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The luxury segment will come to life only next year
22.10.2014 4678

The luxury segment will come to life only next year

By the end of 2014, the Russian luxury goods market will fall by 18% to 4,6 billion euros. This was calculated by Bain & Co analysts in conjunction with the Fondazione Altagamma luxury goods industry association (which unites over 250 companies in the sector). The slowdown in consumption, which intensified in 2014, was noted by sellers of luxury goods last year. The devaluation of the ruble and the Ukrainian crisis were the reasons for the deterioration of the situation, combined with a decrease in consumer confidence, the authors of the Bain & Co. study note. ...

According to the estimates of the research holding "Romir", everyday consumer spending in September 2014 decreased in nominal terms by 6% compared to August this year; at the same time, spending on non-food items of everyday demand decreased by 17%. President of the Association of Watch Market Participants Vyacheslav Medvedev notes that sales, in particular, of expensive watches are decreasing "not because people have less money, but because there is less optimism and greater uncertainty about the future."

As another reason for the fall in demand for luxury goods, Medvedev calls "a general turn in the policy of the state, which does not encourage excessive and conspicuous consumption." A federal government official talks about the unspoken rule of dressing "modestly" at public events.

Russian consumers have become more selective, and their behavior has changed, says The Boston Consulting Group project manager Galina Oleinik: now luxury consumers choose between spending on clothes and accessories and investing in experience and experience, she adds.

In the first quarter of 2014, the results of sales in Russia were still pleasing to luxury brands. Sales in Russia and Ukraine are "amazing," said Louis Vuitton CEO Michael Burke. He explained this by the fact that because of the conflict in Ukraine, Russians began to spend more at home, rather than on travel. The fact that the conflict with Ukraine would not affect sales in Russia was also mentioned by Prada CEO Patrizio Bertelli, who pointed out that in 2013 brand sales in Russia increased by 30%.

Even the summer was good enough for luxury boutiques in the country: there was a certain slowdown in market sales, but not critical, says Daria Yadernaya, Managing Director of Esper Group. According to her, August and September turned out to be unexpectedly bad: "Due to the continuing devaluation of the ruble (since the beginning of the year, the ruble has fallen in price against the dollar by almost a quarter), shopping in Russia has become expensive, and the very generous summer sales have allowed a luxury client to purchase everything they need."

“Back in the summer, partners from Europe began to complain about very poor sales due to restrictions on the travel of certain categories of Russians abroad and asked us to do something here, and in Russia many distributors sell premium brands at the same prices as in Europe” - says a representative of a large company selling luxury goods. For example, in April TSUM launched a campaign called “at the prices of European capitals,” that is, sellers set prices for certain categories of goods that were as close as possible to European ones.

According to the authors of the Bain & Co study, buyers from Russia can cut their purchasing budgets for spring / summer 2015 collections by a third. The reasons are all the same - the reduction in sales and the continuing devaluation of the ruble.

The salvation for retailers could be the Russian regions, where the audience is less capacious, but with more stable money, says Yadernaya. However, according to JLL Russia & CIS, they account for only 25% of the demand in the luxury market. Yes, and the political and economic situation has led to the fact that, especially in recent months, sales of luxury goods inside the country have fallen, says Yadernaya.

The weakness of the Russian economy will affect the luxury market for several years, said Armando Brancini, vice president of the Italian Altagamma Foundation, in the summer. Improvement may come in 2017, when the industry will feel the effect of Russia's accession to the WTO and the expected reduction in duties.

Speaking last week at a conference of the Franco-Russian Chamber of Commerce and Industry, Daria Yadernaya said that Russians have accumulated "unspent money" - about 12 billion dollars, 66% of which is in luxury. “We assume they will be spent in 2015,” she said. - Since luxury consumers are not used to denying themselves for a long time, and also due to the usual depreciation of necessary things. In addition, new rich always appear during crisis periods, and we expect them to appear in the form of buyers in 2015. "

At the end of 2014, the Russian market for luxury goods will fall by 18% to 4,6 billion euros.
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