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retail-features

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.

But within weeks the country had rebounded and Muscovites seemed to have returned to their regular retail routines. At Galleria, the trendy restaurant with the toughest scrutiny in Moscow, diners in D&G jeans, Hermès H belts and corduroy Etro jackets lounged on the patio, their Louis Vuitton satchels and cashmere scarves strewn across banquettes — and that was just the men. Across town at the tony, 12-table Vogue Café, the knee-high wooden purse stands were laden with Balenciaga saddlebags, Chanel totes and a sea of Kelly bags accessorized with Prada robot charms. The fact that, in mid-September, Russian police nabbed a would-be terrorist who had parked a car full of dynamite and grenades outside a popular Moscow museum was not keeping people at home.

“The government has warned people to avoid crowded places. But people are still going to work, doing business, going out and going shopping. We have to live,” pointed out L’Officiel’s Khromchenko.

In fact, in the midst of all the gloom, Russia’s second-largest oil company last month announced a fivefold increase in its estimated oil reserves — making the country potentially the world’s second-largest oil producer after Saudi Arabia. With oil, the mainstay of the Russian Gross National Product, continuing to command high prices, the economy is booming. But because of that oil and gas dependence, international credit-rating agency Standard & Poors warned last month that Russia has one of the world’s riskiest banking systems.

For retailers, it’s a complicated situation. On the one hand, the Russian minimum wage is about $20 a month and, as of this summer, wage arrears stood at $820 million. On the other hand, according to statistics from the Russian government agency Goskomstat, Russian retail turnover rose to $146 billion in 2003 from $121 billion in 2002. Meanwhile, a U.S. government report in June put the unofficial figure for last year’s Russian consumer spending closer to $270 billion. Of that figure, industry experts suggest Russians may spend between $2 billion to $3 billion annually on luxury retail. And consumer demand shows no sign of abating. Retail space in Moscow, most of it large shopping centers, grew by about 645,834 square feet in 2002 and 10.7 million square feet in 2003.
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