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Making Sense of Russia's Luxury Market

Barely a day goes by where Russia is not in the news. Between the World Cup and ongoing political tensions with the Trump administration, the spotlight has frequently shone on the country this year. However, despite intense coverage of the region, Russia’s fashion sector remains a largely misunderstood market by the wider world.

In collaboration with Conde Nast Russia, McKinsey released the report Mathematics of the Luxury Market in Russia, seeking to shed light on the key opportunities and challenges facing local and international luxury retailers.

The biggest takeaway? Much is still unknown about the market, even to locals. Russian experts — executives in fashion and jewellery retail — do not have a thorough understanding of what Millennial and Gen X consumers want from luxury brands operating in Russia.

This is evident through the huge discrepancy between what experts believe consumers want, and the feedback collected from consumers. This means that for international retailers looking to gain market share, understanding Russian consumer habits is a crucial point of entry.

Below, ORDRE has uncovered four things retailers should know about Russia’s luxury market.

TsUM Moscow
TsUM Moscow
  1. The importance of e-commerce is still greatly underestimated by luxury brands in Russia. According to the report, 82 percent of Russian consumers consider e-commerce platforms to be one of the most important communication channels, while only 37 percent of luxury experts had plans to develop their online offering. If retailers in the country fail to keep up with consumer desire for seamless e-commerce interactions, they risk losing customers to international players.

  2. Taking cues from other markets, Millennials are seen as key to the growth of Russia’s luxury sector, although most retailers do not understand how best to communicate with them. The report states that only 25 percent of businesses have initiatives in place to better communicate with this influential generation, while only 10 percent have conducted studies to understand their habits. “It is not clear how [millennials] perceive luxury or what they expect from the brand,” says one industry expert. “Moreover, they do not seem to respond to traditional marketing methods that have always worked for older clients.”

  3. Print media and physical stores are still crucial touch points for consumers. While social media and e-commerce are undeniably the most popular way for brands to connect with their customer, the research shows that print magazines are still important channels for both Millennials (18 percent) and Generation X customers (20 percent.) Brands must consolidate the messaging across digital and physical in order to succeed. “The borders between offline and online are fading,” says one retailer. “Our customers buy into the brand through different channels... so our website and our store need to complement and never contradict each other.”

  4. Peer-to-peer marketing is far more influential than bloggers and celebrities. While experts believe that bloggers or brand ambassadors are the key to converting customers — spending vast amounts of time and money developing these relationships — the report finds that in fact, recommendations from friends and family is far more likely to convert sales. 18 percent of respondents cited peer-to-peer marketing as a key factor, while foreign and Russian celebrities made up less than 10 percent of influence.