Ukrainian crisis: luxury giants Chanel, Hermès and Cartier suspend operations in Russia

When LVMH’s biggest brand, Louis Vuitton, posted a message on Instagram saying it was “deeply touched by the tragic situation unfolding in Ukraine” and pledging to donate 1 million euros (1.5 million Singapore dollars) to refugees, it sparked a torrent of negative comments, including: ‘Close your stores in Russia if you’re serious’ and ‘Stop selling to Russia!

LVMH, which owns more than 70 brands ranging from Moet & Chandon champagne to Christian Dior, has around 3,500 employees in Russia and operates 120 stores.

French brand Hermès came first, saying it would “temporarily close our stores in Russia and pause all our business activities” from Friday evening. Bag maker Birkin gave no reason for its decision. It has three stores in the country and about 60 employees.

Hours later, Chanel announced a similar move, citing her “increasing concerns about the current situation, growing uncertainty and complexity to operate.”

“We will no longer deliver to Russia, we will close our stores and we have already suspended our e-commerce,” the company said in a statement.

Chanel had angered social media users when she called the invasion of Ukraine a ‘conflict’ and said she would donate €2m to refugee aid organizations operating on the EU’s borders. Ukraine. Supporters demanded that the brand, which employs 300 people and has five stores in Russia, stop selling there.

Swiss company Richemont, which owns Cartier and Van Cleef & Arpels, said it suspended business operations 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 won’t release specific numbers, analysts say Russia isn’t a top luxury market, although it is home to a class of oligarchs that are now under sanctions. UBS estimates that LVMH, Hermes, Kering and Burberry earn less than 1% of market revenue, even when taking into account Russian buyers buying abroad. At Richemont, which is more present in jewelry, Russian buyers represent around 2% of sales.

Russian luxury activity is marginal compared to that of the United States and China, the two largest markets in the sector where demand had exploded despite the Covid-19 crisis. “In dollar terms, this equates to approximately US$9 billion (S$12.2 billion), or 6% of Chinese spending and 14% of US spending,” Jefferies analyst Flavio Cereda wrote in an article. note.

That fact has prompted some to wonder why luxury groups would risk the reputational risk of continuing to operate in Russia when the business impact of the pause seemed manageable. Additionally, as the impact of financial sanctions and supply chain disruption worsens, it will be more difficult to restock stores in Russia or maintain e-commerce operations that require the fulfillment of orders from abroad.

Neri Karra, an entrepreneur who founded an eponymous brand of ethical handbags and teaches business practices at Oxford University, said luxury and fashion brands should act quickly. “They no longer have the luxury of being silent. You cannot claim to be an ethical and sustainable brand and still sell in Russia,” she said.

By Leila Abboud and Lauren Indvik © 2022 The Financial Times

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