(2008), "Russian clothing and footwear market: much room for foreign retailers", International Journal of Retail & Distribution Management, Vol. 36 No. 9. https://doi.org/10.1108/ijrdm.2008.08936iab.006
Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Russian clothing and footwear market: much room for foreign retailers
Article Type: Retail reports From: International Journal of Retail & Distribution Management, Volume 36, Issue 9
The Russian clothing, footwear and accessories market (CFA) has significantly advanced in terms of value, but most of all in terms of quality and variety of sales points. As a result of changes in the distribution structure as well as the increase in people’s incomes, the share of medium and higher-priced merchandise in total sales is on the rise. This creates a unique opportunity for quality-merchandise brands to develop. However, it is interesting that while development on the mass market has speeded up only recently, the luxury segment in the country is already quite well established.
The Russian CFA is still dominated by open-air markets as well as independent store operators. As a result, it is the low- and medium-price segments that remain predominant in Russia. This situation, however, is slowly changing in favour of the higher-price assortment, chiefly resulting from the rise in individual incomes and expansion of modern distribution formats, i.e. specialised CFA stores, both domestic and foreign.
According to PMR, in 2007, retail chains that specialized in selling CFA (both multi- and mono-brand outlets) accounted for some 30 per cent of the Russian CFA market, which was estimated by the company to be worth a total of close to €41bn. The modern retail share is constantly growing, as a result of networks’ country penetration plus retailers’ diversification of store formats, enlargement of assortment and launch of new retail projects. Banana Mama, Wild Orchid Group, Sportmaster and Obuv Rossii are examples of retailers that have diversified their portfolios either in terms of the size of stores launched or new concepts and assortment. Interestingly, for some retailers, accessories have become an independent specialization (Figure 8).
Amusingly, it is domestic chains that dominate among CFA retail chain operators in Russia, despite the fact that there are some foreign retailers which have already entered the country and have gained some proficiency in doing business there. One of the reasons why foreign retailers have not yet gained a significant position is that the country is still considered unstable, and doing business there is thought to be risky. In addition, rent is often set up at a higher level for foreigners than for local companies. Russian clothing chains which benefit from the low power of foreign retailers on the mass market include, among others, Sela, Oggi, Zarina, Savage and Tvojo (Table II).
Table II Selected leading CFA retailers operating in Russia (2007)
Nevertheless, the huge potential of the Russian market attracts more and more retail operators from abroad. In 2005-2007 alone C&A, Next, Marks & Spencer, TopShop, Peacocks and Debenhams as well as Peek & Cloppenburg announced the entrance into Russia. To overcome problems, many foreign retailers choose either franchising or exclusive distribution rather than independent development in the country.
In line with market evolution, consumer behaviour with regard to CFA purchases is also changing. Firstly, consumers have become more sophisticated. Increasing competition and the fact that people have gradually become accustomed to better service have made them more demanding. The store environment and service have thus become crucial.
Nevertheless, it is still quite important to note that though the attitude and expectations of Russians towards shopping are changing, Russian consumers, particularly in the low and medium brackets, are not sufficiently brand-oriented to display considerable brand awareness.
This means that there is still much room for new brands and branding. In the luxury arena, on the other hand, consumers exhibit a high level of brand awareness.
Luxury already in place
Indeed, customers in the CFA luxury segment are significantly more brand aware and the market itself is already quite developed. At present, Moscow is one of the most fashionable European cities, with boutiques of all formats selling designer clothing, footwear, accessories, watches and jewellery. Interestingly, it is, in turn, dominated by foreign brands. Those which have already established a presence in the country include Louis Vuitton, Cartier, Gucci, Prada, Armani, Chanel, Christian Dior, Hermes, Tod’s, Versace, Jimmy Choo, Tiffany, Bvlgari, Ermenegildo Zegna and many more.
According to PMR estimates, the luxury/premium clothing and footwear market in Russia amounted to €6.7bn in 2007, equaling over 15 per cent of the country’s total CFA market. It is expected to further develop, which, however, would be somewhat impeded by the limited supply of appropriate locations and rent hikes both in the capital as well as in other major cities where the operators intend to expand, particularly in St Petersburg. According to Cushman & Wakefield, average rents on Nevsky Prospekt in the latter city grew by over 80 per cent between June 2006 and June 2007, making it the fourth location in the world in terms of the biggest rental increases in the local currency.
More yet to come
Over the past 15 years the Russian CFA market has significantly advanced in terms of value, but most of all in terms of quality and variety of sales points. It is, however, even more important that its potential for further development is still considerable. PMR estimates that the Russian CFA market would develop steadily by some 10 per cent annually up to 2010. The major changes which would influence this progress include rising personal incomes, further expansion of specialised clothing retail outlets, development of shopping centres as well as better market understanding by both domestic and foreign retailers. The latter especially have not had their last word in Russia; in fact, they have yet to give the market a real push.
Malgorzata Machnicka, Head Retail Analyst, e-mail: malgorzata.machnicka@ pmrpucblications.com