Punish Russia? Help Ukraine? Protect the bottom line?
Russia’s invasion of Ukraine, the ensuing humanitarian crisis and a series of new sanctions and restrictions on trade and travel have forced European brands to walk a tightrope, balancing morality and desire. to help those who suffer, with the responsibility of running an international business.
Businesses have been keen to help, to make charitable pledges and to align with customer expectations – around social responsibility, diversity and equality. They are also under pressure from shareholders and the public markets, which is why they acted quickly this week, hoping to satisfy both.
Many companies, including Kering, OTB, Gucci, Acne Studios, Burberry and LVMH Moët Hennessy Louis Vuitton, have pledged their support to organizations such as the United Nations High Commissioner for Refugees, UNHCR and the Red Cross to help war victims and those fleeing Ukraine.
A brand manager who asked not to be named said offering humanitarian support was vital, as was compliance with government sanctions. But life goes on and business too.
“You must keep in mind that the war is not the fault of your partners. Companies have business considerations and relationships to consider,” the official said.
Brands have reacted differently to the crisis: there has been a degree of posturing and signaling virtue, with some brands making grand statements about boycotting Russia without actually doing significant business there.
Indeed, Russia is no longer a hot market for European luxury brands. According to a Morgan Stanley report released earlier this week, the importance of Russia and Russian nationals to the luxury sector has diminished over the years and is now “relatively intangible”.
The bank said that for companies such as LVMH and Kering, Russians account for around 1% of global sales. Burberry — and Italian brands — are more popular with Russians. They generate about 2% of sales for companies such as Moncler, Prada, Salvatore Ferragamo and Tod’s.
A large part of the purchases of Russians are made in Milan. According to tax refund company Global Blue, in the 12 months to February, Russian tourists spent an average of 1,215 euros per transaction in Italy, up 78% from 2019. Ukrainian tourists spent an average of 1,088 euros per transaction, up 45% compared to 2019. with 2019.
While Russian customers may represent a small part of their overall sales, these companies are still suffering the commercial consequences of Vladimir Putin’s war.
Burberry confirmed on Wednesday that it has suspended all shipments to Russia until further notice due to “operational challenges”. The company said it is “focused on supporting our employees and partners, especially in Ukraine and Russia.”
“Operational challenges” is an understatement.
Western countries have suspended flights to Russia; the ruble has collapsed and Russians have limited access to credit. Visa, Mastercard and Apple Pay have all put a damper on business in the region. Meanwhile, US and European governments are barring Russian banks from accessing international payment networks and freezing the assets of wealthy Russians living abroad.
Burberry is not the only company to have been forced to take a break. On Wednesday afternoon, Farfetch posted a notice on the site saying it has stopped shipping to Russia and Belarus.
Munich-based Mytheresa stopped shipping goods to Russia on Monday. The company confirmed that it has no significant business operations in the region and that its top priority is the “well-being of our colleagues and partners with family in Ukraine”. It also supports humanitarian efforts in the region.
Acne, whose Russian customers include Tsum, Leform and Aizel, said it regretfully suspended its e-commerce and wholesale operations. Russia “was starting to be an important market for us,” said Mattias Magnusson, Managing Director of Acne Studios, “but we want to stay true to our values.”
The company has also donated 100,000 euros to UNHCR and UNICEF to provide humanitarian aid and relief in Ukraine and neighboring countries.
European brands are not the only ones facing challenges in a difficult market. Retailers on the ground in Russia are bearing the brunt of sanctions against banks and international money transfers.
According to Alessandro Maria Ferreri, owner and CEO of consulting firm The Style Gate, the major Russian retailers have blocked payments and shipments for spring and are canceling orders for pre-collections, which were due for delivery in June.
“Even in normal times, importing goods into Russia is extremely complicated and customs procedures are very complex,” he said, adding that even if the war ended quickly, there would be long-term consequences.
“Russians will be cautious for a very long time, even if the war ends quickly, local spending will decrease and it will be some time before they start traveling again. And outside of Russia, will their credit cards be accepted lightly?
“The war triggered a domino effect that will impact the entire luxury sector. And even if tourists end up going to Russia, they will hardly go to buy international fashion brands. The market is very local in Russia,” he said.
He noted that the country has a middle class that will be afraid to spend given the uncertainties they will have experienced.
By contrast, Riccardo Tortato, purchasing manager at Tsum in Moscow, said he was warmly welcomed by the brands he does business with and was unaware of any canceled orders. “We have nothing to do with politics, we are a retail business,” Tortato said.
It remains to be seen what impact the war and sanctions will have on mass market players.
Companies such as Danish jewelry maker Pandora and Swedish fast-fashion giant H&M have both ceased business in Russia and Ukraine and are also contributing to the relief effort.
The Danish jeweler pandora say it was donating $1 million to UNICEF’s efforts to help children affected by the humanitarian crisis in Ukraine.
pandoraAlexander Lacik CEO said the company wants to help Ukrainian children and their families. “They need shelter, water, food, medicine, safe areas and other forms of support to get through the crisis. The work of UNICEF is essential and desperately needed.
The donation was particularly meaningful for Lacik, who said in a LinkedIn post that as a young child he had to flee “when the Soviet Union occupied Czechoslovakia in 1968. A formative experience for me. It is with amazement and disbelief that I witness the repetition of history.
H&M said in a statement it was “deeply concerned” about developments in Ukraine and said it was donating clothes and other essentials to the local population. The H&M Foundation has also made donations to Save the Children and UNHCR.
Russia is the group’s sixth-largest market, recording sales of 2.07 billion Swedish crowns, or $216.6 million at current exchange rates, in the last quarter of last year. It had 168 stores in the country at the end of November, having opened 13 new outposts in the past financial year.