APPAREL BUSINESS IN RUSSIA: OPPORTUNITIES AND CHALLENGES

Zoya Yudina, MAFED 2012

Agenda

• Evolution of the fashion concept in Russia • Russian fashion and luxury market overview • Consumer behavior • Distribution & retail infrastructure • Fashion design • Fashion communication • Key success factors of the market

History of fashion in Russia

Fashion drivers in Soviet period:

• secondary role of the textile industry combined with absence of practice sharing with other countries

• high emancipation level leading women to take up typically male jobs in factories, construction, etc., which had a strong impact on design tradition

• social ban on self expression through appearance

Fashion drivers during Perestroika: • very limited access to fashion products • prevalence of counterfeited chinese products

sold on the street markets & Illegal trade of western fashion brands

• spread of home sewing and knitting (1/4 of women were able to make clothes for the family)

Fashion drivers in today’s Russia: • increasing social stratification • “incompetent” consumption due to lack of fashion

tradition and genuine interest to the fashion history/brand identities

• lack of local designers serving national tastes • “dress to success” approach aimed at social pressing

through appearance

Market overview

Russian apparel market quick facts:

• Forecasted sales in 2015: 1290,6 ml. items • Market growth rate is 7% per year • Domestic apparel production does not exceed 12%

->strong demand on imported goods • Growth is boosted through the development of retail

infrastructure • The majority of sales are made in medium price

segment

Russian market quick facts:

• In 2013 to become second after Germany consumer market in Europe

• Demographics: urban population exceeds 80%; up to 180 ethnic groups &3 world religions; prevalence of female population in the age group over 40

• Quick development of middle class • High variance in economic development of different

regions -> increased importance of large urban centers as Moscow, St. Petersburg, Yekaterinburg, Kazan

Domestic 12%

China 49%

Turkey 12%

Italy 7%

Germany 6%

France 2%

India 2%

CIS 4%

Eastern Europe

2% Other

4%

Countries of origin of apparel goods

RUSSIA IS A NON-SATURATED AND LOW RISK MARKET FOR APPAREL GOODS

Source - http://www.indexmundi.com/russia/economy_profile.html

GDP growth rate

Luxury apparel segment overview

12 13

16 16

18 28 29

BurberryPradaGucci

Giorgio ArmaniDolce&Gabbana

Hugo BossCalvin Klein

Brand preferences, %, Category Clothes

Luxury apparel segment quick facts:

• Volume of the segment is estimated to 5 bln Euro in 2010 • 80% of the segment sales are concentrated in Moscow • 65% of the customers are females (while males still prefer

luxury cars and vacations over apparel) • Most of the customers belong to the age group below 40 • Characterized by large amount of aspirational customers

with unstable income • Growth is slowing down due to development of the offer

in medium price segment • Important niche – “unbranded” natural fur products

Luxury apparel sales allocation by category

Apparel market segmentation

Premium &Luxury - 12 % Mass – 28%*

Medium , upper-mass - 60%

Footwear & Accessories - 1 bln

Clothes – 3,5 bln

Jewelry & Watches – 0,5 bln

Source - http://store.fashioner.ru/files/fashioner_luxury_report2009.pdf *cheap Chinese/Vietnamese products sold in the markets

Consumer behavior

“After a decade of conspicuous consumption, the Russian shopper’s spending habits are changing with a big impact of luxury brands and high-street retailers…” *

Luxury consumer trends:

• Buy abroad searching for new locations • Move from self-use to business gifts and

investment collections

Middle segment consumer trends:

• Seek to redefine their social status over mass customers through “western style” clothing

• Low brand awareness and loyalty

Beauty standards Lifestyle

Factors affecting consumer behavior in Russia:

• Shaped by the blend of cultures

• No fear towards showing off and being noticed

• Strongly pronounce d gender differences through “aggressive femininity “and “emphasized masculinity”

• Denial of casual style in everyday life

• Limited time to shop for apparel

• Harsh climate (affects choices and induces repeated purchases of basic items)

• Family structure: low percentage of DINKs at the age group over 25

Source - http://www.pmrpublications.com/product/Clothing-footwear-retail-market-Russia-2011

Distribution channels

Mercury Group

Landau FashionGroupBosco di Ciliegi

Jamilco

Podium

Crocus Group

Other

7 billion Euros (Luxury & Medium, 2010)

Mercury Group: Armani, Fendi, Tod’s, Ermenegildo Zegna, Gucci, Dolce & Gabbana, Brioni, Jil Sander, Bulgari, Tiffany & Co, Omega, Rolex, Patek Phillip, Chopard, etc. Bosco di Ciliegi: Givenchy, Max Mara, Kenzo, Moschino, Etro, Marina Rinaldi, Nina Ricci, Pomellato Landau Fashion Group: Marc Jacobs, Diane Von Furstenberg, Cristian Loubourtin, Oscar de la Renta Jamilco: Burberry, Hermes, Salvatore Ferragamo, Escada, Sonia Rykiel, Guess, Timberland, Naf-Naf Crocus Group: Iceberg, Lanvin, Chloe, Celine, Casadei, Sergio Rossi, Trussardi, Emilio Pucci, Emanuel Ungaro

I. Wholesale through collaboration with Russian distributors and franchisees:

II. Directly operated stores

Luxury brands opting for DOS normally launch flagship stores: Prada, Chanel, Louis Vuitton Medium brands with a large network of stores tend to break agreements with franchisees and operate on their own: Swatch, Levi’s, Timberland

Importance is increasing as it allows to cover all geographical regions of the country German and British catalogues are very popular among middle class

III. E-commerce

IV. Fashion catalogues

Source - http://store.fashioner.ru/files/fashioner_luxury_report2009.pdf

Retail infrastructure

I. Shopping malls

II. Shopping streets

• Most convenient for Russians as allow to save time and shop with maximum comfort at any weather • Construction of medium segment shopping malls is booming all over the country

GUM, Red Square – 5 ml/month Evropeisky – 4 ml/month MEGA – 3 ml/month Zolotoi Vavilon –

2 ml/month

• The main shopping streets are normally the main streets of the cities

• Traffic of on-purpose shoppers is relatively low

Tverskaya Street, Moscow Nevsky Prospekt, St. Petersburg

III. Department stores • Very rare and have

low importance in customers’ minds (even if historical)

• Normally are operated directly by large distributors

TSUM, Mercury Group, Moscow

Fashion design

FASHION HOUSES YOUNG DESIGNERS

Valentin Yudashkin, since 90s

Slava Zaitsev, since 70s

Igor Chapurin, since 2000s

Alena Akhmadullina, since 2000s

• Absence of established “Russian style” to be presented for the international audience • Few opportunities for young designers to receive high-quality domestic education • Obsolete state of the textile industry of the country, underdeveloped system for fabrics sourcing

Setbacks for the development:

Most famous players:

Fashion communication

EVENTS

FASHION MAGAZINES

CELEBRITY ENDORSMENT

RETAIL

• Russia is among the countries with the highest number of fashion events hosted by industry associations and fashion enterprises of the country*

• Fashion events are normally broadly covered in different media

• Magazines are highly important sources of fashion education and learning about brand identities (position of the printed media in the country is still very strong)

• Celebrities rarely demonstrate higher level of fashion culture than average consumers -> those who do demonstrate become extremely powerful as models to follow

• Retail is the main source of learning for average consumer -> being present in the right location is the guarantee of success

Source - http://www.grailresearch.com/pdf/ContenPodsPdf/Global_Fashion_Industry_Growth_in_Emerging_Markets.pdf

KSFs in Russian apparel business

• Quick growth at the same pace with the market • Understanding if national aspirations, tastes, lifestyles and fittings

in elaboration of the product offer • Focusing on the most coherent product category - Clothing • Collaboration with the right distribution partner • Strong retail presence in the appropriate retail formats • Choice of the right communication approaches • Exploiting opportunities of the low brand awareness to reposition

the brands if necessary • Consider high potential of the medium segment

THANK YOU!

Sources

http://www.thomaswhite.com/explore-the-world/bric-spotlight/2011/russia-consumer-goods-sector.aspx http://www.pwc.ru/en/press-releases/2011/online-retail.jhtml http://www.indexmundi.com/russia/economy_profile.html http://www.pmrpublications.com/product/Clothing-footwear-retail-market-Russia-2011 http://www.christianbassett.com/content/candidates-45.htm http://www.rg.ru/2011/09/27/odezhda.html http://store.fashioner.ru/files/fashioner_luxury_report2009.pdf http://www.grailresearch.com/pdf/ContenPodsPdf/Global_Fashion_Industry_Growth_in_Emerging_Markets.pdf