Russia, one of the BRIC nations, is no stranger to luxury with around 60 Russian billionaires buying yachts and sports teams. However, apart from those 60 odd individuals, there is a huge market which can be and has to be tapped. Is going online the correct strategy?
By: Ekaterina Petukhova, CEO, Esper Group
Posted on: November 10, 2010
Sometimes life imitates art in never thought of bizarre ways. It’s not enough to say that Internet has firmly entrenched in our routine. It has changed the way we think and perceive the world around us. Communication theorist Marshall McLuhan said that new technologies were meant to become external extensions of man. This theory has turned out to be true! Internet has become our external extension and changed everything - especially the way we do business – from product development to marketing activities. And the only industry that for a long time kept ignoring those new possibilities was luxury.
To some extent this behavior was justified, but just till the time before some astonishing news started to come from this brave new world. With companies with no tangible assets doing their business online, generating profits comparable to respectable trade houses, and bloggers turning out to be more popular than prominent journalists, Internet became a new business destination. In this new reality, where people are more and more often choosing to switch off their TVs to spend time online buying, reading or just surfing the Net, companies could not ignore the medium anymore. However luxury was the one looking down on the crowd and staying away from this buzz.
But considering the business luxury had in the latest decade, such reluctance is quite explainable. The booming world’s economy was a better marketing, sales and product management instrument than any other. And when it came to emerging markets, upscaling and making consumers starve for luxury proved that it’s luxe and visible enough. The recent economic crisis was a critical point in the whole situation. It came hand-in-hand with a structural crisis in luxury and made cost optimization the new mantra for everyone. And then it made luxury come down from heaven to earth and see companies like Net-a-Porter generating profits even in times of great changes or Burberry, which gives a quarter of its marketing budget for online projects. Luxury brands started to take Internet more seriously, especially in markets strongly hit by the crisis.
And in Russia, where everybody anchored their hopes, luxury brands lost 37 per cent in sales volume in 2009. However, in 2010, the growth pace in Russia will exceed the world’s 10 per cent and grow at 16 per cent. When talking about emerging markets, it’s really important to consider two indicators. The first one is internal market volume which reflects the value of luxury goods people buy inside Russia, and external market volume which shows what is bought outside. Esper Group forecasts the first one will reach 8.4 billion Euros. At the same time, Russians possess 24 per cent of world luxury, valued at 40.32 billion Euros - five times more than the internal market volume. It leads us to the idea that 80 per cent of luxury products are bought by Russians outside their country. This important fact leads us to the logic of this segment’s development. Russian luxury market is limited to Moscow, but the luxury market aimed at Russians is enormous.
But who are those lucrative customers and is it possible to catch them online? Is it worth trying? The answer to all those questions is - yes and no.
Russian luxury customers are people with their roots and capitals in natural resources like oil, ferrous and non-ferrous metal, gas and the rarer financial and construction sector. All the other possibilities are too limited to even talk about. To catch those big guys surfing the Net, looking for some luxury products is mission impossible. Watching one another and looking up at trendsetters like Roman Abramovich is their way of perceiving trends.
However, they have families with wives usually starving for ‘it’ bags, children looking for cool gadgets, and they do have skills and time to spend online. So, one should define the audience to target, and the possibilities in Russian internet are really limited. There are few names to be given – Spletnik.ru – if you look for wives to spend. Lookatme.ru – if you want to educate and grow audience for future. Vogue.ru – if you want to tackle both at the same time. But for a country with so many luxury consumers, it is a limited choice.
However, till now, only two luxury companies have made some visible steps online. Chanel placed advertisements in Vogue.ru and Lookatme.ru. However, Chanel advertised just their watch no other product. Lookatme also cooperates with Burberry. For instance, it showed a special men’s collection show online. Luxury brands’ intentions are serious now with the online campaign budget being comparable to that for glossies.
There are Russian luxury retailers who are making attempts online. The main motivating issues are great audience and low costs. They start blogging, using Twitter or Facebook. However, a word of caution is required. For example, one of the leading luxury retailers Podium posts tweets about new collections, but it is ruining its luxury image and making it just a store nearby. TSUM and Bosco – major luxury operators - are keeping their hands off laptops, although it could serve them very well. So, to Russian brick-and-mortar retailers, we should say: Thank you for your effort.
Strategies to adopt
The main problem is that everybody is still experimenting on Internet. Times of experiments have long passed. Internet is too visible, especially in countries with still very collectivist mentality like Russia. If something is on TV, people can miss it. If something stupid is on the Net, it’s everywhere. So, you do not have a chance to lose your face when you come to someone’s laptop screen. Of course, one should leave some space for trying out new ideas, but it should be done within a very well examined strategy. And no luxury brand or retailer in Russia has that, except for Burberry. As long as there is no strategy, there will be no effect in terms of profit. Of course, a buzz could be made, but to control the angle of its perception would be really difficult.
So, to start an online campaign in Russia, it’s worth turning to someone who knows the landscape. For example bloggers, who became professionals, and work for publishing houses. In Russia, Anna Frost was the first one to introduce the fashion blogging culture in the country. She still goes on with blogging while working for Conde Nast digital. While stating her opinion on fashion, Anna became an expert for quite a large number of Internet users with interest in style trends. Another worthy mention is Slickwalk.ru, dedicated to street-style fashion details. It is run by a pretty couple taking pictures of every worthy look in Russian cities.
In general, putting a luxury product online in Russia is a great risk for your business. On one hand, you can make it more visible and grow its popularity. On the other hand, it’s too easy to ruin its luxe flavour by just one unskilled movement. However ignoring online communications could be too vulnerable for your business when it comes to fake products.
While luxury companies hesitate about going online, fake luxury producers make their money on the net. Replica vendors have been the first to appreciate advantages of social networks – especially the most popular in Russia – Vkontakte.ru. Fake apparel, footwear and accessories can be purchased on this site. Bestsellers are imitations of apparel and bags by Louis Vuitton, Gucci and Chanel. Russian legislation favours this business and it’s difficult for brands to protect themselves with the help of law. So, it seems that luxury brands have no choice and they should really get down to online strategies for emerging markets.
When it comes to an emerging market, the question is not to tweet or not tweet. It’s obvious you can’t stay away from what is happening online. With all existing and upcoming instruments that Internet provides us with, with all the changes and turbulence coming from this virtual space – one fact remains – Internet is a great challenge. But in this new world you just have to be brave.
Ekaterina Petukhova is the CEO of Esper Group, a Moscow-based firm, which provides market intelligence and consulting services to fashion brands. The company also retails Pierre Premier in Serbia and designs, produces and distributes its own collection called Roi et Moi.