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. 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. 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. 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. 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. 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. Luxury Market
Volume in 2014
Global Luxury Market size
$339,370.9 millionUSD
Russian Luxury Market
size
$10,409.2million USD
3.1% of global market
volume
Above average growth
Top-3 Companies in
Russia
Retail Value, RSP, %
breakdown
LVMH 8.3%
Bacardi & Co Ltd 8.1%
Chanel SA 3.2%
Russian Luxury Breakdown by Segment
Russia
8
Fashion Market Structure:
Luxury: 16%
Premium: 7-8%
Mass market: 41%
9. Russian Luxury
Pricing Model
The cost on luxury in Russianis
elevated
Prices are 20-30% higher than in
London and 35%-40% higher than
in Paris
*Higher valuation in Russia does
not apply to overall luxury market.
Apparel, watches and jewelry
categories’ valuations are based on
individual brand’s perception
9
Expensiveness is one of the primary factors that drive luxury sales in
Russia, as price is connected to social status appearance. This results
in luxury brands’ ability to demand higher price/margin spread in
Russia compared to other global locations.
In the article « Luxe à la russe : pourquoi les Russes sont-ils prêts à
payer cher? » , the author argues that « En Russie, les distributeurs
établissentdes marges de 200 à 300 % sur le prix d’achat»
The import tax accounts for some of the price increase, 15%-18%
plus other costs of associated with the final sale, but the final sale
still yields high gross margins.
Average Price (in USD$) 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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. 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
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
