Top brands pull out of Russia, but remain easy to find

TRUCKS carry Coca-Cola cross the border into Russia; tourists return from abroad laden with Zara’s latest designs; and local online marketplaces snap up Ikea’s furniture.

Western brands may have left the country, but their goods have not.

Despite European, North American and Japanese companies exiting Russia over its actions in Ukraine, the impact on Russian consumers has been minimal.

The main change has been to supply routes, so delivery times can be longer and some goods more expensive. But the products remain available both online and in stores; buyers just need to know where to look.

Crucially, the vast majority of goods concerned are not subject to sanctions, and cross-border flows are legal. Moscow is happy to let them in, whatever route they take.

Brands’ continued availability shows the challenge that companies face in controlling supply chains when exiting a market.

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Inditex, a conglomerate that owns brands such as Zara, Bershka and Massimo Dutti, shuttered 502 Russian stores after Moscow sent troops into Ukraine. The group then sold the stores to UAE-based Daher Group.

A Reuters review of six major online marketplaces and conversations with a dozen buyers and sellers showed that small-scale imports and online sellers were keeping the group’s products in circulation.

One buyer, Albina, 32, took an empty suitcase to Minsk, Belarus last summer and returned a day later with 33,000 roubles (S$594.34) worth of Inditex-brand products for herself and her friends.

While most Western brands that have halted Russian operations have also pulled out of Belarus – a staunch Moscow ally – Inditex has not. The group did not respond when asked about this.

Albina told Reuters she had also bought clothes in Paris and Dubai through a network of online sellers.

“There are pages on Instagram, on Telegram; there are girls I know who moved to live in Europe or Istanbul or Dubai,” she said. “They collect orders, let’s say in Istanbul, they take 15-30 per cent (as commission), then get them delivered here, and you pay for the delivery.”

Last year’s strong rouble and weak Turkish lira played into Russian consumers’ hands.

Dinara Ismailova, marketing director at foreign e-commerce delivery service CDEK Forward, said currency dynamics were partly responsible for a seven-fold increase in deliveries from Turkey.

“As soon as brands said they were leaving, some kind of panic started, and the number of volumes and orders rose sharply,” she said.

Dealing with small, private deliveries, CDEK Forward’s turnover doubled in money terms last year, with 80 per cent of that coming from clothes. Its goods turnover trebled.

“It’s comparable to if you personally went to a Zara store in New York, bought something there and sent it on to your friends in Moscow,” Ismailova said.

As supply chains broke down, Russia legalised so-called parallel imports, allowing retailers to bring in products from abroad without the trademark owner’s permission.

E-commerce sites sell a wide range of imported goods, and sellers often advertise that they bring in products from abroad.

Market leader Wildberries sells old stock from Inditex brands and has almost 17,000 goods in its Zara catalogue. A source close to Inditex said these were clearance stocks that were already in Russia when the group suspended activities there.

Wildberries did not respond to a request for comment. One ubiquitous Western product that Wildberries and its peers Ozon and Yandex Market sell is Coca-Cola, often advertised as imported so that buyers know it is the real thing.

While Coca-Cola stopped producing and selling drinks in Russia last year, sellers have been importing them, with labels on cans and bottles showing they have arrived from Europe, Kazakhstan, Uzbekistan and China.

One quirk of this arrangement is that prices vary. In one Moscow supermarket, three cans of Coca-Cola – imported from Britain, Denmark and Poland – were on sale for three different prices.

A senior employee at a major retailer, who spoke on the condition of anonymity, said companies had adapted to the situation. “Contacts were quickly established and new contracts with new partners signed, new money flows and logistical supply chains with Turkish, Polish and Kazakh companies were launched.”

Coca-Cola is available from even more countries now. “However, as usual, it is the buyer who pays more for these new inconveniences,” the employee added.

Ram Ben Tzion, chief executive of digital vetting platform Publican, said that as new routes are developed, the extra costs of logistics, travel and scaling will fall. Although trade remains relatively inefficient, these new relationships are here to stay, he added.

“The parallel-importing mechanisms have been consolidated and expanded, meaning that pretty much everything is accessible and still will be in the future,” he said, pointing to truck queues at the border and new entities springing up in nearby states.

“Coca-Cola can easily notice the ‘surge in demand’ from countries neighbouring Russia, where most parallel imports come from. It is not in its interest to do anything about it.”

Coca-Cola declined to comment.

Trade data from “friendly” countries that had not imposed sanctions showed that they in fact ramped up exports to Russia. Russia itself has stopped publishing such figures.

China-Russia trade hit a record 1.3 trillion yuan (S$252.7 billion) last year. Turkey’s exports to Russia jumped 61.8 per cent to US$9.3 billion, and Kazakhstan’s rose 25.1 per cent to US$8.8 billion.

But Ben Tzion noted that informal supply routes could lead to more poor-quality goods entering Russia, as regulators lose oversight.

Some brands spend years battling copies and unauthorised imports. Coca-Cola’s Russian rivals, meanwhile, have increased bottling capacity and launched new cola beverages.

When Swedish furniture giant Ikea exited Russia, it sold its stock to Yandex Market, the e-commerce division of tech giant Yandex. Ikea brand-owner Inter Ikea Group said it sold the remaining stock for an undisclosed amount to Yandex, as it scaled down Ikea Retail Russia.

Yandex Market said it puts suppliers who previously sold goods via Ikea stores in direct contact with customers.

But former suppliers are also ready to sell lightly modified Ikea items under different names. One advertised a bedding set that it called “Arua (analogue of Ikea Bergpalm)“. Ikea said it was looking into goods being advertised online as being similar to Ikea.

Although new opportunities are opening up for Russian firms, the fixation with Western brands may hinder efforts to boost local production.

Ben Tzion said: “Over time, market forces will continue to drive the products Russians are used to into the market; and while there is an aspiration to move to ‘Made in Russia’, it will be very difficult to actually get people hooked on Russian cola.” REUTERS