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Re-evaluating the Russian market

Moscow via alexander annenkov flickr

The Russian fashion market has had a turbulent time in recent years, but after a period of instability, there are signs that the market is heading for a turnaround, so is it time for UK retailers to reconsider Russia?

During the boom of the early 2000s, the value of the Russian clothing market soared from €4bn (£2.45bn) in 2004, to €37.4bn (£32.2bn) in 2005, data from the International Textile and Fashion Marketing and Management Consultancy shows. The market dropped during the economic crisis of 2008/09, only to pick back up to a value of €35bn (£30bn) in 2013. A year later, however, the markets were struck again: the rouble crashed, oil prices fell and economic sanctions following the annexation of Crimea prompted retailers to withdraw from the country. The value of the Russian clothing market dropped once again, to €25bn (£21.5bn) in 2015.

Aquazzura moscow boutique 01

Aquazzura moscow boutique 01

Aquazzura Moscow

Now, there are signs that things are looking up, as a stabilising economy is tempting new retailers into the market. Last month, LK Bennett opened its first store in Moscow, as did luxury brand Aquazzura, following Wrangler, which opened its first Russian store in December. Superdry opened its first store in November, also in Moscow, and mulling further expansion in the Russian capital and St Petersburg.

“We are at the beginning of a new growth phase in Russia,” says Reinhard Doepfer, senior adviser and liaison officer for the European fashion industry at Schneider Group, which helps brands enter the Russian market. “Because inflation is coming down, people are starting to buy clothing again. There is a lot of pent-up demand in the Russian market.”

Russians return

In addition to international brands seeking entry into the Russian market, this demand has prompted Russian buyers to return to  international trade shows and fashion weeks.

“In the last season or two seasons there has been a gradual picking-up of Russian attendance at key international trade shows such as Pitti Uomo and Paris Fashion Week,” reports Paul Alger, director of international business development at the UKFT.

Russians are very ambitious in following fashion trends and looking smart

Reinhard Doepfer,  Schneider Group

“There is a slight feeling that Russia is picking itself up a bit and there is business to be done. A lot of the showrooms in Paris saw a modest uplift in the number of Russians coming through and placing orders.”

This is, in part, thanks to greater economic stability in the country. In February, the Central Bank of Russia announced inflation is nearing 4%, down from a peak of almost 13% in 2015. And there are signs that the Russian economy may be heading for a modest turnaround: the World Bank predicts 1.5% economic growth for in 2017 and 1.7% in 2018.

This optimism carries over into the fashion sector. Fashion Consulting Group forecasts that the value of the Russian fashion market could grow by up to 9% in 2017.

“The Russians are very resilient and this is a resilient market,” explains Alger. “One thing the Russian government has been doing over the past 10 years is to encourage a consumer market. There remains a very important market in Russia for apparel and imported products.”

LK Bennett recently opened its first Russian store in Moscow

LK Bennett recently opened its first Russian store in Moscow

LK Bennett recently opened its first Russian store in Moscow

In a survey by WNDirect, 36% of Russian shoppers surveyed had bought an international brand online in the past three months. The UK was one of the most sought-after nations for clothing purchases: 42% of those buying international brands online seeking out items the UK.

“Russians are very ambitious in following fashion trends and looking smart,” says Doepfer. “So this is a particular moment when British fashion and accessories and footwear can play a role.”

Moscow calling

All this provides a potent lure for international retailers, and brands are picking up on Russian demand for international and UK brands, and the opportunities this offers.

One such retailer is LK Bennett, which opened its first 1,500 sq ft store in Moscow’s Metropolis Mall in March, as part of a partnership with the Russia’s Easy Partners Group.

In terms of business growth Russia lands in the top five markets for Europe

Rino Castiglione, Wrangler

“Russia is an important market for us and we had been looking for the perfect partner and store location for some time,” says Darren Topp, CEO of LK Bennett. “It has huge growth potential. Moscow is an international city with cosmopolitan customers and we were keen for LK Bennett to be present there.”

This cosmopolitan, trend-focused customer was also a draw for US denim brand Wrangler, which opened a 979 sq ft Moscow store in December, and is planning a total of 50 stores in the country by 2020.

“Russian consumers are very fashion-oriented and style-sensitive, which in itself doesn’t differ all that much from any other European market,” comments the company’s president, Rino Castiglione. “Russia is one of the biggest players in EMEA [Europe, the Middle East and Africa], and in terms of business growth it lands in the top five markets for Europe covering around 12% of our EMEA turnover.”

Wrangler Moscow

Wrangler Moscow

Wrangler Moscow

Despite this appeal, the market is complex, and brings its own set of unique challenges. One issue for brands entering a country of more than 17 million sq km and 143 million people, is brand awareness.

“British companies need more exposure to become known,” says Doepfer. “The average Russian in the large provincial cities, won’t see the stores because they are only in Moscow. Companies have to go online, via the Russian net, and demonstrate their skills and capabilities.”

Brands that bring value in terms of price and quality do very well

Arnoud Bakker, Ikea Shopping Centres Russia, which runs the country’s largest chain of malls

“Brand awareness is very important, and Russians are very focused on brands,” says Arnoud Bakker, head of lease group at Ikea Shopping Centres Russia, which runs Mega, the largest chain of shopping centres in Russia. With 14 malls across the country and 265 million annual visitors, the company also offers guidance to brands making an entrance into the Russian market. Brands including Superdry and Armani Exchange have opened their first stores in the country with Ikea Centres Russia.

Dsc 1438

Dsc 1438

One of Ikea Centre Russia’s Mega malls

“Russian customers don’t accept any less than what they see brands doing elsewhere,” he says. “When Superdry opened its first store with us, it made no concessions with the concept. And it maintained its pricing – retailers often raise prices to offset import costs. It’s been performing very well as a result of that. For a company the size of Superdry to become well known it needed to open five to 10 stores reasonably quickly, to help with brand awareness.”

In addition to pushing brand awareness, Bakker highlights product quality and seasonality as key areas for international brands entering the market. “Russian consumers are very focused on the quality of the product, which is partly because of the Russian climate. Natural fibres are popular, too. Those brands that bring value in terms of price and quality do very well.”

Russia is too important a market and too important a world power to not have on your side

Paul Alger, UKFT

“Fashion retailers also need to think about seasons. Seasons tend to start earlier in Russia, so having warmer jackets in stock by the end of August rather than October in the store makes a big difference. With some brands, something like that would require their whole production line to shift four months earlier, which does make things more difficult.”

The Russian economy may be on the up, but the country still faces a great deal of uncertainty. This week’s fatal blast in the St Petersburg metro in a suspected terrorist attack is a stark reminder of the terror threat that is currently shaking the world.

However, with its hunger for brands and trend conscious consumers, it represents a huge potential market for retailers, especially as the uncertainties around Brexit look set to alter trading with the European Union. If British retailers are willing to carefully consider the needs of the Russian customers and find ways to increase brand awareness there, the country may well be back on the map as a location to watch.

As Alger concludes, “Russia is too important a market and too important a world power to not have on your side.”

 

Russia by numbers

RUB1.8 trillion (£24.6bn) total value Russian clothing market (2016)

RUB980bn (£13.7bn) value of Russian womenswear market (2016)

RUB403bn (£5.6bn) value of Russian menswear market (2016)

9% optimistic growth forecast for Russian fashion market in 2017

£45.3m Value UK apparel exports to Russia

Source: Mintel, the International Textile and Fashion Marketing and Management Consultancy and the Fashion Consulting Group

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