Hermès, Chanel and owner Cartier Richemont have temporarily suspended operations in Russia, citing operational issues and staff concerns as the impact of the invasion of Ukraine spreads.
LVMH, the largest luxury goods group by volume, and owner Gucci Kering, the second largest, followed up with similar announcements late Friday night, as did Britain’s Burberry.
Many Western brands, including Apple, Microsoft, Ikea and Nike, were quick to suspend sales in Russia, prompting critics to say that luxury groups are holding out, waiting up to nine days after the invasion began.
Consumers on social media and Paris Fashion Week attendees urged luxury brands to take action, with some saying it’s indecent to keep boutiques open in Moscow when bombs are falling in Kyiv.
Some industry observers also raised concerns about reports of shoppers rushing to luxury boutiques in Russia to buy expensive watches and bags to hedge against runaway inflation, adding that such items could even be used to smuggle money out of the country and violate strict sanctions.
When LVMH’s biggest brand Louis Vuitton posted on Instagram that it was “deeply moved by the tragic situation unfolding in Ukraine” and promised to donate €1 million to refugees, it sparked a flood of negative comments, including: “Close your stores in Russia if you’re serious” and “Stop selling in Russia!”
LVMH, which owns more than 70 brands from Moët & Chandon to Christian Dior, has about 3,500 employees in Russia and operates 120 stores.
French brand Hermès spoke first, saying it will “temporarily close our stores in Russia and suspend all our commercial activities” from Friday evening. Bag maker Birkin did not give a reason for the decision. It has three stores in the country and about 60 employees.
A few hours later, Chanel announced a similar move, citing “growing concerns about the current situation, growing uncertainty and complexity of the job.”
“We will no longer deliver to Russia, we will close our boutiques and have already suspended our e-commerce,” the company said in a statement.
On Thursday, Chanel angered social media users by calling the invasion of Ukraine a “conflict” and saying it would donate 2 million euros to refugee relief organizations operating on Ukraine’s borders. Followers demanded that the brand, which employs 300 people and has five boutiques in Russia, stop selling there.
Swiss-based Richemont, which owns Cartier and Van Cleef & Arpels, said it had suspended commercial activity in Russia on March 3 “given the current global context.”
“We will continue to monitor developments and adapt our measures accordingly,” he added.
Although the companies do not disclose specific figures, analysts estimate that Russia is not a leading luxury market, despite the fact that it is home to the now sanctioned oligarch class. UBS estimates that LVMH, Hermès, Kering and Burberry earn less than 1% of the market’s revenue, even including Russian buyers shopping abroad. In Richemont, which is more represented in the jewelry sector, Russian buyers account for about 2% of sales.
The Russian luxury goods business is marginal compared to the US and China, the sector’s two largest markets, which have seen demand rise despite the Covid-19 crisis. “In dollar terms, this is about $9 billion, which is 6% of Chinese spending and 14% of US spending,” Jefferies analyst Flavio Sereda wrote in a note.
This fact has led some to question why luxury goods groups are risking their reputation by continuing to operate in Russia when the business impact of the suspension appears to be manageable. In addition, as the impact of financial sanctions and disruption to the supply chain intensifies, it will be more difficult to restock stores in Russia or support e-commerce operations that require fulfillment of orders from abroad.
Neri Carra, the entrepreneur who founded the eponymous ethical bag brand and teaches business practice at the University of Oxford, believes luxury and fashion brands need to move quickly. “They no longer have the luxury of being silent. You cannot claim to be an ethical and sustainable brand and continue to sell in Russia,” she said.