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Saint Petersburg Vies with Moscow as Russia's Key Luxury Retail Hub

Soaring tourist numbers, VAT-free shopping and increased local spend boost second city's appeal for upmarket vendors.

Photo: Enjoying a high-end retail renaissance: Saint Petersburg’s Nevsky Centre.
Enjoying a high-end retail renaissance: Saint Petersburg's Nevsky Centre.
Photo: Enjoying a high-end retail renaissance: Saint Petersburg’s Nevsky Centre.
Enjoying a high-end retail renaissance: Saint Petersburg's Nevsky Centre.

The recent surge in Saint Petersburg's luxury retail sector has seen many Asian exporters start to view the north-western Russian city as a better sales hub than 700km-distant Moscow. While this is partly down to its recent uptick in upmarket sales, it's also because the country's second-largest city is a lower-cost launch point, while offering a more typical take on the styles and price points favoured in many of Russia's regional cities.

In 2017, twice as many brands set up shop in Saint Petersburg as in the previous year, a clear sign that things are on the up after the 2014-2015 downturn, a slump triggered by the collapse in the value of the rouble, an event itself spurred by a 50% fall in oil prices and continuing US / EU sanctions. The reasons behind the upturn are equally multi-stranded – increased tourism footfall, a rise in domestic spending by certain overseas-travel banned officials and, above all, a more positive market sentiment across the board.

Overall, the majority of the incoming brands were in the luxury sector, with a substantial number of them making their first foray into Saint Petersburg despite being active elsewhere in Russia. On top of that, many of the brands with an existing presence in the city – most notably Salvatore Ferragamo, Brunello Cucinelli, Herno, St-James and Bulgari – upgraded from street-corner boutiques to flagship stores.

The centre of much of this activity is Nevsky Prospect, the city's historic main street, which stretches from the Saint Petersburg-Glavny Railway Station to the Palace Square. Already home to several luxury retail outlets such as Louis Vuitton, Babochka Gallery, Loro Piana and Valentino, its more recent arrivals include Dior, Wolford, Salvatore Ferragamo and an expanded Ermenegildo Zegna operation.

As well as its luxury retail sector being dwarfed by Moscow's, Saint Petersburg has a number of other idiosyncrasies that companies looking to set up in the city should bear in mind. Firstly, a significant proportion of its luxury sales are down to its high level of tourists, with affluent visitors from China, Scandinavia, the Baltic nations and Germany a common sight on its streets and whose presence has had a significant effect on the range of goods stocked locally. Indeed, a number of the city's luxury department stores, including the highly-regarded DLT, look to super-serve overseas buyers, with mainland visitors particularly well-catered for through Chinese signage, UnionPay transaction facilities and Mandarin-speaking staff.

Jamilco – which operates a string of high-end fashion outlets in the city and throughout Russia – takes a somewhat different approach. Confident in the strength of the five-million-strong local market, it focuses on the wants of Saint Petersburg residents. Clearly not entirely forsaking tourism spend, however, it has recently announced plans to make its stores more China-friendly.

It's a timely move given that tourist numbers are set to rise still further, while the newly introduced policy of VAT-free shopping for overseas purchasers looks sure to boost spend in the luxury sector. In 2017, the city welcomed 7.5 million tourists, with just under half of them arriving from outside Russia. This year, the figure is expected to top eight million, with the overseas / domestic ratio remaining about the same. Within five years, it's hoped that 14 million will be the corresponding figure.

In terms of VAT-free shopping, only DLT currently has the facility in place. Many of the city's other retailers, however, are now set to introduce it, with its widespread availability expected to be heavily promoted at airports, ports and other tourist arrival points.

Despite the clear and growing appeal of Saint Petersburg for luxury retailers, one additional thing should be borne in mind – the highly-seasonal nature of the local market. From mid-November to mid-April, the city is almost entirely free of tourists, while many residents also flee the extremes of the local weather in favour of the low-cost, high-temperature resorts of Goa, Cambodia or Thailand. As a result, a significant proportion of the city's river-boat operators, restaurants and retailers shut down for all or part of the season.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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