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China Friendly Russia Woos Mainland Tourists with Luxury Goods

High-spending Chinese visitors prove life-line for luxury retailers in Moscow and St Petersburg.

Photo: TsUM: Leading the China Friendly charge in Russia’s luxury sector.
TsUM: Leading the China Friendly charge in Russia's luxury sector.
Photo: TsUM: Leading the China Friendly charge in Russia’s luxury sector.
TsUM: Leading the China Friendly charge in Russia's luxury sector.

Perhaps unexpectedly, Moscow has turned into a premium destination for mainland shoppers looking to purchase luxury goods. Despite Russia only being rated as the world's 11th largest luxury goods market, the influx of affluent Chinese consumers has seen many of the leading global brands in the sector look to build their presence in the country.

This has seen a number of high-end brands look to both expand their existing premises and launch new stores in the key retail areas of Moscow and St Petersburg. With many domestic consumers still struggling to come to terms with wide-scale economic crisis that has beset the country, retailer have been only too happy to accommodate China's high-spending tourists, gearing up to accept UnionPay Cards, employ Mandarin-speaking staff and create a welcoming ambience for their visitors from 3,600 miles distant.

Concerted efforts to woo such tourists began were first initiated by Moscow's TsUM, a luxury department stored owned and operated by the Mercury Group, one of Russia's key high-end retail players. This was the first such outlet to actively promote its acceptance of UnionPay – China's only interbank network. It also led the way in terms of employing Chinese-speaking shop assistants and in participating in the China Friendly programme, a Russian initiative aimed at creating the best possible experience for mainland visitors.

In Moscow, sales to Chinese shoppers already accounts for some 10% of TsUM's revenue, with that figure expected to treble over the next two to three years. DLT, the Mercury Group's flagship department store in St Petersburg, currently sees some 20% of its revenue coming from mainland tourists.

The moves by the Mercury Group have proved to be timely ones. Last year, some 670,000 mainland tourists arrived in Russia, outnumbering even the traditionally high level of visitors received from Germany each year. In Moscow alone, these Chinese holidaymakers spent more than US$1 billion, with their shopping preferences extending well beyond mere souvenirs.

In order to capitalise on this, Russia is now heavily promoting itself within China as a key tourist destination. Its appeal is not hard to spell out. Moscow is the nearest European capital to China, with a flight time of seven hours from Beijing and just under nine hours from Shanghai. Following the substantial devaluation of the Rouble, prices are also hugely affordable by comparison with other European destinations. Added to this, there is now a clear and determined effort to accommodate and welcome mainland shoppers on the part of luxury retailers.

This initiative to woo mainland tourist is a key tenet of Russia's China Friendly Program (CFC). Co-ordinated by World Without Borders, a Russian trade body set up to boost tourism visits from countries in the Asia-Pacific Region, the CFC has been widely adopted by a number of shopping malls, hotels and restaurants.

The conditions for CFC certification are fairly straightforward. All applying bodies need to have installed POS terminals suitable for processing UnionPay cards, while also offering a discount of between 3-5% on all such payments. Establishments also need to provide promotional and sales material in Mandarin, while also employing a number of Chinese speakers. Qualifying establishments are then promoted via mainland-based travel operators.

Last month, the success of this initiative led Michael Kors, the New York-based high fashion brand, to open its first store in Moscow. It was timely move given that the luxury goods market in Russia stabilised at around US$3.2 billion sales last year.

Overall, in terms of the Russian retail sector, while a number of mass-market brands have exited the market, all of the luxury brands have retained a presence. While many mainland tourist are also visiting a number of mid-range retailers with Russian outlets – notably M&S, H&M and C&A – the most significant proportion of their spend remains within the luxury sector.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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