With sanctions on Russia plunging the ruble and keeping stock markets closed, the country’s wealthy are turning to luxury jewelry and watches in a bid to preserve the value of their savings.
Sales at Bulgari SpA’s Russian stores have increased in recent days, the Italian jeweler’s chief executive said, after the international response to the country’s invasion of Ukraine severely restricted the movement of cash.
“In the short term, it probably boosted activity,” Jean-Christophe Babin said in an interview with Bloomberg, describing Bulgari’s jewelry as a “safe investment.”
“It is difficult to say how long this will last, because indeed, with the SWIFT measures, fully implemented, it could make it difficult, if not impossible, to export to Russia,” he said, making reference to Russia’s access restrictions to the SWIFT financial system. messaging system.
Even though consumer brands from Apple Inc. to Nike Inc. and energy giants BP Plc, Shell Plc and Exxon Mobil Corp. are withdrawing from Russia, the biggest European luxury brands are so far trying to continue operating in the country.
Bulgari, owned by LVMH SE, is far from alone. Cartier de Richemont still sells jewelry and watches, and Omega watches from Swatch Group are still available, as are Rolexes.
“We are here for the Russian people, not for the political world,” Babin said. “We operate in many different countries that are experiencing times of uncertainty and tension.”
Like gold, which can serve as a store of value and a hedge against inflation, luxury watches and jewelry can maintain or even increase in price in the face of economic turbulence caused by war and conflict.
Popular watches can change hands in the secondary market for three or four times their retail price. Yet the impact of the invasion on the value of luxury items creates a potential public relations problem.
“It is true that luxury brands could decide not to serve the Russian market. Rationally, it would be expensive for them, perhaps offset by the positive communication image they get in other markets,” Bernstein analyst Luca Solca said via email.
Sales in Russia and to Russians abroad represent less than 2% of overall turnover at LVMH and Swatch Group and less than 3% at Richemont, a “relatively intangible” level, according to a report this week from Edouard Aubin and fellow Morgan Stanley analysts.
This is due, in part, to income and wealth disparities in Russia, with a small number of billionaire oligarchs living well above the means of ordinary people. The average monthly salary in Moscow is around 113,000 rubles ($1,350 at the pre-invasion exchange rate), and much lower in rural areas.
A Swatch Group spokesperson said the company is monitoring the situation in Russia and Ukraine very closely and declined to comment further. Spokespersons for Richemont, Rolex, Hermès, LVMH and Kering SA declined to comment on their operations in Russia.
The pressure on the major brands is increasing. LVMH-backed trade publication Business of Fashion has urged retailers to close Russian stores and not ship products online. In a widely shared op-ed, editor Imran Amed said the move would be “largely symbolic” but would show “commitment to a strong moral stance”.
The reaction has been muted, so far. Balenciaga, whose creative director Demna Gvasalia is Georgian, removed all fashion content from its Instagram page days before its fall/winter show in Paris. In its place is the Ukrainian flag and a call to donate to the World Food Programme. LVMH announced that it is donating 5 million euros ($5.6 million) to the International Committee of the Red Cross to help victims of war. LVMH is also providing financial and operational assistance to its 150 employees in Ukraine, he added.
Bulgari, founded in 1884 by Sotirio Bulgari and acquired in 2011 by LVMH, is likely to raise prices in Russia at some point, according to the CEO.
“If the ruble loses half its value, our costs remain euro costs, we cannot lose money on what we sell, so we will have to adjust prices,” he said.
Whatever slump in sales they experience, luxury watch and jewelry makers may soon find it difficult to restock stores. Moscow has closed its airspace to European Union countries and the continent’s biggest logistics companies have halted shipments to Russia. Burberry Group Plc said it had halted all shipments to Russia until further notice due to operational difficulties.
Bulgari plans to keep its stores open and move forward with the development of a new hotel in Moscow despite the war. Nevertheless, if the crisis lasts for months “it would be difficult to supply the country,” Babin said.
(Adds statements from LVMH, Burberry)
–With the help of Jonathan Roeder.