Major luxury brands suspend operations in Russia

Hermès, Chanel and Cartier owner Richemont have temporarily suspended operations in Russia, citing operational challenges and staff concerns as fallout from the Ukraine invasion spreads.

LVMH, the biggest luxury group by sales, and Gucci owner Kering, the second, followed on Friday night with similar announcements, as did Britain’s Burberry.

Several Western brands, including Apple, Microsoft, Ikea and Nike, had moved more quickly to halt sales in Russia, prompting critics to say luxury groups were holding their ground until nine days after the invasion began.

Consumers on social media and Paris Fashion Week attendees had urged luxury groups to act, with some saying it was indecent to keep shops open in Moscow as bombs fell in Kiev.

Some industry watchers have also expressed concern over reports of shoppers flocking to luxury boutiques in Russia to buy expensive watches and handbags to hedge against runaway inflation, adding that these goods could even be used to smuggle money out of the country and flout strict sanctions.

When LVMH’s biggest brand, Louis Vuitton, posted a message on Instagram saying it was “deeply touched by the tragic situation unfolding in Ukraine” and pledging to donate 1 million euros to refugees, it sparked a torrent of negative comments, including: “Close your stores in Russia if you’re serious” and “Stop selling to Russia!

LVMH, which owns more than 70 brands ranging from Moët & Chandon champagne to Christian Dior, has about 3,500 employees in Russia and operates 120 stores.

French brand Hermès acted first, saying it would “temporarily close our stores in Russia and pause all business activities” from Friday evening. Bag maker Birkin gave no reason for its decision. It has three stores in the country and around 60 employees.

Hours later, Chanel announced a similar decision, citing its “increasing concerns about the current situation, growing uncertainty and complexity to operate.”

“We will no longer deliver to Russia, we will close our stores and we have already suspended our e-commerce,” the company said in a statement.

Chanel angered social media users on Thursday when he called the Ukraine invasion a ‘conflict’ and said he would donate 2 million euros to refugee aid organizations operating on Ukraine’s borders. Ukraine. Supporters demanded that the brand, which employs 300 people and has five stores in Russia, stop selling there.

Swiss company Richemont, which owns Cartier and Van Cleef & Arpels, said it suspended business operations in Russia on March 3, “given the current global context”.

“We will continue to monitor developments and adapt our measures accordingly,” he added.

Although the companies won’t release specific numbers, analysts say Russia isn’t a top luxury market, although it is home to a class of oligarchs that are now under sanctions. UBS estimates that LVMH, Hermès, Kering and Burberry earn less than 1% of market revenue, even when taking into account Russian buyers buying abroad. At Richemont, which is more present in jewelry, Russian buyers represent around 2% of sales.

Russian luxury activity is marginal compared to that of the United States and China, the two largest markets in the sector where demand had exploded despite the Covid-19 crisis. “In dollars, this equates to about $9 billion, or 6% of Chinese spending and 14% of US spending,” Jefferies analyst Flavio Cereda wrote in a note.

That fact has prompted some to wonder why luxury groups would risk the reputational risk of continuing to operate in Russia when the business impact of the pause seemed manageable. Additionally, as the impact of financial sanctions and supply chain disruption worsens, it will be more difficult to restock stores in Russia or maintain e-commerce operations that require the fulfillment of orders from abroad.

Neri Karra, an entrepreneur who founded an eponymous brand of ethical handbags and teaches business practices at Oxford University, said luxury and fashion brands should act quickly. “They no longer have the luxury of being silent. You cannot claim to be an ethical and sustainable brand and still sell in Russia,” she said.

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