Goodbye (maybe), Russia

Michele Caprini
25/03/2022
In brief
Reactions to the war in Europe have prompted many brands to make decisions, varying in nature and duration as the situation evolves, about the structure of their operations in Russia. While many have proceeded to suspend or cancel activities, others have chosen more measured approaches and still others have opted for continuity. In the drama of events in Ukraine, the war is also being fought on the digital front and on the positioning of Western companies on ethical issues. This will be a point of no return in the market confrontation, where it will be necessary to measure oneself against the risks and uncertainties of global relations, which are difficult to foresee and outside the usual scope of corporate strategies.

The list of brands that, as a result of the Ukrainian crisis, have decided to take more or less serious measures regarding their presence in Russia is very long and it will surely be different by the time this article is published. As of today, the group of companies, from A (Apple) to Z (Zara), that have formally declared their opposition to Russia’s military intervention is continuously expanding.

Russia, necessity and virtue

The range of reactions to the war in Europe is wide and they vary as the situation evolves. While many brands have suspended or cancelled their activities in Russia, others have chosen different approaches: Etsy, for example, has cancelled the current balances owed by all sellers in Ukraine. There are those who have focused strongly on supporting humanitarian organizations for rescue operations and those who, instead, have preferred more radical actions. This is the case of Amazon, which not only refuses delivery of products to Russia, but is also operating restrictions on Amazon Web Services and Prime Video.

The sanctions on Russian banks in particular have made it very difficult to process transactions to pay for employees, utilities, partners and suppliers, and some, like Levi’s, have specified that this will be done in local currency. It is, of course, a matter of assessing the viability of the operation over time.

With the country’s banks cut off from the Swift international payments system and shippers like DHL, FedEx and UPS suspending or limiting deliveries, the road for many luxury players inevitably leads to ceasing or scaling back their operations with Russia.

For most U.S. and European retailers, however, business in the country is not of such a size as to jeopardize their international trade activities. For Levi’s, for example, only 4% of net sales come from Eastern Europe, and only half of that is from Russia.

Luxury and fashion

Among the strongest in terms of standing and media response in every corner of the planet, the luxury sector has taken strong commercial and communication action steps. According to Vogue Business, sales in Russia make up about 5% of the world market, and have been growing steadily for two decades.

In an Instagram post of 1 March, Vogue Ukraine called on “all international fashion and luxury conglomerates and companies to immediately cease any collaborations” with Russia. Vogue UA particularly appeals to the major players in the global fashion industry to “not keep silence during these dark times as it has the strongest voice”.

Almost immediate reaction from LVMH (Christian Dior, Givenchy, Louis Vuitton, Marc Jacobs and Tiffany), with an emergency donation of €5 million to the Red Cross. On the same social media platform, Prada communicated its support to UNHCR, as did Kering (Gucci, Saint Laurent, Bottega Veneta, Balenciaga and Alexander McQueen), and suspended operations in Russia. Hermès and H&M made similar choices, while Net-a-Porter notified customers that it was not fulfilling orders from the country, and its main competitor, Farfetch, posted a similar note on its Russian site.

Particular media attention was given to the letter posted, always on Instagram, by Demna Gvasalia. The creative director of Balenciaga wrote that the war in Ukraine has brought up the trauma of his experience as a Georgian refugee and of not wanting “to give in to the evil that has already hurt me so much for almost thirty years”.

Different perspectives

In addition to the immediate emotional impact and the communication needs that followed, there were also signs of greater openness. Speaking ahead of his Paris 2022 autumn show, fashion designer Rick Owens said he did not think “the Russian people deserved to be punished”.

Uniqlo, owned by Japan’s Fast Retailing Co., has decided to keep its Russian stores open. Its founder, Tadashi Yanai, said: “Clothing is a necessity of life. The people of Russia have the same right to live as we do”.

Richemont (Azzedine Alaïa, Cartier, Chloé, Piaget and Van Cleef & Arpels) halted operations in Ukraine on 24 February and suspended its business activities in Russia. It is a fact, however, that more well-off Russians are turning to luxury jewellery and watches in a bid to preserve their wealth, and the situation has probably boosted the company’s business and of other high-end brands. This is the explicit opinion of Jean-Christophe Babin, CEO of Bulgari, who also added “We are there for the Russian people and not for the political world”.

The void left by Western retailers could be filled by China. This, at least, is the belief of Tymofiy Mylovanov, former Minister of Economic Development in Ukraine and now a professor at Pittsburgh University. “China is perfectly capable of imitating brands, even IT brands” and will likely work to meet the demand of Russia’s middle class and some brands may route their goods through China to bypass Europe.

Mylovanov also expressed doubts about the decisions taken by American and European brands, arguing that these could lend credence to Putin’s narrative about the “evilness” of the West.

Interpretations and orientations  

According to the 2022 edition of the Trust Barometer, published annually by the global communications firm Edelman, there is a growing distrust of institutions and the media. On the contrary, the trust placed in companies is growing, thanks to the supposedly greater attention to sensitive issues such as sustainability and corporate social responsibility. Edelman’s summary of its finding is merciless: “business is still the only trusted institution”.

Many leading companies, in fact, have encroached on territories normally occupied by NGOs, ushering an era of brand activism in favour of causes such as environmentalism, inclusiveness, social and LGBT rights, and empowerment.

In this logic, a position in relation to the war is inevitable and it will certainly not be the last time. However, the possible polarization of the confrontation between segments of consumers differently oriented towards a conflict or a cause must be taken into account. It is worth reminding Nike’s choice to have as its testimonial the American football player Colin Kaepernick who knelt for the national anthem, and Trump’s violent reaction.

Then there are the slip-ups caused by the excessive display of adherence to moral values, which can have the opposite effect to that sought. As for for example with the University of Milan Bicocca on the course held by the writer Paolo Nori on Dostoevsky, or the blocking of access to Russian content by online platforms with tens of millions of users.

Clearly, the need for brands is the long-term positioning with respect to an audience even wider than the typical target of reference, with the implicit risk of having to adapt to out-of-control contexts. Russia’s intervention in Ukraine has also given rise to a digital war the likes of which has not been seen before. For brands, the ability and usefulness of addressing it or assuming neutrality will not be something verifiable in the short term.