In Russian luxury market, companies strategize to reach the rich consumer

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But tapping into the staggering growth in high-net-worth individuals requires a nuanced approach from market to market, industry executives at a luxury conference organized by the International Herald Tribune said Thursday. The pitch should cater to cultural sensitivities while cutting through the red tape that might raise hurdles to expansion, they said.

This challenge is similar from China to India to Latin America, they said, though perhaps nowhere is it more crucial than in Russia, a rapidly developing market where huge oil wealth has already helped spawn 53 billionaires – only a handful fewer than in the United States and Germany – and is likely to give birth to more in the near-term.

“When you don’t know how to navigate, you can make mistakes,” Sidney Toledano, the president and chief executive of Christian Dior Couture, said.

In the scramble to lure Russia’s rich, luxury executives said during a wide-ranging discussion on how to crack the Russian market that they have crystallized a few basic principles.

One is the creation of a personal relationship with wealthy consumers, who are typically younger than in the developed markets of Europe, Japan and the United States; increasingly savvy about products they desire; and prone to impulse purchases both within Russia and at their many travel destinations.

Another is to pay attention to regions outside Moscow, capital of the world’s biggest country. All the executives referred to efforts to reach the millions of Russians beyond Moscow, where the ranks of newly rich and those who aspire to Western luxury are growing rapidly.

“People don’t want to be talked down to,” said Marcello Bottoli, the president and chief executive of Samsonite, which is shifting its iconic suitcases and handbags further up-market to attract more high-end consumers.

Unlike wealthy clients in some established markets – like Britain, where a soccer player’s wife might drop thousands of pounds during a brief jaunt to Bond Street – Russians like to think about the product, executives said.

“They experience emotion through local contact,” said Toledano, who this week observed Russian clients at a Dior store near Moscow’s Red Square get comfortable with the sales staff for two hours to gain knowledge about Dior’s line before making a purchase. “They ask about the products,” he said. “It’s a different approach, and you need educated staff who know the culture. The combination of a salon atmosphere and a VIP room is very important here.”

Bottoli said Samsonite’s strategy was to develop sales teams locally, since no one knows a Russian better than another Russian. “The key is having local people in local markets,” he said. “There are cultural habits that a westerner or an expat just can’t overcome. Once we have built up local management, we leave it in place.”

That approach can drive sales among clientele for whom brands have become part of an exclusive conversation – one in which the wearing of an ultra-luxury item signals their position among the rarified ranks of those who “made it.”

“Something is changing,” said Umberto Angeloni, a luxury expert who formerly ran Brioni, the Italian luxury goods house. “There is a revolution in the luxury customer today.”

Ferragamo, for instance, boasts strong sales of high-end footwear in Russia, a country where snow may carpet the ground up to nine months of the year. But these consumers are not the type to walk to their destinations; they are the ones in chauffeur-driven cars – and they all recognize the brands sported by others in their class.

That habit is replayed when the Russian consumer goes abroad. Angela Ahrendts, the chief executive of Burberry, noted that Russian travelers in the Middle East alone accounted for 20 percent of sales in the region.

Michele Norsa, the chief executive of Salvatore Ferragamo, said Russians are buying the most expensive items in Europe. “Sometimes it is because they are ashamed of buying very expensive items in Moscow,” he said. “But in Russia you have also people who have money but don’t travel.

Inside Russia, even the most famous luxury goods companies have found it difficult to achieve the desired market penetration on their own. Dior, Burberry, Ferragamo and Samsonite – which all have major stakes in Russia – are among the companies that have taken on local partners in order to establish a foundation for their businesses here, the other major key to success.

“For us it was not easy at first,” Toledano said. “There’s the complexity of administration, for instance,” he said, “dealing with imports of products into the country, or dealing with landlords.”

Having a local partner who can navigate everything from building codes to the tax system – as well as lingering local corruption in some cases – is key to establishing the stable presence needed to create a comfortable environment for the luxury consumer.

For the past year, however, Dior has become one of only two companies, alongside Louis Vuitton, to be able to strike out on its own. “We learned fast. Now in Russia we can develop our businesses by ourselves,” he said, a move that has helped bolster sales. “In Russia, the new elite wants the expensive buy. They want the real Dior.”

ZANECHAT ODPOVĚĎ

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