The Moscow Times reports that Polo Ralph Lauren opened their first stores in Russia last week. Including one a 720-square-meter, three-story outlet amid the luxury shops in Tretyakovsky Passazh. On opening day all the "Ricky" handbags were sold out, a example of the growing success of the luxury goods market in Russia.
The Ricky handbag, named after chairman Ralph Lauren’s wife, sells for 16,000 euros ($21,580) and there are none left in the store, Alla Verber, vice president of local franchisee Mercury Group, said at the Wednesday opening party. Luxury goods make up 10 percent of retail sales in Russia, a market worth $270 billion that may grow as much as 17 percent next year, according to Moscow researcher Fashion Consulting.
As I’ve explained to many of my contacts in the West, the Russian market for luxury items is very strong. This is of course fueled by the large disposable income many Russians now have, especially in Moscow. One reason for this has been the privatisation of the property sector, when communism ended so did state ownership of property. Over the last few years the Government has been selling the homes back to residents at knock down prices. At the lowest end of the scale I actually bought my wife’s flat for £500 when I first arrived in Russia. We sold it last month for just over £5000.
However in Moscow the value of property has shot through the roof. Residential property prices have almost doubled in the past year and the value of office buildings has risen so sharply that they are now more expensive than in New York. The average price for a square meter in Moscow is now over $4,000 (USD), and in the city center, it sometimes exceeds $20,000.
This property boom has resulted in a wealthy middle-class being formed almost overnight. An army of consumers who are demanding not only luxury goods but homes abroad and exotic holidays.
However there are words of warning on this explosive growth,
“The Russian market is going to get quite crowded quite quickly,” said Simon Irwin, an analyst at JPMorgan Chase in London. “They’re not all going to succeed; there’s just not enough room.”
Marketing and branding are strong tools though in the hands of Western companies, who come here with a long history of experience. On the internet in particular, many Russian companies are not competitive at the moment. The other advantage International companies can lever in their favour is trust.
Russians remain suspicious of luxury goods sold by local companies, in case they prove to be fakes. In a society where fraud is still common and consumer rights and protection non-existent, Russians want to be sure they are buying the real thing. In this respect a familiar and trusted Western brand can be a powerful sales tool.