No Ikea or Levis: Western retailers leave Russia

On Monday, Stanley Black & Decker’s chief financial officer told investors that the company is still deciding whether to keep its business in Russia due to new sanctions affecting the country, or exit in the coming weeks or months.

“It’s something we’re watching closely to see how it plays out,” Don Allan, the company’s chief financial officer, said at a conference. The company has about 100 employees and has generated annual revenue of $150 million, he said, with an estimated inventory of $30 million to $40 million.

Less than 24 hours later, the company said it had decided to close.

A growing number of American and European brands and retailers are modifying their operations in Russia in response to the country’s invasion of Ukraine, with major chains and luxury brands closing stores and suspending other businesses. The measures affect hundreds of stores and thousands of Russian employees.

Last week, Apple, H&M Group, Nike, Ikea, LVMH Moët Hennessy Louis Vuitton, Hermès and Chanel said they would temporarily close their stores in Russia. This week, Levi Strauss & Co. and Adidas said they are also halting sales in the country. On Tuesday, McDonald’s and Starbucks said they would temporarily close their hundreds of stores in Russia.

Retailers are concerned about the damage to their reputation for doing business in Russia, but they are also reacting to the practical challenges posed by sanctions and the rapid decline in the Russian ruble’s value, said Tahlia Townsend, partner and co-chair of Wiggin’s international trade compliance group. & Dana.

“Sanctions on banks in particular have made it very difficult to get money into Russia to pay civil servants or utilities, owners, suppliers,” she said. “It’s not easy to get money back from Russia, so even if they can get paid for their products, they might not be able to consolidate that revenue back in the US or anywhere else they’re based.”

Most major retailers said they would continue to pay employees in Russia. Some, like Levi’s, specified that they would pay employees in local currency. It is unclear how these plans could be affected if the crisis continues for months and companies run out of funds in the country.

Retailers aren’t just stopping sales, imports and exports. Ikea, with 15,000 employees in Russia and its ally Belarus, has stopped producing wooden furniture. TJX, which owns TJ Maxx and Marshalls, said it will sell its 25% stake in Familia, a retailer with more than 400 stores in Russia, which it acquired for $225 million in 2019. The book value of its investment in Familia has dropped to $186 million as of January 29, based on the valuation of Russian rubles to US dollars, according to its filings. Adidas has also suspended its partnership with the Russian Football Union.

The closure of Western businesses and the inability to buy simple goods like American-made jeans or Swedish-made furniture could set off alarm bells for Russians, who face a closed digital state under President Vladimir Putin, according to Anna Nagurney. , professor at the University of Massachusetts Isenberg School of Management.

“It’s a way of telling people that something is very wrong,” she said. “You start to wonder what’s going on, what’s going on? You can imagine that, you go to one store or another and you can’t make transactions. It’s going to create a lot of anxiety and uncertainty.”

Still, other academics say the shutdowns by American and European retailers could fuel Putin’s narrative about Western countries.

“It is completely consistent with what Putin tells them,” said Tymofiy Mylovanov, president of the Kiev School of Economics. “He’s sending the message that the West is evil.”

The steps taken by luxury brands have been closely watched, especially after a March 2 Bloomberg News report that wealthy Russians were rushing to buy jewelry and watches to try to preserve the value of their savings. Bulgari’s CEO told the news outlet that sales at Russian stores had increased in previous days and that the invasion of Ukraine, which began on February 24, “probably boosted business”. He added that the brand was there “for the Russian people, not the political world”.

Bulgari is owned by LVMH, which reportedly closed its roughly 120 stores in Russia as of Sunday. Prada and Kering brands also said they would temporarily close stores.

Still, they were criticized on social media for what some saw as a lukewarm reaction. Several people criticized Hermès for its LinkedIn store closure post, saying the brand was “deeply concerned about the situation in Europe at this time”. They said that Hermès should have referred directly to the war and cited Ukraine in the publication.

Townsend said luxury brands might also be nervous about selling in Russia because more and more of the country’s wealthy people are subject to sanctions.

“Usually when you go in to spend on an expensive luxury brand, you don’t expect the store to take your passport and see if you’re on a sanctions list,” she said. “If you do that, you could lose customers.”

The escalation of the crisis coincided with a series of fashion shows in Milan and Paris this month, events that not long ago had a high front-row attendance of young wives of oligarchs, who were lauded as influencers and a huge draw for photographers.

Now, nearly all luxury executives were quick to say their main concern is for their employees in Russia, rather than condemning the Russian government’s actions. Last week, however, designers moved from commenting to almost universally — and publicly — asserting their support for peace in the form of concert statements or addenda to their runway notes.
Still, not everyone in the industry is leaving Russia.

Speaking ahead of his fall 2022 show in Paris, designer Rick Owens said he hadn’t fully resolved what to do but didn’t think the Russian people “deserved to be punished”.

Uniqlo, owned by clothing giant Fast Retailing, plans to keep its Russian stores open, with its founder, Tadashi Yanai, telling a Japanese newspaper: “Clothing is a necessity of life. that we”.

Experts predict that the void left by Western retail companies will be filled by China, which will likely work to cater to Russia’s middle class and benefit in the short term. And some non-Russian retailers will be able to ship their products through China, bypassing Europe.

For most American and European retailers, the business in Russia is not so big that its loss will have a big impact on profits. Levi’s, for example, said that only 4% of its net sales came from Eastern Europe, and only half of that was linked to Russia. According to Stanley Black & Decker, its sales and inventories in Russia suggest that the conflict is not “a big risk” for the company. At Dries Van Noten, Axel Keller, president of the brand, said they had paused deliveries to Russia, Ukraine and Belarus, which together account for just 6% of revenue.

Companies that want to do business again in the country “don’t want to offend Russian sensibilities,” Townsend said. But, he added, “for many companies, the market outside Russia is more important than the Russian domestic market, and they want to be on the right side of the moral decision.”

Translated by Luiz Roberto M. Gonçalves