May 17, 2005

Russia: Learning how to sell as well as shop

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When the Soviet Union was collapsing 20 years ago, there were only a few ways in which ordinary Russians could distinguish themselves sartorially - a pair of black market boots bought for a month's salary, an extravagant fur hat taken off the shelf for special occasions, or a Swiss watch, perhaps.

When the first Estee Lauder boutique opened in 1981, women were just as ready to queue for moisturiser as for sausages.

To grasp the enormous, recent success of luxury goods in Russia, one has to understand that, even during soviet times, a little bit of the Russian soul always cherished the good life.

Russia is one of the fastest growing luxury retail markets. Sales have gone from zero to $3.5bn a year, according to analysts. The cosmetics industry is growing by 30 per cent a year and is one of the largest in Europe. And it is this environment of pent up desire, marketers say, that has fuelled such a voracious market. The luxury market has grown to the point that it now has its own professional degree.

This spring, the prestigious Plekhanov Russian Academy of Economics will graduate its first few students from an MBA course in luxury brand distribution. In a city where the average salary is less than GBP200 a month, according to state statistics, students are studying how to be marketing director for Bentley. The MBA offers seminars in luxury brand development and distribution in Russia - high end boutiques are just beginning to appear in the provinces - as well as customer education and brand awareness.

Niche magazines are launched almost every day, with names such as Fashion Shop. The Robb Report, which monitors luxury lifestyles, now publishes a Russian edition.

The average salary in all of Russia is about half that in Moscow. However, many salaries are supplemented by unofficial fees and freelance work. An emerging, somewhat undocumented, middle class has come to Russia. "You have to understand, salary never meant anything here," says Tatiana Nesterova, an editor at Cosmospolitan Russia. "If a woman wants a certain kind of boots and they cost three months' salary, she goes to her friends and gets the money. That was true in Soviet times and it is true now."

"The great majority of the Russian population can't afford luxury, it's true," says Jerome Dumetz, who teaches cross-cultural management to the MBA students.
"But there is a growing elite with lots of money and we need to serve these people."

Moscow has the largest concentration of billionaires in the world, according to Forbes Magazine's most recent annual survey, and together these 36 men and women are worth more than $110bn.

Mr Dumetz, a Plekhanov faculty member and graduate, helped start the nascent luxury brand MBA as a part of a larger restructuring at the school this year. He is a larger than life figure at Plekhanov. He's French, for starters - the only non-Russian professor - and sports pink shirts, when all his male students wear black.

His grand idea is to model the luxury MBA on the programme at Essec Business School in France. Essec has played an advisory role in the development of the Moscow programme.

A graduate from Essec is a shoo-in for product management at Louis Vuitton or Baccarat and now that expatriate managers are giving way to Russians in luxury retailing, Mr Dumetz wants the same for his Russian students. The academy's students are the elite of Russia, according to Mr Dumetz, and the programme costs more than GBP5,000 a year, a shocking amount for most Russians.

Some of the students have already seen a lot of uncertainty in their short lifetimes. "These kids were about 10 when everything collapsed," he said. Some saw their parents selling pickles and trousers. Their lives changed drastically and families broke apart during the social upheavals.

The faculty members interviewed said that for today's students, the ability to make money and to spend money are top priorities. One MBA student who did not want to be identified said that she wouldn't eat for several days so as to pay for the high end underwear she likes.

"This is not unusual," said faculty member Irina Skorobogatyka. "There is a Russian proverb: 'We are not rich enough to buy cheap stuff?'."

Only oligarchs and their wives buy jewellery from Tiffany and their cars from Rolls-Royce, located at One Red Square, the heart of the tsarist and Soviet governments. But many more Russians aspire to some, or any, tier of luxury brand.

Irina Lavruk, for example. Ms Lavruk bought her first Peruvian alpaca coat for about GBP1,500 this winter. "Ten years ago, I didn't know what Peruvian alpaca was," said the 38-year-old Muscovite, mother, and inveterate shopper. "I wanted nice things but I didn't know what really nice brands were. We knew there were brands but we couldn't distinguish them. Now I know a designer suit from something that looks like one."

Shoppers rarely see magnates from the Urals sweeping into Moscow in square-shouldered suits with Versace-clad wives and bags of cash. The wealthy and the aspirational are growing up and the style and savvy of the luxury shopper is changing.

The next generation of students are even quicker. Maya Rumyantseva, 30, is a student in the luxury brand management MBA programme. "I am highly motivated to advance my career, and I enjoy this programme very much," she said.

Already a marketing director as well as a graduate student, she recently went to Cartier and bought herself a gold ring for R27,000, or GBP500, as a present to herself.
The brand was important, she said, for its reputation of simple elegance.

"I remember Soviet times and I have fond memories," she said. "But I think life is better now."


Nora FitzGerald(C) Copyright The Financial Times Limited 2005. 'FT' and 'Financial Times' are trademarks of The Financial Times.