the economic impact of the struggles of oil producer Yukos, executives overall believe the country continues to represent a mother lode for fashion and luxury brands.

“I have customers coming in to the store and buying 700 socks because they wear them once and then throw them away,” said David Gisi, managing director of the men’s fashion division of Mercury, one of the biggest luxury players in the country. “They consider Rolex to be almost like Swatch.”

Rebounding swiftly from an economic crisis in 1998, retail sales in Russia are growing by an average of 9 percent a year, reaching $119 billion in 2002, according to the most recent government figures. All told, Russia’s 143 million citizens wield some $280 billion in total spending power.

While most foreign retail investment to date has been in food and general merchandise, spending on fashion is considerable. Goskomstat, Russia’s national statistics agency, says an average of 13 percent of household spending goes to clothing and footwear. The Russian clothing market is estimated at about $10 billion to $12 billion. Brands as diverse as Levi’s, Hugo Boss, L’Oréal and Benetton have been present on the market for more than a decade. More recent arrivals range from Burberry and Louis Vuitton to the German discounter Metro Group.

And investments in Russia are expected to continue. A recent survey by Chicago-based AT Kearney management consultants rated Russia as the most attractive emerging market for retailers for the second year in a row, beating India and China, in second and third, respectively, in its 2004 rankings.

To be sure, the luxury crowd is cashing in on Moscow’s big spenders, with many brands reporting annual sales growth there in the range of 20 to 30 percent or more. Christian Dior, for example, cites year-to-date sales growth in excess of 50 percent in Russia and ranks its Moscow flagship fifth in terms of volume among its network of about 170 stores.
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