The Russian market is braced for major turbulence after dozens of footwear brands pulled out of the country following the Russian invasion of Ukraine and the subsequent introduction of international sanctions.
Adidas, Nike and Puma have joined the long list of international brands that have quit the country’s market, along with a large number of marketplaces, including Asos, Farfetch, Yoox, Net-a-Porter, Mr Porter, Matchesfashion and Mytheresa.
Neither fashion items nor footwear are subject to Western sanctions, said Anna Lebsak-Kleymans, general director of the Moscow-based consultancy Fashion Consulting Group. In all cases, the decision to leave Russia was voluntary, adding that the Russian market accounts for 10 to 15 percent of global sales for some European brands.
By pulling out from Russia, most foreign fashion companies have to dismiss their staff and relinquish leases with landlords, which could have a catastrophic impact on the Russian retail industry. Russian shopping centers are expected to be nearly half-empty once the withdrawal is completed, according to Marina Malakhtko, head of the retail department of the commercial real estate services provider CBRE.
“The overall share of foreign [fashion] businesses, taking into account various joint ventures, in the Russian fashion retail segment could reach 80 percent”, said Emin Agalarov, vice-president of Crocus Group. “However, in most cases, foreign companies said that they had only suspended operation in Russia,” Agalarov pointed out. Nevertheless, it will be impossible to replace the brands exiting the market.
A spokesperson for a Russian retail company who wished not to be named told Forbes that the Russian footwear market must be braced for tough times, not only because of the massive exodus of foreign brands but also due to logistics challenges. Over the past few weeks, leading maritime transport firms such as Maersk, Mediterranean Shipping Company and CMA CGM announced that they were suspending shipments to Russia. The U.S. mail carriers UPS and FedEx also stopped deliveries to the country. It is uncertain whether supplies from the countries that did not adhere to international sanctions against Russia can continue to be delivered in the current circumstances.
Not only are imports likely to suffer, but also Russian footwear factories are expected to shut down due to a lack of raw materials.
“Without foreign partners, Russian companies would not be able to provide the market with local products, since currently most types of raw materials are imported,” Lebsak-Kleymans explained, adding that the Russian factories operate primarily with imported equipment which adds the issue of obtaining assistance and spare parts.
Most footwear retailers have urgently started changing price tags. Before the Russian invasion of Ukraine, most retailers anticipated a rise in prices between 10 and 15 percent in 2022. But since mid-February, the ruble has nearly halved its value against the U.S. dollar as tension at Ukraine’s border translated into a full invasion on Feb. 24. Coupled with the logistics problems, the ruble’s depreciation may prompt companies to nearly double the price of shoes in Russia, which will effectively stifle demand since local purchasing power is collapsing. S&P Global Ratings forecast that Russian GDP would drop by 8.9 percent this year due to the impact of the war and sanctions.
But in the meantime, concern about rising prices and import restrictions are prompting Russians to buy clothes and shoes that may become unavailable in the near future, highlighted Lebsak-Kleymans.
Photo: © Michael Parulava on Unsplash
