No Ikea shelves, no Levi’s: The retail exodus from Russia is underway

On Monday, Stanley Black & Decker’s chief financial officer told investors the company was still considering whether to keep operations in Russia given new sanctions affecting the country, or exit in the coming weeks or months. .

“It’s something we’re watching very closely to see how it goes,” Don Allan, the company’s chief financial officer, told a conference. The company, which has about 100 employees, generated annual revenue of $150 million, he said, and the company had inventory estimated at between $30 million and $40 million.

Less than 24 hours later, the company said it had decided to close.

A growing number of American and European brands and retailers are changing their operations in Russia in response to the country’s invasion of Ukraine, with mass chains and luxury brands closing stores and halting other business in the country. The actions affect hundreds of stores and thousands of Russian employees.

Last week, Apple, H&M Group, Nike, Ikea, LVMH Moët Hennessy Louis Vuitton, Hermès and Chanel announced that they would temporarily close stores in Russia. This week, Levi Strauss & Co. and Adidas said they were also halting sales in the country. On Tuesday, McDonald’s and Starbucks announced that they would temporarily close their hundreds of stores in Russia.

Retailers are worried about reputational damage to doing business in Russia, but they are also reacting to the practical challenges imposed by sanctions and the rapidly declining value of the Russian rouble, said Tahlia Townsend, partner and co-chair of the International trade compliance group at Wiggin & Dana.

“The sanctions against banks in particular have made it very difficult to transfer money to Russia to pay employees or pay utilities, landlords, suppliers,” she said. “It’s not straightforward to get money back from Russia, and so even if they can get paid for their goods, they may not then be able to consolidate that revenue in the United States or wherever they have their registered office.

Most major retailers said they would continue to pay their employees in Russia. A few, like Levi’s, have specified that they will pay staff in local currency. It’s unclear how those plans could be affected if the crisis drags on for months and companies run out of funds in the country.

Retailers are not just stopping sales, imports and exports. Ikea, which has 15,000 employees in Russia and its ally Belarus, has suspended production of wooden furniture. TJX, the owner of TJ Maxx and Marshalls, said it would divest its 25% stake in Familia, an off-price retailer with more than 400 stores in Russia, which it acquired for $225 million in 2019. Book value of his Familia investment had fallen to $186 million as of Jan. 29, based on the valuation of Russian rubles to US dollars, according to his filing. Adidas has also suspended its partnership with the Russian Football Union.

The closure of Western businesses and the inability to buy simple goods like US-made jeans or Swedish-made furniture may set off alarm bells for Russians, who face a closed digital state under the President Vladimir Putin, according to Anna Nagurney, a professor at the Isenberg School of Management at the University of Massachusetts.

“It’s a way of telling people that something is seriously wrong,” she said. “You start to wonder what’s going on, what’s going on? Can you imagine going to one store or another and not being able to transact. This will create a lot of anxiety and uncertainty.

Still, other scholars argue that US and European retailer shutdowns could fuel Putin’s narrative about Western countries.

“It’s completely consistent with what Putin is telling them,” said Tymofiy Mylovanov, president of the Kyiv School of Economics. “It sends the message that the West is evil.”

The actions of luxury brands have come under particular scrutiny, particularly after a Bloomberg News report on March 2 that wealthy Russians were rushing to buy jewelry and watches to preserve the value of their savings. Bulgari’s CEO told the outlet that sales in Russian stores had increased over the previous days and that the invasion of Ukraine, which began on February 24, had “probably boosted activity”. He added that the brand was “there for the Russian people and not for the political world”.

Bulgari is owned by LVMH, which reportedly has more than 120 stores in Russia, which it closed as of Sunday. Prada and Kering also said they would temporarily close their stores.

Still, the brands have been criticized on social media for what some have seen as their lukewarm response. Several people criticized Hermès for its store closure post on LinkedIn, which said the brand was “deeply concerned about the situation in Europe at this time.” They said Hermes should have made a direct reference to the war and named Ukraine in the message.

Townsend said luxury brands may also be nervous about selling in Russia as many of the country’s wealthiest people increasingly face sanctions.

“Usually when you’re going to spend a lot of money on a very expensive luxury brand, you don’t expect the store to take your passport and see if you’re on a sanctions list,” she said. . “If they were to do that, they could lose customers.”

The escalating crisis has coincided with a series of fashion shows in Milan and Paris this month, events that not so long ago were front row crowded with the young wives of oligarchs , who have been hailed as influencers and have proven to be catnip for photographers.

Today, nearly every luxury executive is quick to say their primary concern is for their employees in Russia, rather than condemning the actions of the Russian government. Over the past week, however, designers have gone from refraining from commentary to almost universally – and publicly – professing their support for peace in the form of voiceovers during shows or addenda. to their show notes.

Most major retailers and brands, including Ikea and Apple, have announced donations to help Ukrainians driven from their homes by the conflict. During the Givenchy show, a note left on each seat said the brand had donated to the Ukrainian Red Cross and also offered guests a QR code. At Stella McCartney, the show’s notes said the brand was “dedicated to those affected by the war in Ukraine” and that it had donated for emergency support to Ukrainians.

Both brands are owned by LVMH, although the biggest runway statement came from Balenciaga, which is owned by Kering: a giant T-shirt in the colors of the Ukrainian flag was placed on each seat, along with a personal statement from the creator, Demna, who had fled Georgia as a child. Salma Hayek Pinault quickly put on her T-shirt and her husband, François-Henri Pinault, the CEO of Kering, draped his over her shoulders.

The Balenciaga show itself, which featured models holding trash bags and trudging through a snowstorm, was the only one to directly confront the plight of the refugees. The creator, however, has been criticized on social media for dramatizing the ravages of war in an ultimately commercial context.

Yet not everyone in the industry is leaving Russia.

Speaking ahead of his Fall 2022 show in Paris, designer Rick Owens said he wasn’t quite sure what to do, but he didn’t think the Russian people “deserved to be punished”.

Uniqlo, owned by clothing giant Fast Retailing, plans to keep its Russian stores open, with founder Tadashi Yanai telling a Japanese newspaper: “Clothing is a necessity of life. The Russian people have the same right to live as we do.

Experts predict that the void left by Western retail will be filled by China, which will likely strive to meet the needs of Russia’s middle class and benefit from it in the short term. And some non-Russian retailers may route their goods through China to bypass Europe.

“China is perfectly capable of imitating brands, even IT brands, and it’s a very developed economy,” said Mylovanov, who is also a former economic development minister in Ukraine. People may be “sort of annoyed” that they can’t get American and European brands, but they’ll likely keep what they own and hope to be able to travel to buy such products in the future, he said. .

For most US and European retailers, their business in Russia is not so big that losing it will leave a big dent in profits. Levi’s, for example, said only 4% of its net sales came from Eastern Europe, and only half was related to Russia. Stanley Black & Decker said its sales and inventory in Russia suggested the dispute was not “a big risk” for the company. At Dries Van Noten, Axel Keller, the brand’s president, said he had suspended deliveries to Russia, Ukraine, Russia and Belarus, which together account for only 6% of turnover.

Companies that want to start doing business in the country again “don’t want to offend Russian sensibilities,” Townsend said. But, she added, “for many companies, the market outside Russia is more important than the market inside Russia and they want to be on the right side of the moral decision.”