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Russian Luxury Market Study

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Russian Luxury Market Study

  1. 1. Luxury in Russia By Julia Orsa NYU - Independent Study on Luxury Marketing 1
  2. 2. The purpose… The critical decisions that luxury brands need to make today in regards to Russian market to stay successful are: A.Evaluate current strategies in relation to emerging trends and re-position if needed B.Understand what luxury means for this geographical segment C. Developing a personal relationship with Russian consumer based on their cultural heritage, experiences and values. This will be the key in the nearest future to stay successful Russian photographer Alexey Kuklin 2
  3. 3. Russian photographer Alexey Kuklin 3 Russia and Luxury at a Glance BRIC country, opportunities and threats Case: Benetton is acting on a shifting market Market volume and leading segments in 2014 Pricing model Luxury segments growth and spending Foreign Brand Focus Brand Strategies Market chasing strategies between 2005-2015 Customer-centric evolutions Distribution shift Store Conversion Case: GUM and Bosco di Ciliegi Mono-Brand Case: Louis Vuitton Vostok OOO Mono-Brand: Benetton, translating Italian vision Mono-brand: “Bilingual” Brand Name E-Commerce Strategy Customer Consumer segments, spending trend and TOMA Brand perception map Brand perception attributes that matter PART I MARKET & ITS PLAYERS
  4. 4. Russian Luxury BRIC Matters 4 STATS ABOUT FACTS From WWD, Monday December 2014 “On top of the ongoing difficult international economic environment, the luxury market is undergoing a certain readjustment, the extent of which is not yet clear… The identity of the [luxury] market is more complex than in the past” Prada SpA CEO Patrizio Bertelli 230,000 square meters, or 2.5 million square feet is the size of Moscow’s Avia Park, Europe’s largest mall +100 new shopping centers developed in Russia in the past two years While…
  5. 5. Russia as a BRIC Country 5 On July 16, 2013, Russia has overtaken Germany as the 5th largest economy in terms of purchasing power parity ($3.4 trillion vs. Germany’s $3.3 trillion) 143 million people as of 2012 heritage that goes back to 3rd and 8th centuries AD Economy that is ranked as the ninth largest by nominal GDP in 2014 27 language dialects With a slowdown in the developed nations’ consumer sector, luxury brands are turning their gaze toward BRIC countries. The “ease of doing business” index is one of the measures that ranks BRIC countries in order of favorable business environment to enter and grow. Russia, ranked at 92 in 2014 and projected to climb to 62 mark the following year, is one of the markets favorable for luxury business entry. It is now the top-ranked BRIC, coming out ahead of China (96), Brazil (116), and India (134), and is the biggest mover in its group. Forbes report showed the number of billionaires in Russia has increased 13 times since the 2000, growing from 8 to 110 people in 2013. The huge wealth gap is an outcome of the elite, extractive society in Russia. Data Source: http://data.worldbank.org RUSSIA: Data Source: http://rt.com/business/russia-gdp-5th-largest-158/
  6. 6. Russia as a BRIC Country 6 “Fashionable Russia” (also called “Set”) movement encourages young people to trade in their American brands clothing and replace them with Russianmade ones. “For us, clothing is a mean of communication… this is our weapon” quoted Moscow’s organizer for Set. “But it’s importantnot to exaggeratethe influence of political situation” quoted the head of luxury brands buyers at Moscow’s luxury department store. “We are getting into the mood that we should respect our roots, and fashion is part of what people are focusing on” Set “Something in the air is changing” fashion stylistfor Russian elite Luxury Threat on Economical Level: In 2014, due to Ukrainian conflict and geopolitical tensions, Russia faced sanctions from European Union and the United States. The impact of sanctions has impacted the country’s spending ability, which fell 13% compared to the last year. On a luxury front, the feelings about the future of the market are mixed. While some brands are bracing for lower orders coming from Russianmarket going into spring 2015,others (such as Versace and Benetton) are taking an opportunity created by vacancy of competingbrands and investing heavily into Moscow’s real estate to further solidify their market share. Luxury Threat on Cultural Level: Growing nationalism on Russian soil has taken an aim at foreign brands. Some see it as a threat to their luxury portfolio, while others see changing dynamics as an opportunity to re- establishthemselves with Russian consumer on a new intimatelevel. Data Source: WWD, July 23 2014“RussianCrisis TakesToll on Industry”
  7. 7. Russia at a Glace 10 Year Market Promise 7 With more economic sanctions looming on horizon, the Italian brand Benetton is standing strong behind its investment on the Russiansoil. In October 2014, the company opened a newflagship store in Moscow, Russiancapital. Observing emptying luxury space and constanthigh demand,plans are re-drawn to include 40 more stores in the country over the next three years. The mind behind Benetton’s bold new strategy is Mr. Airoldi, former senior partner at BostonConsulting Group, who joined the companyin May 2014 and re-shifter brand’s the focus on three main objectives: A. ability to growth company-owned stores B. building presence in fast-growing emerging markets C. rolling out its new store format “Russia clearly has growth potential higher than the rest of Europe. Is it now in a difficult situation? Yes, of course. But if we look in three, five, 10 years, there will be growth” Airoldi. investing heavily into company free standing stores in Russiais falling under all three goals $203.0 $161.5 sales sales 2008 2013 5 Y. CAGR 25.7% [MarketApplication: Luxury Threat Turned into Opportunity] Data Source: RetailWeek, 16 October, 2014 www.retail-week.com/sectors/fashion/analysis-benetton-opens- russian-flagship-and-plans-global-expansion/5065219.article Airoldi’s belief in the potential of the Russianmarket is supported by Benetton’s sales in this region over the past 5 years. Today, Russia is Benetton’s 2nd largestmarket segment, only trending behind its Italian home base. It is clear that Benetton is not going to risk its profitable segment while the rest of the luxury sector is deciding on future coarse of action due to political tensions. Weather Benetton’s bet will pay off, only future can tell.
  8. 8. Luxury Market Volume in 2014 Global Luxury Market size $339,370.9 millionUSD Russian Luxury Market size $10,409.2million USD 3.1% of global market volume Above average growth Top-3 Companies in Russia Retail Value, RSP, % breakdown LVMH 8.3% Bacardi & Co Ltd 8.1% Chanel SA 3.2% Russian Luxury Breakdown by Segment Russia 8 Fashion Market Structure: Luxury: 16% Premium: 7-8% Mass market: 41%
  9. 9. Russian Luxury Pricing Model The cost on luxury in Russianis elevated Prices are 20-30% higher than in London and 35%-40% higher than in Paris *Higher valuation in Russia does not apply to overall luxury market. Apparel, watches and jewelry categories’ valuations are based on individual brand’s perception 9 Expensiveness is one of the primary factors that drive luxury sales in Russia, as price is connected to social status appearance. This results in luxury brands’ ability to demand higher price/margin spread in Russia compared to other global locations. In the article « Luxe à la russe : pourquoi les Russes sont-ils prêts à payer cher? » , the author argues that « En Russie, les distributeurs établissentdes marges de 200 à 300 % sur le prix d’achat» The import tax accounts for some of the price increase, 15%-18% plus other costs of associated with the final sale, but the final sale still yields high gross margins. Average Price (in USD$) in Russia vs. France Categories France Russia % Russia vs. France Luxury Mobile Phones $14,998.74 $34,551.08 130% Designer Scarves $676.30 $865.20 28% Luxury Travel Goods $6,217.66 $7,964.52 28% Fine Champagne $145.69 $154.42 6% Men's Luxury Timepieces $18,680.24 $17,896.66 -4% Men's Designer Jackets and Coats $4,076.92 $2,406.54 -41% Women's Designer Jackets and Coats $4,076.92 $2,406.54 -41% Women's Luxury Jewellery $3,681.50 $1,976.80 -46% Data Source: http://www.lecourrierderussie.com/2013/11/roskosh-po-russki/ Data Source: Euromonitor International 2014
  10. 10. Russian Luxury Spending Segments Russian consumer spending on products by segment (excluding cars, yachts, real estate) 10 Sales of Luxury Goods by Category: Value 2007-2012 RUB million 2007 % to total 2008 % to total 2009 % to total 2010 % to total 2011 % to total 2012 % to total CAGR Designer Apparel (Ready-to-Wear) 94,525.60 52% 103,395.80 53% 95,455.40 52% 106,683.40 51% 120,220.50 51% 135,277.10 51% 43% Fine Wines/Champagne and Spirits 38,601.60 21% 38,473.50 20% 33,752.70 18% 40,160.00 19% 46,178.50 19% 51,820.00 19% 34% Super Premium Beauty and Personal Care23,204.80 13% 26,279.70 13% 26,922.20 15% 28,929.40 14% 32,257.30 14% 35,851.20 13% 54% Luxury Jewellery and Timepieces 13,793.90 8% 15,888.70 8% 17,034.60 9% 20,875.60 10% 24,252.30 10% 27,836.50 10% 102% Luxury Accessories 7,697.50 4% 8,736.70 4% 8,175.00 4% 9,598.10 5% 11,260.20 5% 12,935.00 5% 68% Luxury Writing Instruments and Stationery 1,541.40 1% 1,659.30 1% 1,472.40 1% 1,721.40 1% 2,031.20 1% 2,224.40 1% 44% Luxury Cigars 654.7 0% 741.9 0% 641.5 0% 664.2 0% 732.3 0% 814.4 0% 24% Luxury Travel Goods 377.8 0% 409 0% 347.7 0% 385.7 0% 455 0% 537.8 0% 42% Luxury Electronic Gadgets 751.6 0% 715.4 0% 513.1 0% 480.6 0% 408.4 0% 323.4 0% -57% Luxury Goods 181,148.80 100% 196,300.10 100% 184,314.50 100% 209,498.40 100% 237,795.70 100% 267,619.80 100% 48% Small consumer luxury goods segments did not change positions (as % to total), but growth within these categories was tremendous. Next few years CAGR growth is expected to be flat to +9% Forecast Sales of Luxury Goods by Category: % Value Growth 2012-2017 % constant value growth 2012-17 CAGR 2012/17 TOTAL Designer Apparel (Ready-to-Wear) 5.9 33.3 Fine Wines/Champagne and Spirits 5.9 33.2 Luxury Accessories 4.5 24.5 Luxury Electronic Gadgets -13.6 -51.8 Luxury Jewellery and Timepieces 1.6 8.5 Luxury Travel Goods 8.8 52.3 Luxury Cigars 5.4 30.2 Luxury Writing Instruments and Stationery 0.9 4.7 Super Premium Beauty and Personal Care 4.8 26.5 Luxury Goods 5.2 29 Data Source: Euromonitor International 2014
  11. 11. Russian Luxury Brands Focus 11 Major focus on international brands as opposed to local brand development: The platform of the Russianluxury market is primarily based on foreign brands capital. Based onYandex & DigitalLuxury Group research, the top 50 sought after brands in Russia are: #1 BMW, #2 Audi…#7 Chanel…#10 Louis Vuitton…#50 Clinique. And Russia cannot take credit for any of there brands. Although domestic market is centuries old, domestic luxury brands are still in their infancy stages at best (*with some segment exceptions). New entries are also foreigners: Not only top luxury brands are getting all of the local market attention, but newcomers with premium (lower) price points and luxury brand extensions are also coming from foreign lands. Source: Source:Luxury Society, Yandex & DigitalLuxury Group Top Searched For Brands in Russia
  12. 12. Luxury Market Chasing Strategies 2005-2015 Until 2007 sales of luxury goods were booming in developing markets, with the Russian market showing dramatic expansion of 65% Companies’ focus has started to shift to emerging markets in BRIC countries,such as Russian, and bringing younger/millennialconsumer base into greater prominence via introductoryprice points and high end luxury lines. Between 2008-2010the global economic downturnbegan making an impact on the luxury goods market in Russia, where growthfell to just 5% over the period Worst hit were aspirational buyers as brands began to focus on the more resilient, premium end of the market to make profit. The shift away from youngerdemographic helped luxury industryrecover losses and enter another growth stage. By 2010, the global consumer base has become younger, driven by a new generation of white- collar workers in emerging markets The global strategyof heavily relying on older age demographic to drive sales has became unsustainable.A new phase of growth required luxury brands to reposition back to include younger demographicsinto their marketing mix. By 2015, the market is expected to have returned to steady growth, with emerging markets accounting for 1/5 of global sales The challenge for luxury brands is to expand /change distribution and product offering to be able to reach and communicatewith younger, millennial consumers. By 2015, there are expectedto be shifts in the luxury product and customermix in the Russian market. Source: Euromonitor International report “Luxury Brand Routes to Market Exclusivity vs Expansion” 12
  13. 13. Russian Luxury Market Customer-centric Evolutions Brand expansion strategy Until recently, only licensing, joint ventures and wholesaling entry strategies allowed international brands to expand their Russian footprint successfully.Today, these strategies are shifting toward mono-brand retail network growth started by Louis Vuitton mono- brand store model. Capturing and holding to the absolute consumer via “subjective” brand experience In the past few years, brands selling in Russia have started to move away from ideology of “objective” sales driven by logo consumption, and started to evolve their “subjective” shopping environment to capture and hold the absolute customer. Activating cultural aesthetics and gaining entrance into artisans’ circles became brand’s major goals to accomplish. Focusing back on the aspirational customer as a growth segment, and testing accessible customer demographics As Russian younger consumers are spending more with “earn-and-spend mindset”, older consumers are more likely to keep their spending constant, thus increasing the attractiveness of the aspirational buyer segment. To educate and engage millennials in brand’s essence, companies are starting to focus on line extensions and RTW collection at lower price points. Not all luxury segments in Russia are within an easy reach In emerging markets an element of “bling” is still present with products such as luxury jewelry and timepieces showing continuous growth. Although this particular segment is very attractive in terms of operating margins, barriers to entry are high and erected by domestic providers. As Russian population invests their money into long lasting tangible assets during economic slowdown, jewelry and diamond segment is a holy grail of the domestic luxury market. 13
  14. 14. Russian Luxury Distribution Model 14 The model shift: Luxury franchise distribution model in Russia has been rigid from early 1990th, as global brands preferred the comfort of doing business with domestic partners instead of running direct operations due to economical instabilityand government property protection laws. Until recently, Mercury, Jamilco and Bosco, the top three luxury distributors in Russia, controlled the majority of luxury brands portfolio and made decisions on store locations, customer environment and communicationmessages. Today, luxury distributors are losing international luxury brands from their portfolio due to distribution model shift. Past Successes: Luxury department stores performance (primarily GUM) was above country wide average performance during 2007-2010. Super premium department stores revenue rose above recessionary pressures with all promotions focused on product and logos. “Objective” selling model held its position. Evolution: Changes in luxury sector are made possible today by evolving two areas of distribution model: A. Shifting focus away from “objective” selling model and moving into “subjective” experiential environment B. Introducing a mono-brand expansion strategy to Russianmarket
  15. 15. Russia at a Glace Objective to Subjective 15 First three floors of department store GUM were decorated with flowers to appeal to customers senses and transform shopping environment to social flower event. Nearly 586,000 plants in 28 different shades were grown for the flower festival and arranged in GUM. Bosco di Ciliegi (bosco.ru) is one of the largest retailers of luxury goods in Russia. Bosco di Ciliegi has set the aim of creating an environment for its customers in which shopping is accompanied by other activities that satisfycustomers’ aesthetic and cultural needs. An important part of Bosco’s activity is centered on the organizationof different art and socialevents, with largest event “Cherry Forest”, an arts festival where renowned and young artists participate and link Bosco luxury portfolio to local art and culture. [MarketApplication: GUM and Bosco di Ciliegi ] Data Source: (Photo by Sefa Karacan/Anadolu Agency/GettyImages)
  16. 16. Russia at a Glace Mono-Brand LV VOSTOK OOO 16 Louis Vuitton Vostok OOO (the Russiansubsidiary of Louis Vuitton, #1 luxury brand in Russia, www.lvmw.ru), was one of the first luxury companies to start its operations in Russia without the help of domestic luxury distributors, with “sales from Russianboutiques overcoming all expectations”. Louis Vuitton Vostok’s strategy of independent development in Russia provided the brand with freedom of expansion, marketing, and price firming policy. In addition, this strategy allowed the company to take customized orders and keep in close contact with the customer to “connect and satisfyon a personal level”. In addition, LV is a strong supporter of arts in Russia, a strategy implemented to connect the brand to local heritage. [MarketApplication: Louis Vuitton Vostok OOO ] With relaxed retail ownership laws, luxury brands startedto move awayfrom licensing and super premium department stores distribution models to mono-brand boutique model. Recently, luxury brands such as Hermès and Louis Vuitton have safely negotiated their own mono- brand retail distribution channel, and started to reinforce brand strategies of tight distribution control. The trend for buying back distribution licenses in Russia is still ongoing. “In the past four years Espace culturel, located inside the Louis Vuitton headquarters, has dedicated exhibitions to artists from Moscow, Korea and India and more. The idea of a global art space open to the public is the brand's way of supporting culture and reaching a wider audience.” Data Source: http://www.louisvuitton-espaceculturel.com/index_GB.html
  17. 17. Russia at a Glace Mono-Brand Benetton 17 Even international wholesale companies are shifting their focus on building mono-brand store concepts. Benetton is now committedto having directly managedstores in all of its major markets, leading with Russiansegment. “We didn’t do it in the past as it was not in the tradition of the company. We were born as a wholesale company. By directly managing the store, you get to understandthe consumer, and we need to understandthe consumer”. With fully controlled store environment, the Italianbrand global direction can be translated to a local market. The Moscow branch is one of a handful in the world to adopt the new Benetton design. “The store is a lab. In stores you can test, learn and improve. To test with the consumer directly takes you a very short time. Go to the store and you will get the answer.” The On Canvas format, is “entirely Italian in terms of style, design and elegance, but its movable elements make it flexibleand adaptable.” The clothes are showcased by themes and colors, and features total looks across clothing, footwear and accessories Benetton’s celebrates its brand theme with a its Colour Room “The speed at which we sell our items is 2X as fast!” [MarketApplication: Benetton] Data Source: RetailWeek, 16 October, 2014 www.retail-week.com/sectors/fashion/analysis-benetton-opens-russian-flagship-and-plans-global- expansion/5065219.article
  18. 18. Russian Luxury Mono-Brand: The Brand Name 18 Incorporating local culture into mono-brand store: Luxury product’s story and image is rooted in brand’s origin and culture (the physical place where it was experienced firsthand). In order to transcend their physical locations in Russia and trace its heritage back to the country of origins, and at the sametime engage the local culture, the name (of some) of the high- end luxury brands on physical stores are spelled both in Russianand in a native language of the brand. The brand name is spelled in Russianon top of the store, and in brand’s native languageon the street/ eye level.
  19. 19. Russian Luxury “Bilingual” Brand Name 19 The phenomena of “bilingual” brand name, is absent with less luxurious (sought after) brands, or when the brand enters another city outside of Moscow and St. Petersburg. Luxury Brand entering another city: Louis Vuitton Moscow Store Signage: RL Bottega Veneta, Prada Louis Vuittton, YekaterinburgLouis Vuitton, St Petersburg vs.
  20. 20. Russian Luxury E-Commerce Strategy 20 Luxury Threat or an Opportunity?: E-commerce is a newer emerging luxury trend in Russia. As branded products are becoming more popular with emerging market, online luxury presence is growing fast. Research has uncovered that emerging markets customers, who are connected to the internet, are almost twice as likely to have a preference for branded products than those who rely only on off-line brand information. Internet purchases of Louis Vuitton from the official website are not possible in Russia today, but the company states that it will be possible in near future. Why Internet can be an important channel in the Russian luxury market? Many high-end luxury brands are still staying awayfrom e-commerce. The common believe is that greater the inaccessibility – whether actual or virtual – the greater the desire. Building on the desire via exclusivity is a lifelong luxury strategy used by high-end brands, and internet is a tool of mass merchandizing, thus not fitting within overall echo-system. But as global brands gain more importance in Russia, the local populace needs to be educated on brand’s legacy, promise and values. AlthoughLV stores sales associates are valued for educated the foreign customer in the value and heritage of the brand, Russianterritory is approximately 1.8 times the size of the US, and internet is the only tool that can convey and carry the brand messageacross all territory as one unified voice.
  21. 21. Russian Luxury Luxury Consumer Russianconsumer Global millennials are still an important developing segment, but aging consumers in Russian still hold a commanding voice when it comes to luxury purchases. 47% of total Russian consumers in 2000 were younger than 34 years in age 41% of total Russian consumers in 2020 will be younger than 34 years in age Consumer spending trend Nearly all global consumers say they save at least some of their income; just 7% say they never save. Russian consumers break from this pattern as 18% claim they never save money. Luxury companies in Russian market will have a much easier time convincing consumers to spend. Emerging price point luxury Emerging consumers are more enthusiastic about increasing category specific spending. These consumers are giving a way to the emergence of the entry price point luxury product offering (i.e. Michael Kors and Miu Miu). Brand perception in developed vs. emerging markets Brands that are generally perceived in developed markets as standard or affordable, tend to be perceived as more luxurious in emerging markets. This phenomena is observed with the growth of Miu Miu and Michael Kors in Russia.The problem for top luxury brands will be the need to re-establish connection to local consumers to keep their place on top of the mind brand recall position and perception. 21 % Total 2000 Population % Total 2020 Population Gen Y + Z 47% 41% Gen X 25% 23% Older 28% 37% Swarovski perception map position vs. Burberry and Prada (see next slide) Data Source: Source:Published: 2012, Source:RussianFederation FederalState StatisticsService (Russia), Record Number: 2013 IIS 7320-S1.5 Source: “Analyst Pulse:Economy, Standard, Premium, or Luxury?Brand Perceptions Around the World”, EuromanitorInternationalSurvey Article, 08 Aug 2013, and“Global Customer Trends Summary:2013” EuromanitorInternational, 2013. “StrategyBriefingHow BRICS Consumers Behave”, EuromanitorInternational, 2013.
  22. 22. Russian Luxury Brand Perception 22 Displaced in consumers’ mind
  23. 23. Russian Luxury Brands Perception Attributes 23 In Russia, most valued attributes in luxury are: #1 Aesthetics #2 Premium Quality #3 Personal History #4 Functionality #5 Uniqueness #6 Self Pleasure #7 Expensiveness French brands with unparalleled aesthetics, combined with quality and personal history (i.e. LV and Hermes, Dior), will be seen more luxurious in Russia than others that are weaker on these attributes, in parallel to their country of origin (i.e. Burberry (UK), Tiffany's (USA) and Prada (Italy). The previously shown map on Russian“brand perception” demonstrates these findings. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2387825, “FactorsAffecting a Brand's Perception in Russia”, Moscow Lomonosov StateUniversity.
  24. 24. Russian Luxury Part I: Market Summary 24 Price Charging higherprices yieldedhighermargins Price fairnessdependsonbrand’s luxuryperceptionon a local level Promotion Objective:no longervalid Subjective:luxuryexperiential environment most successful ; Online showspotential Place JointVentureswith Luxury DepartmentStores - movingaway Mono Brand – transitioninginto Product Uber Luxury Brands – established,butsome are misplacedin consumers’ mindby lesserbrands ExpansionLines,RTW - growing Customer Gen X - existing AddingGen Y (Millenials) –emergingas purchaser
  25. 25. 25 Part II: Luxury Localization Purpose: To properly position the brand in a foreign country, global luxury companies need to “localize” their brand offering. Local offer does not mean a new product, but giving a brand an extended ‘le raison d'être’ based on country’s heritage. To properly implement the image positioning, companies need an overall understanding of what “luxury” means to a foreign community. "Lady of Quality" William Frank Calderon
  26. 26. Russian photographer Alexey Kuklin 26 PART II LOCALIZATION Heritage The role of heritage in foreign markets The emergence of Western luxury Case: Fabergé, first branded jewelry powerhouse Diamond and Jewelry Market Case: Irfé, building the brand by invoking heritage New Fashion Brands introduction: Fashion Week Case: LV trunk case, what no longer works Case: Dior, global luxury strategies in local market Uncharted Waters in Russian Luxury Sectors Two luxury cities, different tales Brand entry strategies to explore: Saint Petersburg Brand entry strategies to explore: new frontiers Table: GDP per capita per city New geographical frontiers analysis Education as untapped luxury Referencing other cultural avenues: books, churches and old buildings Technological Innovation Scarcity is overcome by technology Technology adoption in private and public sectors An impact on luxury sector Internet in Russia and luxury market disconnects Social Media: who does it? Blogging: new brands’ information channel Social media to educate: the heritage week
  27. 27. Russian Luxury Heritage and its role Drawing legitimacy from historical aspirations Luxury always has an origin and a story that goes back to the beginning. That story is rooted in its culture (the physicalplace where it was be experienced firsthand) and its place of production, a place that is consistentwith its world. While during times of the monarchies it was restricted to selected few, today it is an open market with its limits, strictly controlled via availability and price. Luxury Russianstart-up labels can emulate their legitimacy with the use of rich local history. Establishedglobal brands can also use local heritage as bridge to local buyers. Global and local brands The collapse of the Soviet Union in the 1990s, gavea way to a new generation of wealthy Russians. Equipped with a limited knowledge of luxury and a great spending ability to spend, logos and price became the key associations of luxury. Today, as we have seen in the previous section, the luxury market landscape is rapidly changing. Some of the key influencers are coming from global innovations and disruptors (i.e e-commerce and technology), while others drawing their legitimacy from associations of the past. 27 Irfé Fabergé Louis Vuitton
  28. 28. Russian Luxury Emergence of Western Luxury 28 The Reignof Peter the Great's (1682–1725): This period in history marked the emergence of Western luxury concept in Russia. The Emperor, Peter the Great, was the first of Russianrulers to break away from local traditions and embraces the westernized culture. Western attitudes toward luxury and fashion goods were adopted at the court and “France, with its tastefor fashion and luxury, became a role model for the Russiannobility.” French became the language of the RussianCourt and the urban nobility, and closely associated with luxury goods. The taste ‘for all French’ will continued into centuries ahead, when all Russiannobility would learn French at birth as a second language, and be raised by French governess. The trend for French luxury preference can still be observed today. The Brand perception map has earlier revealed that Burberry (UK) and Prada (Italy) are still viewed as inferior brands when compared to LV, Dior and Hermes (French brands). During Peter the Great's reign, Russia entered the period of Enlightenment, and the capital was moved to St. Petersburg (later was moved back to Moscow in 1918). In 1900s, St. Petersburg was “considered to be one of the most elegant capitals in the world, with most of the local population demonstrating an advanced understanding of major fashion trends, luxury value and heritage.” Today, the city continues to be a major European cultural center. Source: http://www.academia.edu/8069889/How_History_Culture_and_Demography_Drive_Luxury_Consumption_in_Russia
  29. 29. Russian Luxury History First Great Jeweler 29 The Rise of Jewelry Branded Powerhouse Source: http://www.cottontrendy.com/faberge-the-ultimate-historical-luxury-brand/#ixzz3KJgVNnT0 Corder, Rob (2011-11-18). "Faberge:A Regal Renaissance". ProfessionalJeweller.com "The World's MostBeautiful Eggs: TheGenius of Carl Faberge" BBC FOUR The House of Fabergé (Russian: Дом Фаберже) is a jewelry brand founded in 1842 in St. Petersburg, Imperial Russia, by GustavFaberge. Faberge ancestry dates back to 17th century France. In 1885, the House of Fabergé was bestowed with the coveted title "Goldsmith by special appointment to the Imperial Crown", beginning an association with the Russiantsars.Fabergé eggs became a common gift in the palace of Tzar Nicholas II of Russiaevery Easter due to their precious materials and meticulous design. Fabergé trademark has since been sold several times. The trademark is now owned by Fabergé Limited, which makes egg-themed jewelry. Up to this day, people still covet a Fabergé egg. The largest collection of 9 eggs (out of original 65 eggs) was purchased by the oligarch Victor Vekselberg. According to 2013 BBC documentary, Vekselberg revealed that the price paid for collection was over $100 million, but he “bought them as they are important to Russianhistory and culture, and he believed them to be the best jewelry art in the world.” The Fabergé egg design and silhouettes continue to serve as inspiration to many luxury designers, domestic and global. BalmainFall 2012:Inspired by Elizabeth Taylor's Faberge Egg [Market Application: The House of Fabergé ]
  30. 30. Russian Luxury History Diamond and Jewelry Market 30 http://almazi.net/ Diamonds and precious jewelry were an expression of power during the reign of emperors and empresses Diamond Fund (Алмазный фонд) is a unique collection of gems, jewelry stored and exhibited in Moscow today. The Fund dates back to the Russian Crown treasury instituted by emperor Peter the Great's in 1719. (Wikipedia) Study done by Alexander Fersman identified 85% of all exhibits in Diamond Fund were from 1719–1855 (from Peter I to Nicholas I) and only 15% for the last three emperors Today, the Russian State retains the monopoly for mining and distribution of gemstones.The Diamond Fund is a part of that monopoly, managed by the Ministry of Finance, which accumulates the most valuable items such as : all raw diamonds, all raw emeralds,rubies,sapphires exceeding 30 carats…
  31. 31. Russian Jewelry Brands 31 Market at a Glance In terms of retail value sales, jewelry remained the largest category in personal accessories in Russia for 2013. The segment saw the most dynamic retail value sales growth of any category in personal accessories of 14% in 2013, as well as strong retail volume sales growth of 6%. Jewelry remained very popular as a gift, both for family occasions and corporate events. The three leading players in jewelry in Russia are all domestic companies involved in real jewelry production i.e. Krascvetmet OAO, ADAMASStolichnyi Yuvelirnyi Zavod and Almaz Holding OOO. Top 5 players are also domestic brands and account for a combined brand share of 21%. This domestic brand power is part of the reason why Tiffany’s local brand perception is below company's global perception. Although profit margins on jewelry sales are in 15% range, new players with little global brand power will have a limited success in breaking into this monopolized market. The best strategy for these brands would be to convey a brand message based on historical Russianjewelry designs. Data Source: Euromonitor International 2014
  32. 32. Russian Luxury New Fashion Brands Designand feel are authentic: brand’s invoked images are firmly rooted in the Russianaristocratic culture - Irfé designs are inspired by Russianballet, Russianart, the intricate styling of Fabergé jewels, traditional embroidery, firebirds and double- headed eagles – all of which are emblems of Imperial Russia. For global relevancy, modern touches are injected via reworks of ‘baroque ’n’ roll’ feel. The story is also authentic: “Irina, princess of Russia, was the beautiful niece of the last tsar, and her handsome husband Felix Youssoupoff, once the richestman in Russia, was the playboy aristocratwho’d murdered the peasantmystic Rasputin. In exile after the 1917 Bolshevikrevolution, the pair embarked on a dress-design business in Paris (the first two letters of their Christian names forming the title).” Today’s brand promotionis still tied to its founders for authenticity: in 2008, during the Paris fashion show, the brand was once again presented tothe world by current creative director Olga Sorokina and Felix and Irina's granddaughterXenia Sfiris. Irfé, Paris-based Russianluxury-clothing label is a good exampleof a modern luxury fashion brand that legitimizes itself with the use of Russianheritage. Initially, the brand was founded at the end of the 1920s era by one of the country’s mostglamorous and notorious aristocratic couple who came from Russia, but faded away with time and the death of its founders. Eight decades later, it was re- launched in 2008 by Belarussianex-model Olga Sorokina, and today is known for its luxurious, aristocratic romanticism. 32 www.irfe.com Authenticity Source: http://www.dailymail.co.uk/home/you/article-2340226/Irf--Russian-fashion-label- murderous-past-.html#ixzz3KVG44Ngz [Market Application: Irfé]
  33. 33. Russian Luxury New Fashion Brands 33 Mercedes-Benz Fashion Week in Russia is one of the best channels of promotion for new emerging Russian designers. It launched 15 years ago, and has a mix of emerging designers and established businesses. To guide them, they have a newly created Russian Fashion Council (announced in Oct 2014). The council ‘s goal is to “bring together Russian fashion designers with local manufacturers and expertise to further develop the fashion business in Russia”. A press statement compares it to other "national fashion councils" in "key fashion markets," according to Fashionista.com. The largest fashion week in Eastern Europe "Russia is a fast-growing market for our cars, and Moscow -- the next hot fashion destination. Our participation in fashion week is vivid proof of these two axioms" Juergen Sauer, CEO of Mercedes-Benz Russia Furs and jewelry were very prominent features during the F14 Fashion week, as they evoked the riches that Russia is famous for
  34. 34. Russian Luxury New Fashion Brands 34 Many domestic, emerging luxury fashion brands to show at the Mercedes-Benz Fashion Week in Russia, are an inverted image reflection on the cultural evolution of the past 20 years. “After the collapse of the USSR everything changed. This is what my collection about,” stated Atelier Galetsky. “Referencing the influx of American brands like Coca Cola and McDonalds to the country in the 1990s through graphic logos and lettering, the designer channeled the aesthetics of the sportswear-clad “gopnik” – a working class stereotype comparable to the British chav, which he regards as “the most authentic Russian subculture.” One pattern looked back at the country’s fashion history with a print of the first ever Vogue Russia cover in 1998, an image Galetsky says is strongly associated in the cultural consciousness with the beginnings of the native fashion industry” Heritage of modern revolution Source: http://www.dazeddigital.com/fashion/article/22467/1/russias-new-fashion-revolution
  35. 35. Russian Luxury Global Fashion Brands Global Luxury in local community What is wrong with this picture? No one is paying any attention! The main goal of this LV campaign launched in 2013 was to celebrate Louis Vuitton’s long history of supplying Russian customers with LV product. The messageoriginated with a valid historical connection “the chest is a giant replica of one ordered by Prince Vladimir Orlov in the early 20th century”, but with no point of reference to that even on the trunk exhibit, people just found it vulgar, as its gigantic size violated the entire architectural feel of the Red Square. LV “trunk” case While Dior is connecting to the local culture with the use of experiential promotions, several other luxury brands are still trying an old model of “objective selling” and appealing to the locals with the used of the product driven marketing campaigns. And they are not having a great time of it! 35 Perhaps the brand should go back to its conceptual roots from its 2007celebrated campaign of Mr. Gorbachev wearing a pinstripe suit with a Vuitton bag placed casually on the back seat of a Khrushchev-era Soviet limousine, driving along a remnant of the Berlin Wall. The promotion incorporated Russianheritage, and made some fun in the background: the Berlin Wall mirrored some large shifts in the geopolitics of Russia. The controversial subtext of the magazinethat was placed inside the LV bag pushed the ad to another level of cultural communication – careful play with politics. The headline on the magazine“The Murder of Litvinenko: They Wanted to Give Up the Suspect for $7,000” is a reference to Alexander V. Litvinenko, the former K.G.B. spy who died after being poisoned. Who poisoned him? There were wild speculations and is an unsolved mystery. Source: Source: www.nytimes.com/2007/11/05/business/media/05vuitton.htm [Market Application: Louis Vuitton]
  36. 36. Russian Luxury Global Fashion Brands Global Luxury in local community On the earlier shown luxury perception map, Dior brand is valued more in Russian than on a global level, as the mostsought after brand (almostby half!). What plays a role is this skewed perception? The brand’s ability to speak on a local level can be one of its key strategies here: Speaking thru ancestors and culture transformative messages Although global luxury brands are favored for their foreign lineage and social acceptance, they still can get closer to the customer by discovering and appealing to local heritage in their own unique ways. Paris labels can draw historical inspirations, wile London labels can appeal to innovative nature of the luxury industry. 36 In Dior online magazine, Russianculture and heritage is seen thru Dior’s models’ eyes with the slogan‘it's important to put things in context” Last year, the fashion house celebrated Russianhistorical department store GUM 120th anniversary by turning the Red Square into a show stagewith “mirror cube mounted in the Kremlin, reflecting and distorting reality, giving the familiar symbols of the country - the battlements, Mausoleum, Red Star - giving birth to a new sound and association with the work of the Surrealists.” Source: http://runknown.com/christian-dior-na-krasnoj-ploschadi-2013 [Market Application: Dior]
  37. 37. Russian Luxury Two Capitals 37 Concentration of the luxury market The historyofRussia is closelytied to reign of Czars and two rulingcities of Russia - Moscowand St. Petersburg. Moscowand St. Petersburgsocieties “areless flashytodayand aremuch closer to the European modelofluxuryconsumption:valuingheritageand traditions,thinkingof transferringluxury items to their children,less focused on 'bling',interested in the historyofbrandsand youngdesigners.” Toady, Moscow and St. Petersburg together represent 80-85 per cent of the luxury market. But most searches for luxury in Russia are generated from Moscow, the capital of Russia. Below is the Google Trend of luxury inquiry by key Russian cities, with “Moscow luxury” outpacing the average search for “Russia luxury” Source: http://www.academia.edu/8069889/How_History_Culture_and_Demography_Drive_Luxury_Consumption_in_Russia Russia’s two major cities
  38. 38. Russian Luxury The Tale of Two Capitals 38 Moscow Saint Petersburg The capital, preeminentstatus within the nation the mostWestern city of Russia,as well as its culturalcapital The Third Rome (Третий Рим) The “Saint” Entry point of most businesses into Russia The follower of Moscow’s trend, the 2nd capital Looking Forward Looking Back Source: http://en.wikipedia.org/wiki/Moscow
  39. 39. Russian Luxury Brand Entry Strategy 39 Strategy to explore: If luxury brands launch in the luxury overcrowded Moscow by default, can a new luxury entry differentiate itself by launching in Saint Petersburg and connect to the city via city’s heritage? Saint Petersburgas a city is becoming more relevant to the global community: • St. Petersburg is a home to International Economic Forum (SPIEF), leading international economic and business forum held annually in Russia with more than 4,700 participants from 73 countries. In 2013, G-20 Russiasummit, the eighth meeting of the G-20 heads of government, was hosted at the Constantine Palace in Saint Petersburg • There is also a fashion eventAurora Fashion Week • Mercury, one of the leading luxury real state and brand developers, has launched a new retail projects DLT Mall in St Petersburg These and manyother events have led to a “developed infrastructure and a huge number of competent personnel, including in hospitality and services” (Chairman of the Committee for External Relations of St. Petersburg Alexander Prokhorenko) Luxury Strategy: Some brands mightfind it easier to enter the country in St. Petersburg, where the space is still relatively cheaper to Moscow and not completely overcrowded by brands. In addition, St. Petersburg is closer in its values and practices to western countries (by its heritage) than Moscow. Source: http://en.wikipedia.org/wiki/St._Petersburg_International_Economic_Forum
  40. 40. Russian Luxury Entry New Frontiers 40 Louis Vuitton opened its first store in Moscow Russia. Followed with an expansion into St. Petersburg, Sochi and Ekaterinburg. Judging from brand’s success in these geographical locations, it is highly likely that the brand would be expanding into other cities. Almostevery other global luxury powerhouse is following this expansion plan: Moscow -> St. Petersburg -> other 1-2 top Russian populated cities. Is there space left for new brands to enter and stand out? Answer is yes. New entries might have a first mover advantage over their luxury counterparts that are already in Russia, if they employ a different entry strategyand expand into “unpopulated”by brands Russian cities Chanel’s mostbeautiful, ultra luxurious store in Russia is not in the capital of Moscow, but in the city of Yekaterinburg CPP’s research in 2011, has revealed that sales of luxury goods and services has become almost twice more regionalized than before, and wealthy Russians residing in other major cities in Russia preferring to buy locally Louis Vuitton stores
  41. 41. Russian Luxury GDP per capita per city 41 Updated: 17.03.2014 Presence of the major luxury brands: Districts Federal subject 2002 2012 10 Yr. CAGR Russia 7,190 14,022 LV Hermes Dior Ferrari Ritz-Carlton Central Federal District Central Federal District 8,984 18,162 102% #1 Moscow 20,300 35,700 76% Yes Yes Yes Yes Yes #2 Belgorod Oblast 4,902 14,279 191% #3 Moscow Oblast 5,614 14,019 150% North-West Federal District North-West Federal District 7,509 15,453 106% #1 Komi Republic 9,977 21,845 119% #2 St. Petersburg 8,548 18,473 116% Yes Yes #3 Arkhangelsk Oblast 7,353 15,605 112% South Federal District South Federal District 4,404 9,156 108% #1 Krasnodar Krai 5,039 10,902 116% Yes (Sochi) #2 Volgograd Oblast 4,581 8,917 95% #3 Astrakhan Oblast 4,838 8,380 73% North Caucasus Federal District North Caucasus Federal District 2,654 5,134 93% #1 Stavropol Krai 3,494 6,216 78% #2 Republic of North Ossetia–Alania 2,674 5,669 112% #3 Dagestan Republic 1,921 5,174 169% Volga Federal District Volga Federal District 5,638 10,681 89% #1 Republic of Tatarstan 7,865 15,160 93% #2 Perm Krai 7,477 13,714 83% #3 Orenburg Oblast 5,118 12,533 145% Ural Federal District Ural Federal District 12,791 23,437 83% #1 Tyumen Oblast 32,695 53,308 63% #2 Sverdlovsk Oblast 6,197 13,848 123% Yes (Yekaterinburg) #3 Chelyabinsk Oblast 5,667 9,740 72% Siberian Federal District Siberian Federal District 5,852 10,745 84% #1 Krasnoyarsk Krai 9,221 16,877 83% #2 Tomsk Oblast 8,554 14,185 66% #3 Irkutsk Oblast 6,424 12,346 92% Far East Federal District Far East Federal District 8,327 17,355 108% #1 Sakhalin Oblast 10,193 52,205 412% #2 Republic of Sakha (Yakutia) 14,373 22,744 58% #3 Magadan Oblast 14,386 20,155 40% Chukotka Autonomous District Chukotka Autonomous District 22,226 38,617 74% Gross regional product per capita at purchasing power parity in US dollars http://en.wikipedia.org/wiki/List_of_federal_subjects_of_Russia_by_GDP_per_capita
  42. 42. Russian Luxury New Frontiers Analysis 42 Strategy to explore: Is there first mover advantageto enter into another “unpopulated” by brands Russiancity and be relevant? Couple districts on the GDP per capita map (highlighted in green on the previous slide) register above Russianaverage PPP, but have close to none luxury brand presence View of Capital View of Capital Sakhalin Oblast View of Capital View of Capital Magadan Oblast View of Capital Komi Republic Tyumen Oblast Republic of Sakha (Yakutia) With an exception of Tyumen, other regions are far away from the capital and western borders, and some are underdeveloped in their economical infrastructure for the companies to invest into physical locations. Brands can potentially reach these cities via e-commerce and by developing local couriers relationship to facilitate transactions and shipments from Moscow store locations (omni-channel fulfilment strategy). These markets can be a testing ground for Russianluxury e-commerce. an important service center for the gas and oil industries in Russia, located at the crossing of the Motor, Rail, Water and Air way – good for emerging market store location test
  43. 43. Russian other Markets Education as Luxury 43 Education as an luxury opportunity sector It’s often said that higher education is a luxury in its own right. The key feature of emerging markets is their ability to spend on non-essential items, such as communication, education and travel. These items will increasingly gain importance in the household budgets in the next five years. Although the spending on education in Russia has increased over the years (see table below), and is projected to grow in near future, local input into higher education is shrinking (students, staff, locations), meaning that higher education demand is met by other countries. Higher education overhaul Education plays a crucial role in determining social status in Russia. People who only have middle school education, on average, can find only unskilled jobs. Those who complete secondary education may rise no higher than low-level white-collar work. Higher education is of essence to the upper class. In 2014, the Russian government has embarked on a large-scale initiative to improve the quality of higher education. At least 77 universities have been stripped of their licenses since the beginning of the year and Education Minister Dmitry Livanov stated that “about 1.7 million Russians study in "low quality" educational institutions, representing 30% of the overall student body”. Today, consumer and government expenditure is starting to turn to foreign educational material and programs as means of educational investment. Categories (in Russian RUB mn / Current Prices) 2013 5 Year CAGR Government Expenditure on Education 2,267,710.60 46% Consumer Expenditure on Education 364,159.30 33% Consumer Expenditure on Education in Moscow 128,793.90 65% Consumer Expenditure on Education in St Petersburg 21,784.70 75% Expenditure per Student in Higher Education in Purchasing Power Parity Terms 2,594.50 13% Higher Education Funds Expenditure on R&D as % of Total Expenditure on R&D 0.90 44% Higher Education Students (Incl. Universities) 7471.3 -26% Universities and Higher Education Establishments 1046 -6% Higher Education Teaching Staff (Incl. Universities) 543.3 -27% Unmet market demand Data Source: Euromonitor International 2014 Source: (“Russian Consumersin 2020:A Look into theFuture” 20 Aug 2014 © Euromonitor International
  44. 44. Russian other Markets Education as Luxury 44 Sources of education – early introduction to the “Western” culture Come September, children of the elite Russian families will be packing their LV trunks and be on their way to the full year of the boarding school education in the most traditional British institutions (be it boarding middle schools or colleges). Why Britain? “The historical importance of the country’s public school tradition appears to factor heavily, along with the prestige and possibility of university in the “West,” with students integrating well into British life as a consequence of “family connections or property in London and therefore having a good understanding of, and interest in, British culture.” “Russians love brands … [and] will see schools such as Eton as an equivalent of the Dolce & Gabanna of education.” Current market weaknesses “Very few kids make it to Eton, even less deserve it or will do well there” said Natasha Semyonova-Bateman, owner of the Britannia Manor small boutique consultancy for foreign families. While some children can buy their way in, there is no guarantee that they have potential to maximize ROI. What some schools do not realize is that only 5% of all Russians can speak fluent English (a necessity for success at British schools) and private prep-education is a fragmented, unfocused industry in Russia. Foreign educational institutions have an open opportunity to expend their brand in two ways: 1. Be suppliers of “top ranked” education materials, real-estate locations, and instructors to the Russian market. The strategy is to attract their cliental at early age via pre-school classes located in Moscow and St. Petersburg under one brand name and guide them throughout their educational experience up to a point of entry into top foreign universities. Education is a high margin business model, and market demand is growing fast. 2. Be disruptors: live/online class offering model is in its early adoption stage in the United States, and considering the vast Russian territory that needs coverage, top education suppliers can “export” their live classes to the larger Russian population. Although online offering reduces the “exclusivity” of this luxury sector, high prices and desire for top education will limit the supply, but expand it beyond its current physical boundaries. Opportunities to explore Source: Russians Flocking to Britain'sBoarding Schools, Aug. 12, 2013, http://www.themoscowtimes.com
  45. 45. Russian Luxury Books, Churches and Others Books Bounding on rarity and exclusivity Other ways to speak in a native languageis by being “literate.” In 2014, Financial Times magazineproclaimed that: “In rankings of the world’s literary greats, Russia tends to figure more prominently than any other country.” Russianpeople are educated in masterpieces since early age and learn about luxury lifestyles and social values by reading and memorizing pages of passages, deconstructing ideologies and exploring the idea of “honor”. To honor greatestliterary works, songs and plays are written, museums are built and connecting to art is established. 45 Luxury has a great opportunity to bound with Russianmasterpieces. Two attributes that they have in common is rarity and exclusivity. Turning time back, literature used to be only available to elite in Imperial Russia, and even in Soviet times, some of the greatestworks were on a forbidden list, when people copied works page by page hidden awayfrom total population. $2 million worth of Chanel jewelry was used to depict Anna Karenina’s personal style in 2012 Hollywood movie “Anna Karenina” based on Tolstoy’s masterpieces, intimately familiar to all Russianaudience. Chanel brand connection to Russianaristocracy was a great way to portray rarefied world of the 19th century Russia with its extraordinary amount of wealth and emotion. Source: http://www.ft.com/intl/cms/s/2/f76ed990-cfac-11e3-bec6-00144feabdc0.html Source: http://nymag.com/thecut/2012/10/anna-karenina-dior-couture-for-the-1870s.html
  46. 46. Russian Luxury Books, Churches and Others Churches Diverse application 46 One of the strongestlocal luxury brands in Russiais the Orthodox religion, with churches as a luxury product constructed to enhance the worship experience in every sense possible. Aesthetics and Byzantineart are a central component of RussianOrthodox worship. The architecture and layout of the churches regulate the senses of perception and enhanced through the regulation of light, movement, smoke, and sound. No expenses are spared in construction and decorations. Luxury décor and architecture of Orthodox religion has transferred into ordinary life as well. Referencing back to it can mean a lot to people, number which is growing up to 72% of total population Gum department store glass dome enhances the shopping experience through the regulationof light in the entire store Stained glass and church iconography are used in Moscow’s luxury private residences Swiss luxury watchmaker Louis Moinet created watch with double-headed eagle derived from Byzantine;the sceptre and golden ball in its claws represent the power of the Tsar and the RussianOrthodox Church
  47. 47. Russian Luxury Others: Old Buildings 47 When it comes to choosing a real estatelocation for the flagshipstore, Moscow can be an intensive market to play in. Today the demand for real estateis growing fast and is pushed beyond its tight boundaries by the Ukrainian conflict. Asonline analytics channel Mir Kvartir commented“demand has grown significantly - it is clear that buyers are seeking to get rid of the ruble,” (Source www.journal.mirkvartir.ru/analytics/2014/01/20/itogi-goda-po-regionam) With growing demand and tight supply, the choice of readily available retail locations is quite limited to selected few. But sometimes, a new location brand strategy may lie in something old and overlooked, that just mightset your luxury brand apart from others and make it an experience in itself. Here, we might borrow a story from New Yorker Magazine(September issue of 2014, p24) with a title “History: 5 Beekman Street.” Due to its historical nature and 19th century terra-cotta brick façade, the New York city 5 Beekman Street building was qualified as a preservation site in 1940, was later walled up, and laid empty until 2014. As space in NYC dried up, an investmentcompany saw an opportunity to restore the building to its early glory and use its stunning atrium architecture for a luxury apartment hotel (to be opened in 2015). With its rich history of Tsarist, pre-Revolution architecture later abandoned during communism, it is not a surprise that one can find beautiful, abandoned statements of art buildings in the space between two key cities of Moscow and St. Petersburg. Investing into their restoration can be a great opportunity for luxury brands to bound with Russianheritage, and stand out as a unique experiential location.
  48. 48. Russian Luxury Technology & e-commerce Technology Luxury application 48 Technology is one of the faces of luxury, and BRIC countries are catching up to the latest technological trends faster than some developed countries - according to a Ministry of Economic Development, RussianIT market amounted to $35 billion by the end of 2013 - the reputation of Russia’s science and technology industries capabilities paves the way for global investments As demand for luxury increases, but supply is limited to few locations, technology steps in and connects consumers to global brands. One such examples is the $55m (in investmentUSD$) private shopping club KupiVip.ru in 2011, in which US venture fund Bessemer Venture Partners played a large part. The start up closely resembles US Gilt Group, the flash sale website that sells luxury items at discount The company was started as a mimic of France’s Vente- Privee, with revenue reaching $160 million in just a year according to Forbes. In 2014, it started to work on IPO to raise $125 million to fund future growth. The story is similar to many other technological start-ups that serve as shortcuts to luxury. “I prefer calling it a business transfer…Cloning is just a replication, while business needs to be transferred and adjusted for local factors, and that’s been driving progress for all economic history” said Hartmann, CEO of KupiVip.ru Source: http://www.telegraph.co.uk/sponsored/rbth/technology/9183881/Russia-technology-foreign-investors.html
  49. 49. Russian Luxury Online Matters 49 STATS ABOUT FACTS From WWD, Monday December 2014 “The world is changing and customer behavior and expectations are changing even faster” Drexler 3rd, J.Crew chairman and ceo 42% of consumers world-wide who use social networking sites for product feedback 75% of global consumers look for specific items online, including luxury ones While…
  50. 50. Russian Luxury Technology adoption Today and Tomorrow: 50 “Feeling the repercussions from Ukrainian crisis, the country has started to tighten its control of own tech landscape. A national payment system was launched in April 2014 to lessen dependence on foreign payment providers. A new legislation also came out to require all companies to store personal dataon Russiancitizens within Russian territory, and is to be implemented in 2016. The Kremlin is aiming to limit the digital levers that foreign countries mayhave over Russia, “even at the cost of driving away foreign business.” One in two Russians now uses the internet, with Russia now is overtaking Germany as Europe’s largestinternet market. According to Morgan Stanley Research, 20 million people in Russia shop online, with majority coming from Moscow (Central Federal district) and Saint Petersburg (North-Western district), but other cities are expected to catch up to trend in the next few years. Source: “Russia: Becominga Digital Outsider or Self-Driven Innovator?”, 29 Oct 2014, Euromonitor International Source: http://www.slideshare.net/YandexBusDev/ecommerce-jan2013
  51. 51. Russian Luxury E-Commerce Luxury impact: 51 According to Exane BNP Paribas, global online business is expected to drive 40% of luxury growth from 2013 to 2020. Adding Russian growing online demand and country’s area of coverage, luxury e-commerce will be one of the main sources of future growth that luxury brands can no longer disregard. Burberry continues to be the leader in e-commerce luxury landscape, but it is interesting to note that, as seen on the brand perception map, Burberry is still not the most popular brand with Russiacustomer, even if the country itself has a limited physical store coverage and rely heavily on online information about the brand. Why is there a disconnect? Source: http://www.businessoffashion.com/2014/10/burberry-remains- digital-luxury-leader-celine-trails.html Source: Digital CompetitiveMap (July 2014) | Source: Exane BNP Paribas
  52. 52. Russian Luxury Internet in Russian Luxury Russianinternet search is out of sync with global rankings and L2 report revealed several steps that luxury brands are getting wrong: 1st Google isn’t the leading search engine, Russian native Yandex is. Yet most luxury advertising and search rank coding is done on Google 2nd Luxury brand sites are poorly optimized for cyrillic search (Russianalphabet). Given that only 5% of Russians can fluently speak English, brands are not getting their messageacross to the customers 3rd Android is a leader in the smartphone market share with 71%, but luxury iOS apps (for iPhone only) outnumber Android apps at nearly 5 to 1, the mistakethat luxury sector shares in 52 Source: http://www.thefutureofluxury.co.uk/digital-luxury-marketing-in-russia-l2-report-reveals-local-knowledge-gap/ Source: http://www.supplyant.com/android-vs-ios/
  53. 53. Russian Luxury Social Media: Who Does It? Social Media: 53 With Russianluxury fashion having a relatively low exposure on an international scale, the internet mightbe the key to crossing boundaries. Given the current misalignment between luxury website information and Russianconsumptiontrends, social media can be a good outlet to turn to: Facebook, Twitter and Instagram as a first step: While social media is a good promotional channel beside company’s website, only selected few luxury brands translate posts into Russianlanguage
  54. 54. Russian Luxury Social Media For New Brands Blogs: 54 Great blogging attracts attention because it delivers good content over time, which gives brands a regular exposure to an audience with whom they build trust and conversation. Russianstreet style and personal style bloggers are becoming increasingly influential online as a source for luxury information. Blogging can be a great tool to understanding vastRussianculture and desires. By reading comments to uploaded content and having a two-way conversation on brand’s website, trust is established and two-way information is gained. http://news.creatorsofdesire.com/blogger-interview-kyklamasha/ Q: Could you describe your style in three striking words? A: Only three words? Ok, let it be: inspiring, youthful, unique Q: Who is your absolute fashion muse? A: My Mom, Gabrielle Chanel, Jane Birkin, Edie Serdgwick. Q: What's in your opinion fashion capital of the world and why? A: Paris, New York, Milano, London - I want four capitals, not just one. Q: What are the differences between Russian fashionistas and European ones? A: I think that Russian fashionistas are very serious. They’re married to fashion, instead of the European girls, who only flirt with fashion. But in this case it's better to flirt, not marry. I don't like it when people follow rules to the letter. It's all about balance, you know... A: Fashion blogging is not very popularin Russia, but I'm sure it is developing. As soon as all designers, fashion houses, and business men from fashion industry understand this, it will be a breakthrough!
  55. 55. Russian Luxury Social Media to Educate Heritage Week Celebration 55 To overcome an overcrowded effect of luxury brands being collected in a tight Moscow space and stand out as unique story, established global brands and even new entries to the market can employ the strategy recently used in New York City to educate the customer on the heritage of the brands. The Heritage Week event ran in September 2014, and was featured on all major social websites. From Mulberry on 57th Street up to Missoni on 78th Street. 16 fashion brands’ stores were turned into exhibits exploring the heritage of each label, which educated the audience about a unique story of each brand. In addition to the windows and in- store promotions, brands set up interactive mobile applications that helped customers navigatethe world of luxury fashion. “What brings folks to Madison Avenue is to experience these great brands and for any client to learn more about their stories,” said Mr. Bauer, president of Madison Avenue Business ImprovementDistrict. “[Consumers] get a better understanding of the artisanship and creativity that is paramount to the development of fashion in boutiques.” Source: http://www.luxurydaily.com/madison-avenue-heritage-week-pays-homage-to-top-brands/
  56. 56. Russian Luxury Part II: Luxury Localization Summary 56 Use of heritage Diversifying entry locations Establishing connections with other forms of luxury Breaking physical location and language barriers Social Media – brand’s new frontier Localizing Luxury
  57. 57. In Summary: The critical decisions that luxury brands need to make today in regards to Russian market to stay successful are: A.Evaluate current strategies in relation to emerging trends and re-position if needed B.Understand what luxury means for this geographical segment C. Developing a personal relationship with Russian consumer based on their cultural heritage, experiences and values. This will be the key in the nearest future to stay successful THANK YOU! Russian photographer Alexey Kuklin 57