Global luxury spending could drop due to war in Ukraine

Customers walk along the Evroreisky (European) shopping mall in Moscow on March 7, 2022. French luxury giants LVMH, Hermes and Chanel along with some other Western brands have decided to temporarily close their stores in Russia.

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Nearly a month after Russia’s military invasion of Ukraine, the impact of the conflict on global businesses has extended to luxury industries.

Most of the high fashion brands, including the LVMH group, Burberry and Kering, closed their stores in Russia earlier this month, while announcing their donations to international humanitarian efforts in Ukraine.

According to experts, the impact of the Russian-Ukrainian conflict on the global luxury industry will depend on its duration.

“We are seeing a more likely, immediate and relevant impact on Russians’ personal luxury spending locally, strongly driven by local currency devaluation and restrictions in place,” says Claudia D’Arpizio, Senior Partner and Global Head fashion and luxury at Bain & Co., a Boston-based management consulting firm.

Russian luxury customers make up about 2-3%, or about 7 billion euros ($7.7 billion), of the total global luxury goods market, she says.

According to Federica Levato, partner at Bain and head of its luxury practice in Europe, Middle East and Africa.

“If the crisis persists, financial stability could also be affected, notably generating greater stock market volatility. US consumer confidence could potentially decline and possibly also their luxury spending,” she says.

Since the Russian invasion, more than 19,000 people have been killed, 10 million people have been displaced, and more than $119 billion worth of property has been damaged.

In the short term, luxury brands have taken an economic hit following their decision to close stores in Russia.

In early March, LVMH temporarily closed its 124 stores in Russia. Other fashion houses, including France’s Kering, Chanel, Hermès International, Swiss group Richemont and Italy’s Prada, have all announced they have suspended business in Russia via their social media accounts.

However, luxury brands are unlikely to stop doing business in Russia, says Kate Newlin, director of New York-based Kate Newlin Consulting.

“When you think of luxury, you think of Russian oligarchs as a major customer segment,” says Newlin. “It will be a bigger bet for LVMH to walk away than, for example, for McDonald’s.”

LVMH did not respond to a request for comment. The conglomerate, which owns brands such as Dior, Fendi and Louis Vuitton, donated 5 million euros to the International Committee of the Red Cross to help those affected by the war in Ukraine in early March.

British fashion house Burberry declined to comment on the impact of the war on its business. On March 11, he donated to two other organisations, Save the Children and UNICEF, in support of their humanitarian appeals in Ukraine, following an earlier donation to the British Red Cross Ukraine Crisis Appeal.