Strike Burberry coats and Mulberry handbags off Russia’s shopping list: The United Kingdom will be joining its G7 allies in blocking exports of luxury goods to the Vladimir Putin-helmed nation as part of a new wave of sanctions for its invasion—and continued military assault—of Ukraine.
The sales ban, the government said Tuesday, will make sure that “oligarchs and other members of the elite, who have grown rich under President Putin’s reign and support his illegal invasion, are deprived of access to luxury goods.”
Helen Brocklebank, CEO of Walpole, Britain’s luxury trade group, said the industry was “fully supportive” of the decision.
“All of our members have immediately complied with the sanctions imposed and are working to support local employees in any way they can,” she said in a statement Tuesday. “The events in Ukraine are a tragedy for its citizens and we hope for a swift de-escalation of this deeply troubling situation.”
The U.K.’s move comes less than a week after the European Union and the United States rolled back access to their countries’ own luxury labels.
Ursula von der Leyen, president of the European Commission, called the ban a “direct blow to the Russian elite,” adding that “those who sustain Putin’s war machine should no longer be able to enjoy their lavish lifestyle while bombs fall on innocent people in Ukraine.”
In a fact sheet from the White House, the Biden administration said that the “elites who sustain Putin’s war machine should no longer be able to reap the gains of this system and squander the resources of the Russian people.”
Since several high-end nameplates, including Gucci owner Kering and Louis Vuitton parent LVMH Moët Hennessy Louis Vuitton, two of the world’s largest luxury purveyors, have already halted sales of their products to Russia, the measures are unlikely to cause the companies more pain, Luca Solca, senior research analyst, global luxury goods, at Bernstein, told Sourcing Journal.
“With sanctions in place, and most of the links to the global economy being severed: credit card companies ceasing operations, Russian banks being removed from SWIFT, etc., I expect that the flow of goods and the flow of funds between Russia and the rest of the world will be grinding to a halt very quickly, as Russia becomes the new pariah state,” he added.
Even the closures of storefronts in Russia would only “modestly impact” most rarified labels, Sheng Lu, associate professor for fashion and apparel studies at the University of Delaware, told Sourcing Journal.
Although pre-war Russia was a lucrative and growing market for luxury brands, the country only made up less than 2 percent of LVMH’s annual sales and 3 percent of Kering’s. “In comparison, Western EU and North America combined typically account for half of a luxury apparel band’s annual sales,” he added.
That’s not to say that any escalation in conflict will leave brands unscathed. The political volatility will continue to squeeze logistical bottlenecks and stoke inflationary pressures, forcing fashion companies to settle for slower growth in 2022.
“Further, as the Russia-Ukraine war continues to evolve and given China’s special close relationship with Russia, luxury apparel brands’ geopolitical risks remain very high,” Lu said. “Moreover, unlike Russia, China is a much more significant market for luxury fashion, with annual sales exceeding $60 billion.”
The ongoing crisis could also lead to more muted consumer sentiment across Europe, which could “result in sales pressure in the region depending on the duration of uncertainties,” Cowen researchers said in an investment note last week. “Luxury spending has historically correlated highly with stock markets, and therefore stock weakness could lead to volatility in luxury consumption.”
The thinnest of silver linings, at least in the short term? “The potential for panic buying of goods, including luxury items, which could translate to a near-term uptick in sales,” they added.
Should the conflict draw out, however, the hit on tourism could drag down bottom lines. Russian spending abroad, for instance, will be “drastically interrupted” as long as shutdowns of European airspace to Russian civil airlines are in place, Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain & Company, told Sourcing Journal. Similarly, Western Europe could also see fewer vacationers from the United States if it’s perceived as less safe due to the proximity of the fighting.
Indeed, it’s travel restrictions, not bans, that could strike the bigger blow, Mark Oaten, CEO of the International Fur Federation, told Sourcing Journal. Many Russians, for instance, tend to buy their fox stoles or mink jackets when they travel to “Paris or London or Greece,” making up for the flagging domestic sales that are the result of changing customer attitudes over animal welfare. Sanctions will “have an impact on sales but this is nothing compared to the worrying human suffering,” he added.
Brooke Rossi, media coordinator at People for the Ethical Treatment of Animals, thinks that any further decline in fur demand could only buoy the animal-rights movement. According to Russia’s national traceability index, sales of fur have been declining in recent years, which she told Sourcing Journal is “not a surprise given research reveals ecological damage and animal protection as top concerns for Russian consumers.”
In fall 2021, she noted, Russia’s trade volume was 10 percent down year over year—or 90 percent compared with pre-pandemic numbers. There are only about 30 fur farms left in the country and one of its biggest fur retailers—Kalyaev—recently announced that it would shutter its factory and sell off its remaining stock because of lackluster business.
“With the market for fur and exotic skins already shrinking—as today’s kind consumers simply don’t want to wear someone else’s stolen skins or fur—we expect to see prices fall, and companies will end up breeding fewer animals to raise and kill,” she said.