TheChek News Flow

Some fashion, jewelry and watch brands are still trading in Russia despite the reputational risk and EU sanctions banning exports of items above €300, introduced after the country’s invasion of Ukraine last year. For them, there is too much to lose by abandoning Russia.

Think of the millions of euros they spent on sparkling boutiques in Moscow and St Petersburg and on training staff; think of the address books of wealthy customers they built up over the years. If the war ended tomorrow, it would be a pity to forgo all that, bearing in mind how difficult and costly it would be to re-enter Russia.

But major brands Chanel, Hermès and Louis Vuitton walked away from Russia, closing down their operations completely. And others have opted for a halfway solution whereby they keep a representative office in Moscow, managing operations in neighboring CIS countries such as Kazakhstan, Armenia and Georgia. This allows them to hold on to well-connected and experienced staff.

Richemont and Audemars Piguet shut down their operations and boutiques right after the outbreak of war in February 2022, expressing their protest against the invasion. Shortly afterwards, Russia’s FSB security forces raided their offices, seizing tens of millions of euros of stock. Customers who left their Cartier or AP watches for repair never got them back. Richemont and AP do not wish to talk about how they handled relations with their clients or whether they were compensated.

Interestingly, LVMH brands, which also shut down boutiques, were not touched by the FSB. Russian authorities may have remembered that LVMH boss and controlling shareholder Bernard Arnault met Russian President Vladimir Putin on a number of occasions over the past 20 years when the French luxury tycoon visited Moscow. Best not to bother his brands, they probably thought.

LVMH’s Bulgari, which was enjoying buoyant business in Russia before the conflict, still has a representative office in Moscow. It employs around 30 people while other staff were relocated to CIS countries, Turkey and Dubai. Bulgari continues to pay the rent for its well-located but empty boutiques on places like Red Square – paradoxically, to save some of the millions of euros it invested in them. “I wonder how long they will be able to continue paying staff and rent if the war goes on for many more years,” one French retail specialist in Moscow told Miss Tweed on condition of anonymity. “They have no cash coming in and money transfers to Russia have become super complicated. So, how can they survive long-term?”

Bulgari’s closed shops include two at Sheremetyevo Airport and five in Moscow, among them the huge flagship on Kutuzovsky Prospekt. It opened in November 2021 and a second floor was unveiled in early February 2022, just days before Russia’s onslaught started. It closed less than one month after its inauguration and Bulgari also shelved plans to open a luxury hotel in the Russian capital which it had just finished.

Other luxury brands also continue to pay rent to preserve their prime real estate spots, though their shops stand empty. However, this may not last forever.

Ulysse Nardin, the luxury watchmaker Kering sold to management last year, has taken a different approach. Its flagship store on Petrovka street in central Moscow re-opened at the end of November. It’s the only Western brand where the lights are on for many blocks around.

Ulysse Nardin has also kept its subsidiary open in Moscow. The brand told Miss Tweed it sold the boutique and stock to the Russian retail operator Conquest last November and the boutique mainly sells old collections. Sales assistants cannot say when they might receive new collections.

“This operator (Conquest) continues to regularly purchase small quantities of stock held locally by the subsidiary,” Ulysse Nardin told Miss Tweed in an email. It stressed the subsidiary only sold items held before the war. It added that having a representative office in Moscow allowed it to repair and service watches and “ensure the continuity” of its operations in Russia. It could import spare parts since most cost less than 300 Swiss francs.

“Obviously, we regret the conflict between Russia and Ukraine and we hope to see, as soon as possible, peace between these countries, where we have many clients and friends,” Ulysse Nardin said.

The brand had built a sizeable business in Russia after opening an office in Moscow in 2006. Before Russia annexed Crimea in 2014 and suffered the ensuing sanctions and drop in the value of the ruble, the country represented more than 30 percent of sales for Ulysse Nardin. In fact, the Swiss brand’s financial difficulties started a few years ago in part because it lost significant business in Russia. Now it’s keen to preserve whatever business it has left there.

We don’t know whether Ulysse Nardin did a deal with its local partner whereby it can repurchase the boutique and stock at a later stage. Some Western companies have secured such deals, selling their company and stock to local operators with an option to buy back in future.

Breitling’s boutiques in St Petersburg and Moscow were also sold to local retailers last year, together with the brand’s after-sales service centres. Breitling said it had transferred staff who had requested a move to subsidiaries in places like Dubai and Miami. It had not shipped anything to Russia since the invasion and the only Breitling watches being sold in Russia now were from old collections.

Most Russians are unaware that luxury brands have sold their boutiques to local partners. All they see is that shops remain open despite the sanctions. For example, Tissot’s boutique shines brightly on Tverskaya Avenue, at the end of the capital’s main artery, a stone’s throw from the Duma, Russia’s parliament. It’s run by multi-brand retailer Bosco but for your average Russian, Swatch Group’s Tissot is still selling watches in Moscow.

“These are not stores owned by the Group but by third parties - i.e. retailers who probably sell their own pre-conflict stocks,” a spokesman for Swatch Group told Miss Tweed in an email. “We closed our own stores at the beginning of last March and suspended all our exports to this country at the same time. Swatch Group has not closed its subsidiary in Russia as we hope – like the whole world - that peace will be restored as soon as possible.”

Bosco, which owns the famous Red Square department store GUM, has taken over several Swatch brands, including Longines. It also runs Italian fashion brand Etro and Kering’s Pomellato jewelry in Russia. As for Omega, its shop on Red Square is closed but the brand is sold actively by third-party retailers and Bosco could soon take it over too, according to local sources.

Italian jeweler Damiani is still open in Moscow, though with reduced hours and selling only remaining stock. “This is a family-owned company,” Damiani CEO Jerome Favier told Miss Tweed. “We wanted to protect our staff and keep paying their salaries. We send nothing there. They just continue to sell existing stock. Of course, it cannot last for long. We really hope the international geopolitical situation will improve.”

Brunello Cucinelli said in an email that their boutique in Moscow was closed. Miss Tweed has heard from local sources that customers can enter through the backdoor. The brand’s other shop in GUM remains open.

LVMH’s Tag Heuer and Richemont’s Montblanc also still have boutiques. Richemont did not reply to Miss Tweed’s emails asking about the status of the Swiss group’s operations in Russia. Local sources say Richemont is closing its subsidiary and winding down its presence, even taking furniture out of its shops. Cartier has luminous decorations in its windows and Van Cleef & Arpels still has paper butterflies and plants on display but these are likely to go soon. Bosco and other local retailers might be interested in these boutiques, the sources say.

Most of the world’s biggest watch and jewelry brands are distributed by Mercury, Russia’s No. 1 luxury retailer and owner of Tsum, Moscow’s equivalent of Printemps in Paris. Mercury also owns many luxury malls throughout Russia. As a specialized wholesaler, it sells Rolex, Patek Philippe, Chopard, Graff, Cartier and many fashion brands. It offers Gucci, Balenciaga, Burberry and Valentino handbags and eyewear. However, its prices are much higher than before and Mercury mainly sells old collections. Some locals say Russia is sliding back into a 1980s-early 1990s time warp, when what was available was mostly Western brands’ old stock, which people bought for a fortune because products were so hard to come by.

Now with the sanctions, Mercury is doing its best to keep a low profile and not upset luxury brands. It just quietly sells the stock it built up before the war. Mercury CEO Alexander Reebok, interviewed by Miss Tweed many times, did not reply to a request for comment this time.

As for the Swiss, Jean-Daniel Pasche, President of the Swiss Watch Industry Federation, declined to comment on individual Swiss brands’ policies or tactics in Russia. He pointed out that Swiss watch exports to Russia had dried up since March last year. They fell to 447,000 Swiss francs in January-February this year against 42.7 million in the same period in 2022. The average price of Swiss watches exported was 80 Swiss francs, below the 300 Swiss francs limit imposed by EU sanctions.

“I think what will happen is that luxury products will be mainly distributed by multi-brand retailers and franchise partners from now on,” said the French retail specialist in Moscow. “It will take a while for those brands that left to come back in full to Russia, with a subsidiary. They will no longer be ready to make the kind of investments they made 10-15 years ago.” That meant retail prices in Russia would stay high, as retailers took high margins, he added.

If you live in Moscow or Volgograd and want to buy an Audemars Piguet, a Patek or a Cartier at a decent price, it’s best to ask what Russians call a “buyer”. These are people who travel to Istanbul, Dubai or Almaty and buy for you, taking a commission. The final price is still lower than what it would be in Russia.

Some are quite crafty and are able to persuade certain sales assistants at the boutiques of luxury watchmakers in Switzerland to give them an in-demand model with the help of a €20,000 handshake. “There is always a way to come to an agreement,” one Russian buyer told Miss Tweed on condition of anonymity. “Of course, we don’t ask Swiss staff. We can only reach such agreements with non-Swiss staff at a café nearby and it’s usually pretty easy.”

Russians have long had an appetite for luxury and buying defitsit (scarce) items through contacts is nothing new. Networking and finding loopholes has often been the Russian way, dating back to Soviet times.