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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.

In 2003, Russia accounted for sales of 510 million euros, or $628.3 million at current exchange, out of group sales of 53.6 billion euros, or $66.03 billion. Metro cites a “first-mover advantage” to being the first big international player in a new market, especially for securing the best locations. Plus, Metro has the further advantage of actually being invited into new markets.

A Metro spokesman said the retailer is often instrumental in introducing or establishing a value-added tax system in the countries in question, consequently providing the governments with a continuous source of revenue. This is the case in Serbia. Even in countries where there is VAT, many small-scale retailers often don’t pay it, the spokesman explained. “We offer very reasonable prices, and so many of these small retailers start buying their ranges at Metro, and thus do pay VAT,” he said.

L’Oréal, beauty’s behemoth, staked its claim on the Russian market in 1990. Its sales soared 39 percent in Russia last year and have multiplied by 2.5 times since 2000.

Its Vichy brand, introduced in Russia in 1998, is now available in 2,500 pharmacies there and is the number-one skin care brand in the country, according to the firm.

L’Oréal has adapted its brands at a local level to better meet the needs of Russian consumers. For its L’Oréal Paris brand, for example, it tweaked its methods of communication with customers.

“Technical advice is a key element of success in Russia, where consumers expect information on the most ‘technical’ products, such as hair color, skin care, and makeup,” the company said. “Consequently, [L’Oréal Paris] has designed new counters called ‘Espace Beaute,’ in which consumers can receive diagnosis from beauty advisers.”

Also at a local level, L’Oréal’s Garnier brand tackled the effects of Russia’s harsh winters by launching Total Comfort in November 2003. The skin care product was developed especially to meet the needs of the Russian market as 39 percent of women in the country have very dry skin.

On the apparel side, foreign retailers face little competition from Russian makers, which compete mostly at the low end of the market against cheap Asian imports.
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