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Retailers feel the chill as Russian sanctions hit

The growing political tension between Russia and Europe is beginning to have an impact on British retailing, as Russian spending in the UK declines.

The EU increased sanctions against Russia on July 29 restricting access to European financial markets, which followed a round of sanctions imposed in April, including travel bans and freezing assets.

Data from tax-free shopping operator Global Blue shows tax-free sales in the UK from Russian customers fell 7% in June on a year earlier. It now ranks eighth, on a par with Malaysia, by share of international sales in the UK (having been sixth at the end of March).

Richard Dickinson, chief executive of New West End Company, which manages the Bond Street, Oxford Street and Regent Street retail areas, was unable to provide figures but told Drapers: “The impact of the sanctions and the situation in Ukraine means the number of Russian shoppers has declined to the UK. There has also been further pressure [on Russian shoppers] due to exchange rates.” For now, he said, Chinese and Middle Eastern shoppers are plugging this gap.

Global Blue found June sales to Qatari and Saudi Arabian shoppers were up by 53% and 66% on the same period in 2013. For Chinese shoppers this figure grew 8%.

One Oxford Street department store told Drapers it noticed a drop in Russian shoppers this summer, but has yet to quantify the effect.

Some companies have found their business in Russia has also been hit by the conflict. German sports giant Adidas was forced to issue a profit warning late last month, which it blamed partly on the tensions.

The sports brand predicted its net income would be around €650m (£515m), revised down from €830m to €930m (£658m to £737m) for the financial year to December 31, 2014. It said it plans to close some of its 1,000 stores in Russia by 2015, but did not specify where.

In February, Asos chief executive Nick Robertson said “adverse currency movements” in Russia had contributed to a slowing in the company’s annual sales growth.

But this week Karen Millen, Reiss and others told Drapers that, for now, they are maintaining their operations in the country.

Karen Millen operates a franchise business and Russian ecommerce site. Chief executive Mike Shearwood said: “Although the political climate in Russia is difficult, it is business as usual for us. We can continue to perform well because we have a very well-established franchise network in the country.”

A Reiss spokesman told Drapers “nothing to date has changed” with its two Moscow stores.

Yorkshire mill Hainsworth, which exports cloth, fashion and interiors fabrics to Russia, said it will continue with its existing growth strategy for the country and seek new clients. “We will of course keep an eye on what’s happening, but we haven’t adjusted our plans,” a spokeswoman said.

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