With a population of 143 million, a growing affluent middle class and its status as one of the key BRIC markets
to watch, Russia, is an attractive proposition for UK fashion brands and retailers looking to expand abroad.
An over-reliance on energy exports may have led to dips in GDP in the past five years, particularly during the onset of the financial crisis in 2008, but its clothing market has proved resilient, swinging back into double-digit growth of 16.2% and 10.8% for 2010 and 2011, according to market research firm Mintel. The outlook is even better - Mintel forecasts the clothing market will be worth £39.9bn this year, and as much as £50.2bn by 2016.
The market is fragmented, with a lack of nationwide retailers securing a majority in market share. By market value, the top five retailers are Italian firm Benetton Group with 1.3% market share, followed by domestic retailer OJSC Detsky Mir Group, which also accounts for 1.3%, casualwear retailer SELA Corporation with 1.4%, young fashion retailer Gloria Jeans Corporation with 1.3%, and Spanish fast-fashion retailer Inditex Group, which holds 1.3% of the market.
The first port of call for any UK brand or retailer will be the well-developed metropolises of Moscow and St Petersburg. But the wide expanse that is mother Russia offers a further 10 cities with a population of between 1 million and 1.5 million, known as the ‘Millionniki’, from Rostov on Don in the Southwest of the country to Novosibirsk in southwest Siberia. And with 25 further cities with a population of more than 500,000, where there is little penetration in terms of international retail or even a really well-developed domestic offer, the opportunities are plentiful.
Arcadia has 44 stores in Russia - two Dorothy Perkins stores, four Miss Selfridge, 18 Topman and 20 Topshop. International director Paul Gould says it is one of the retailer’s “biggest successes”.
He adds: “We got in just at the right time and were on the crest of a wave for a number of years, and have really accelerated our growth over there and opened a lot of stores.
So it’s a really strong market for us.”
Esther Lutz, head of marketing at GT Nexus, which is a supply chain platform for retailers, brands, service providers and factories, says working with a reliable local partner is essential: “Not only do they know the consumer behaviour better, they are also familiar with local customs, business practices and getting things done.”
Mostly centred around Moscow and St Petersburg, Arcadia did just that and entered the Russian market via the franchise model. Gould agrees that local market knowledge has helped the retailer navigate the market in terms of retail real estate. He adds that the retail fascias have translated well into the market with minimum changes to the product needed, save for the outerwear, which has required more padding.
Karen Millen entered Russia 10 years ago and has since become one of the largest markets outside of the UK. Simon Gaffey, international business development director at the womenswear retailer, says: “Economic strength of the country, huge population densities concentrated in primary cities, growing consumer spending power within a relatively benign tax regime, [increased] domestic consumption and limited initial competition offered early market entry benefit.”
Like Arcadia, Karen Millen also took the franchise route, and Gaffey stresses that finding a like-minded partner, or partners, is essential for success. He adds: “Because of the immense geographical scale of Russia - it is
the world’s largest country spanning nine time zones - and the obvious practical [logistical] challenges of trying to manage solely from a central hub, we complement our master franchise structure in the primary cities
with a regional sub-franchise operation in the secondary cities, again allowing local operators with direct insight and necessary contacts and connections to grow the brand with direction from ourselves and our master franchisee.”
Online shopping is also popular with Russian consumers - the country is ranked sixth in the world in a report by OC&C Strategy Consultants in partnership with Google, with £5bn in ecommerce sales, £1.24bn of which
is estimated to be clothing. Gaffey says due to the size of the country, ecommerce will offer brands the opportunity to reach out to greater numbers of consumers. However, he adds that trading online in Russia is not without its challenges: “Russia does have a growing digital engagement but cash-on-delivery payment expectations and delivery times to some outreach destinations are some of the challenges facing retailers.”
There’s little doubt that the sheer scale and size of Russia, with its dramatic climatic differences by region and vast distances between densely populated areas, presents a logistical challenge to retailers looking to enter the market, but a shared language, and a growing middle class with a taste for luxury to mid-market brands means the country is ripe with opportunity for those who are brave enough.
Moscow’s exclusive boutique Rehabshop won’t be found in mainstream city guides, but insiders know it as the go-to destination for European designer brands in Russia’s capital. Labels stocked in the store include Band of Outsiders, Vionnet and MSGM, as well as more well-known brands such as Manolo Blahnik and Michael Kors.
The brand mix also includes vintage pieces from the likes of Givenchy and Valentino, with the opportunity for some really rare finds.