Why do fashion brands stop doing business in russia?

At the beginning of 2022, it seemed that the world would enter a golden era of recovery after two years of pandemic – but then the war between Russia and Ukraine dashed all these hopes. Facing the war situation, a series of fashion brands have decided to stop operating in Russia.

Why do fashion brands stop doing business in russia?

As noted by Harper’s Bazaar , luxury fashion companies including Louis Vuitton, Gucci, Hermès, Prada, Chanel… respectively announced to suspend commercial transactions in Russia. However, despite the closure, the LVMH group said it will continue to pay its employees. Up to now, the LVMH group has 120 stores and 3500 employees in Russia.

Companies specializing in selling luxury fashion goods through e-commerce channels, Net-A-Porter and Farfetch, have also stopped shipping products to Russia.

The Richemont Group announced the cessation of operations in Russia on March 3. The group owns brands such as Cartier, Jaeger-Le Coultre, Montblanc, Piaget, Vacheron Constantin, Van Cleef & Arpels… On LinkedIn, the group Richemont said he made a charitable donation to the Association of Doctors Without Borders (Médecins Sans Frontières) to help Ukrainian refugee residents.

On LinkedIn, sports fashion brands such as Nike, Puma, Under Armor also followed the above luxury brands and announced to stop doing business in this country.

Some fashion houses want to show they don’t support the war by shutting down business in Russia . For example Adidas.

Sharing with Reuters , Adidas said it would suspend operations not only 500 stores but also online shopping website in Russia until further notice. The fashion house also ended its partnership with the Russian Football Federation after the war broke out. Adidas’ decision was announced after the football federations FIFA and UEFA announced a ban on Russian teams from playing.

“As a company, we condemn all forms of violence. We want to show solidarity with those who call for peace,” an Adidas spokesperson said.

Some other units, including Burberry, said they could not continue business because there was no way to ship goods to Russia , because many shipping companies such as Fedex and DHL had stopped working. Stores were empty due to the frenzied shopping of customers.

Before the luxury stores closed, the Russian elite increased their purchases of expensive items as a way to protect their net worth. With the Russian ruble depreciating because of economic sanctions from Western countries, jewelry and high-end watches are considered the safest investments, not subject to the same devaluation.

Meanwhile, many middle-class customers want to collect their favorite handbag before it becomes too expensive and out of reach. According to the director of the Gucci store in Moscow’s Tsum Mall, “The number of customers shopping has tripled (before the store was closed). Everyone knows prices are going to keep going up, and they want to buy as much as they can before there’s no more opportunity.”

Doing business in Russia at this time is also not profitable in terms of cash flow. Due to economic sanctions, the ruble is increasingly depreciating. It is not profitable to store rubles during this time. Meanwhile, brands cannot transfer this money abroad or convert it into another currency, because Russia has been cut off from the international banking system.

Fast-fashion and mid-fashion brands are also following in the footsteps of luxury brands in discontinuing business in Russia. However, remaining until now is Fast Retailing, the Japanese company that owns the Uniqlo brand.

Against pressure from Western countries, Mr. Tadashi Yanai, General Director of Fast Retailing Group, said that he will continue to operate 50 locations in Russia. “Apparel is an essential part of life. Russians have the same right to dress and live as we all do.”

Nikkei noted that , in parallel with continuing to do business in Russia, Uniqlo will also support Ukrainian refugees. Specifically, the Japanese fashion house donated US$10 million to the United Nations, and sent 200,000 bales of clothing to refugee camps in Poland through the United Nations.