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Benetton Expands in Russia Despite Economic Unrest

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Italian clothier United Colors of Benetton is shrugging off sanctions, slowing economic growth and a declining ruble in Russia as the retailer re-opened its flagship Moscow store, and has pledged to open as many as 40 new stores across the country in the next three years.

According to The Moscow Times, Benetton, which first moved into the Russian market in 1992, previously relied on local partners and franchisees, but now the retailer is “raising the stakes” in the country and building its direct presence.

Benetton’s chief executive Marco Airoldi told The Moscow Times, “If we look at the long term, there will be growth: We want to be here, we want to be associated with this market, and we want this market to be an important part of our portfolio.”

The company currently has eight stores in the nation under its direct control, located in St. Petersburg, Krasnodar and Moscow, and another 100 across the country are run by local partners.

Airoldi said Benetton is suffering from the ruble’s recent devaluation (the currency has lost 20 percent of its value against the U.S. dollar since the beginning of the year). Benetton’s annual turnover in Russia is 100 million euro ($128 million) and according to Airoldi, investment is being increased.

Benetton’s move into Russia may seem badly timed to some as the country’s annexation of the Ukrainian region of Crimea has led to unrest in the region, and Western sanctions imposed as a result have caused Russia’s economy to suffer. Airoldi said, however, that the move was timed in accordance with the company’s internal restructuring including dividing its clothing, manufacturing and retail businesses.

A Kremlin aide suggested last month that Russia could ban imports of foreign clothes in retaliation for the imposed sanctions and foreign retailers doing business in the country have since been on guard.

If enacted, the ban could hit suits, T-shirts, sweaters, cardigans and shawls.

Russia has already issued a restriction on some foreign-made light industry goods, including clothing, in a move the country said was made to support Russian manufacturers and improve the quality of materials and components being delivered for state needs.

The ban, which began Sept. 1, applies to 18 different products including fabrics, clothing, footwear, rubber soles, rope and horse saddles, restricts imports of goods not produced in Russia, Belarus or Kazakhstan.

Under the restriction, federal contracts will not be awarded for certain foreign made light industry goods, and using any non-Russian made materials or semi-finished products to manufacture light industry goods being delivered for federal needs will be prohibited. The only way the Russian government will bend on the restrictive measure is when a necessary good is not produced within the Moscow-led customs union.

The timing of the light industry goods ban was not connected to Russia’s previous ban on food products, also in retaliation for Western sanctions over the crisis in Ukraine, according to The Moscow Times. Russian Prime Minister Dmitry Medvedev outlined in August a list of products subject to a one-year ban, including beef, poultry, fish, fruit, vegetables, cheese and milk from the U.S., E.U., Canada, Norway and Australia.

Airoldi told The Moscow Times that Benetton is concerned about escalating sanctions, but said there is little the company can do. “It’s like the weather,” he said. “You are not planning a storm, but sometimes a storm happens.”

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