Russia’s Luxury Mania: Stores Grab Real Estate To Build New Empires

When the going gets tough, Russians go luxury shopping — and right now there are just a handful of major retailers snapping up all the brands.

MOSCOW — When the going gets tough, Russians go luxury shopping — and right now there are just a handful of major retailers snapping up all the brands.

“During the big financial crash a few years ago when banks were collapsing, Russians took their cash and bought big luxury items. Sure, we are worried about terrorism right now,” acknowledged Evelina Khromchenko, editor in chief of the Russian edition of L’Officiel, referring to the hostage-taking early last month that killed more than 300 people, many of them school children, in southern Russia. “But that is what we do when there’s a crisis: shop.”

The expectation that Muscovites with means respond to political and economic uncertainty by investing in brand-name consumer goods is one of the forces behind a wave of massive real estate expansion by a handful of Russia’s luxury megacompanies. In the last few years, the Crocus International group has built Crocus City, a mammoth 656,598-square-foot upscale mall with 180 boutiques ranging from Lanvin to Celine that is located on the outskirts of Moscow. A stone’s throw from the Kremlin, the Mercury group has erected its own 107,639-square-foot luxury shopping street and opened Armani, Gucci and Prada boutiques there. Not to be outdone, Bosco di Ciliegi bought a 50.25 percent stake in GUM, the historic 753,473-square-foot retail property on Red Square, where it recently opened Corneliani and Moschino boutiques.

“What’s happened is that all the accidental players fell out of the luxury apparel market and now a few major groups have become professional retailers who hold all the brands,” related Mikhail Kusnirovich, president of Bosco di Ciliegi. His company owns 40 boutiques across Russia ranging from Max Mara to Givenchy, as well as its own Bosco brand multibrand department stores

“We started out wanting only to sell clothes and did not plan to diversify into real estate. But the top few retailers have evolved into powerhouses and, as our companies’ boutiques have become shopping destinations, we have all realized that real estate is an important branding symbol,” Kusnirovich said.

In uncertain times, diversifying into real estate also may serve as a hedge strategy for Moscow retailers. In the wake of a month-long series of terrorist incidents in Russia — which included, in addition to the school attack in Beslan, two airplane bombings and a Moscow subway and bus bombing — retail turnover initially stalled, just as it did in America following 9/11. Stunned citizens were reeling from the violence and from President Vladimir Putin's announcement that he plans to curb the democratic electoral process.
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