As Sales Vanish, Designer Labels Close Shop

MTA woman passing the empty store that once sold clothes by British designer Vivienne Westwood on Stoleshnikov Pereulok. It may reopen this year.
Russian shoppers seemed to have an insatiable appetite for designer brands and luxury goods, despite paying a huge markup on imports. But the honeymoon may be over.

Empty shops and signs announcing going-out-of-business sales are littering prestigious downtown shopping districts as price-conscious customers turn their backs on designer labels like Stella McCartney, Alexander McQueen, Kookai, Diesel and Manolo Blahnik.

But other, lower-priced imported brands are moving in to fill their places, including Gap and H&M, which apparently made plans to enter Moscow before the crisis hit but hope to ride it out intact.

The bottom line, clothing retailers said, is that even though the crisis has battered sales, Moscow shoppers still crave foreign brands and are willing to plunk down good money to buy them.

"I still think there will always be people who will buy luxury brands. I believe that especially in Russia, they are not going to totally stop buying," said Alla Verber, director of TsUM luxury department store.

TsUM and shopping centers such as Yevropeisky remain full of shoppers because stores are offering huge discounts on clothes, said Anastasia Pyatina, editor of Cosmopolitan Shopping. But she questioned what would happen later in the year. "The question is: Will they have money in April or May? At the end of the year, people still had bonuses and they were afraid to lose their rubles through inflation, so they were spending them," she said.

Pyatina said she anticipated a series of store closures. "I think it is a trend because obviously luxury clothes stores will face a situation when not everyone who bought before the crisis will continue doing so," she said. "I know different fashion brands are losing 30, 40, 50 percent of sales. Everyone says the spring will be tough."

On Neglinnaya Ulitsa, a glass-fronted store divided between British designers Stella McCartney and Alexander McQueen is advertising 50 percent discounts. It is due to close after the sales.

"Stella McCartney store in Moscow, opened in partnership with Arts Group as a franchise operation, is to close," the company said in a terse e-mailed statement. It, like other fashion labels, was reluctant to discuss store closures.

The Alexander McQueen store opened in September 2007, while the Stella McCartney store opened in January 2008. They were run by Arts Group, a company that also runs franchises for cheaper brands such as Mango and Esprit.

"It is not appropriate for us to comment on Arts Group or the economic situations that Arts Group is dealing with in Russia at present," Stella McCartney's statement said.

The brand "remains popular among Russians" and "maintains a strong presence in Russia through wholesale," the statement said, adding that the company was still looking for "opportunities and locations in Moscow."

Lidia Alexandrova, Arts Group's manager of luxury stores, declined to comment on the closures.

Anna Lebsak-Kleimans, head of the Moscow-based market research firm Fashion Consulting Group, said the closure of the stores was not necessarily linked to the crisis.

Such stores have a "very high level of risk," she said, since they have less turnover per square meter than stores stocking multiple brands, and also aim at consumers who are well-off, educated and dare to wear cutting-edge design.

Such stores can be profitable in Russia but are less so than outlets in department stores, she said. They are more "branding projects," which support sales of the designers' wares at other outlets.

The Stella McCartney and Alexander McQueen stores did not have time to "find their feet," she said.

Verber, from TsUM, said she has "a great business with McQueen and McCartney" and will continue to stock the brands.

"We believe in those brands," Verber said. "We're very sorry this has happened to them."

Verber declined to comment on why the Neglinnaya store is closing, saying she didn't know the reason.

She noted, however, that TsUM was cutting its buying in reaction to the economic crisis. "We are cutting a little bit on every brand," said Verber, who is also deputy head of Mercury Group, which operates franchises for designer brands including Chloe and Prada.

Italian designer jeans brand Diesel is also closing its six stores in Russia, a spokeswoman said.

The reason was unclear. A statement by Renzo Rosso, the brand's founder and owner, forwarded by its press office said the decision was made 18 months ago.

"We have decided to interrupt the relationship with our partner in Russia ... with [the] last season being FW [Fall/Winter] '08, despite a good and profitable business with positive results," the statement said.

Diesel wants to "upgrade the brand positioning," Rosso said.

Diesel was charging more for its clothes than in Europe, making them expensive for Russians, and also paying high rents, said Pyatina, editor of Cosmopolitan Shopping. "Diesel had shops in really expensive locations that you really have to pay high rates for. It's not that cost-efficient. The clothes are also not as affordable as they are in Europe."

The company's franchise in Russia was run by a company called Vintage Technology, Kommersant reported last week. Then it negotiated a short-term franchise with Arts Group.

The commercial director of Arts Group, Irina Naumova, told Kommersant that Diesel wants to present itself as a luxury brand with stores on Kuznetsky Most and Stoleshnikov Pereulok while keeping prices at the level of a casual brand.

This is "uneconomic," she said.

Diesel had stores on Tverskaya Ulitsa and Ulitsa Petrovka as well as in two city malls.

All six stores selling French brand Kookai are closing, said a spokeswoman for Sela, the Russian company that runs the franchise.

The closure of Kookai's stores may also be because of conflicts with the local franchise operator.

Sela spokeswoman Martselina Davitaya said the company would not give an official comment. Asked if Kookai planned to reopen stores, she said, "Kookai has plans but not with Sela."

Kookai first opened in Russia in the mid-1990s but then closed its stores. It reopened through Sela in 2007. It had two Moscow stores as well as branches in Novosibirsk, Rostov and St. Petersburg.

A request to Kookai's British office to provide comment went unanswered.

The Manolo Blahnik store on Malaya Bronnaya Ulitsa has stood empty since January, its window still decked with tinsel. The store, which opened in 2004, was the only one in Eastern Europe exclusively selling the shoe brand.

A Manolo Blahnik spokesman in London, Joe Fountain, said he could not comment on why the store closed or who ran the franchise, but he said the company is in discussions with potential new franchisees.

At least one designer brand is planning to reopen a Moscow store this year.

A franchise store selling clothes by British designer Vivienne Westwood on Stoleshnikov Pereulok closed in July 2008 and is still empty. The store was opened in 2001 by Olga Rodionova, the wife of publisher Sergei Rodionov, who is also known for starring in nude photo shoots. She told Express Gazeta in December that she closed the store because she did not have enough time to run it.

Cecilia Maresca, a spokeswoman for Vivienne Westwood, said the company plans to reopen the store under its own management this year.

"At the moment, we are negotiating to reopen the shop," Maresca said. "We had to close last summer as our partners stopped their retail activity. We are planning to take over the shop."

A fall in sales for luxury brands has already affected store rents.

In October, three Moscow streets -- Stoleshnikov Pereulok, Tverskaya Ulitsa and Petrovka Ulitsa -- were named in Europe's top five most-expensive retail locations by Jones Lang LaSalle. Since then, retail rents have fallen 30 percent to 50 percent in Moscow, with the sharpest falls in the top segment, said Vladimir Pantyushin, head of research at Jones Lang LaSalle.

Rents have gone down 40 percent to 50 percent in the top segment, which was "somewhat overpriced," Pantyushin said. "Demand is definitely down."

At the same time, there is interest from retailers who are expanding into Moscow for the first time and see this as a "good opportunity," he said.

Moscow streets are probably still among Europe's most expensive, since they are falling from a very high level, Pantyushin said.

Despite the hostile climate, two huge mass-market brands have chosen this year to make their entry into the Russian market.

Cheap and cheerful Swedish clothing brand H&M is due to open its first Moscow store in March at Metropolis, a new mall near Voikovskaya metro station in northern Moscow.

"We see a great potential for Russia," the company said in a statement in response to e-mailed questions.

U.S. jeans and basics chain Gap opened its first Moscow store at Metropolis this month. It also opened a store at out-of-town mall Mega Belaya Dacha. The stores are franchises run by Turkey's Fiba Group.

The Gap and H&M stores would have been planned before the crisis, said Mikhail Krasnopyorov, a retail and consumer goods analyst at Troika Dialog. "The fact that they're opening now is due to decisions taken six or even nine months ago."

But he called clothing brands aimed at the middle classes a good long-term prospect. "Now is not the best time for imported goods, but in the long term the crisis will pass, and it's a promising format."

Lebsak-Kleimans said it was "definitely" a good time for H&M to open.

TsUM director Verber agreed. "I think it's a very good time," she said. "It's inexpensive merchandise for young people, and our Russian girls need something like this."