11 Feb 2019
Ongoing Sanctions Fail to Stymie Selective Boom in Russian Retailing
With the Ukraine-related US / EU anti-Russian sanctions now poised to enter their fifth year, Moscow's resurgently vibrant retail scene suggests their impact may be lessening with new players arriving to fill the sales vacuum.
Overall, there were mixed signals in terms of the growth of Russia's retail sector last year. While the number of new international brands venturing into the market was notably down – falling to 21 in 2018 from 35 a year earlier – those that did arrived with an undisguisable brio and a degree of confidence in the opportunities arising that seemed to brook few thoughts of the possible impact of the continuing EU / US sanctions.
Perhaps unsurprisingly, it was the fashion sector that welcomed the most newcomers. Foremost among these was COS, the upmarket men's, women's and kid's designer brand launched by Stockholm-headquartered H&M in 2007. For its first Russian outlet, COS opted for a 540 sq m presence in Afimall City, one of Moscow's larger purpose-built retail / entertainment complexes.
For its part, Orsay, the Strasbourg-headquartered smart-casual women's brand chose the distinctly middle-market Gagarinsky Mall in Southeastern Moscow for its own 2018 opening. Actually, far from being a new arrival, this marks the retailer's return to Russia following a four-year break. It closed its previous chain of 14 stores across 11 cities in 2014 after its local partner went into liquidation.
Moving a little more into the luxury segment, 2018 saw Amsterdam-headquartered Karl Lagerfeld open its first solo-branded Russian boutique. Operating out of the Metropolis Shopping Centre, one of the largest and newest western-style malls in central Moscow, the outlet has an avowed focus on women's seasonal collections.
A little more catholic in its approach is New York's Coach, which is offering an array of footwear, personal luggage, men's and women's clothing, eyewear, perfumes and precision timepieces. Fittingly, the company opted for the prestigious setting of the GUM Department Store – opposite Red Square – as the site of its flagship Moscow retail operation.
Latching onto the surge in popularity of fashion sportswear among Russian consumers, Italy's Dirk Bikkembergs saw 2018 as the right time to introduce its Belgian founder's sports-luxe aesthetic to the local market. Although its first outlet has just opened in the Vegas Shopping Mall – a retail destination favoured by the residents of Rublevka, Moscow's most upmarket suburb – a second is already planned. This time, the company will be looking to flaunt its wares within the Crocus City Mall, which is conveniently located on the very doorstep of one of Moscow's largest golf courses. This is one brand that seems to have done its homework.
Keen not to let the overseas contingent have things all their own way in the athleisure space, Sportsmaster – Russia's largest and Europe's third-largest sportswear and sports-goods retailer – also chose to up its game last year. This saw it spin off Demix, its proprietary own-label brand, into its first standalone retail outlet. By the end of this year, a further 14 Demix stores are promised at key retail locations across Russia.
Staying within fashion, childrenswear has long been one of the most robust and recession-proof segments in Russia's clothing sector. Clearly hoping to capitalise on this, last year saw Poland's Coccodrillo branch out into Russia for the first time, with its range of fashionable and functional clothing and footwear for children of up to 14 years old now on sale at the Belaya Dacha Outlet Village in Southeastern Moscow. Given that the company runs 480 outlets around the world – largely in Eastern Europe – this is unlikely to mark the end of its Russian ambitions.
Again, the incumbents are unlikely to cede any market share to such incomers willingly, with two established retailers – Detsky Mir and Geox – already looking to bolster their standing. To this end, Detsky Mir is nurturing ABC as a second-string retail brand, with two pilot stores in Chelyabinsk and Novosibirsk already trialling a 1,500-strong inventory. After a few tweaks, this formula is then expected to be rolled out in a series of additional stores across Russia, including Siberia and the Ural Region.
If fighting on one front wasn't enough, the company has also launched a second offensive by moving to establish Detsky Mir Kolyasok (World of Prams) as a further standalone operation. This will see the brand deployed across a series of new openings, all with prams, car seats and other big-ticket baby accessories as their core offerings.
For its part, Geox, although originally an Italian business, is looking to build on its status as one of the leading footwear retailers in Russia. Leveraging on this heritage, 2018 saw it launch its first Geox Kids children's footwear outlet at the Evropeisky Shopping Mall in Central Moscow.
Fashion aside, cosmetics is another of Russia's most dynamic and thriving sectors. This is no doubt why Istanbul-based Flormar – Turkey's leading make-up brand – set up its first two outlets in Russia last year. According to the company, should all go well, that number will swell to 400, with many of the additional stores being managed on a franchise basis.
A similar sentiment, but quite a different strategy, was in evidence from Seoul-based Skinfood, one of South Korea's largest skincare and cosmetic manufacturers / retailers. Although keen to bring its 250-strong product range to Russia, it is looking to solely super-serve the country's two most lucrative consumer markets – Moscow and Saint Petersburg – by opening bespoke outlets within their precincts, while having no plans to expand further.
Betting that the country's improving affluence is going to have a trickle-down benefit on the domestic animals' front, last year also saw signs of life in the pet-care sector. On the external front, the Czech Republic based Plaček Group chose last year to introduce Moscow's animal lovers to its Dino Zoo pet hypermarket concept. Its first outlet is now trading in the Capitol Shopping Mall, the company's 228th such property.
Once again stepping up on the home-team front was Detsky Mir, with the Moscow-headquartered retailer setting forth into wholly new territory with its first Zoosaur store. Offering a range of pet food, animal cosmetics, grooming accessories and toys, it is believed the company is currently trialling the concept with a national roll-out remaining a possibility further down the line.
So, then, although maybe not a vintage year, the growth of Russia's retail sector was still substantial enough to banish thoughts of continued recession. There was, however, one notable downside – the vast majority of the country's retailers maintained that average receipts over the past 12 months remained well below their expectations – a reality that, no doubt, dismayed many of the new arrivals.
Despite this, the allure of the Russian market remains considerable. The country is, after all, home to 170 million indigenous consumers, as well as a growing number of migrant workers from Central Asia and the Ukraine, many of whom have been lured by the prospect of a far higher standard of living.
It is also worth noting that none of the retail sectors in expansionary territory have been adversely affected by the prevailing sanctions. In fact, in many cases, Russia's counter-sanctions have acted to bolster a number of the markets, leaving them both legitimately accessible and relatively free from competition.
Leonid Orlov, Moscow Consultant