The Russian fashion trade fair CPM - Collection Première Moscow - is celebrating its tenth anniversary and according to the German trade organizer Igedo, which established CPM in 2003, this event also marks ten years of professionalizationof the Russian fashion industry. Only in the last two years has multi brand retailing come to the fore, as well as agents who represent multiple foreign labels. Almost 1600 brands - the majority of which came from Germany and Italy, but also from Turkey and Spain - took part in the 21st edition of CPM last week, which also attracted 19,300 visitors. CPM consists of a 'mere' 4 segments, of which Body & Beach is the newest. Most labels exhibit in country pavilions. Countries that provide substantial subsidies for brand participation. European visitors are therefore sometimes confronted with surprising scenarios, such as finding the Dutch brand Creenstone in the German pavilion, only because the label's participation was arranged via the Russian agent's German branch.
"The Russian fashion industry is still in its early stages, but the sector has made huge progress in the past ten years," says Reinhard Döpfer, Chairman of the EFTEC, the European Style and Textile Export Council. "Russian apparel used to primarily be sold at markets and bazars, where it was packed tightly together on the racks. Russian fashion stores used to black out their windows and leave their window displays empty, for fear of attracting criminals."
Meanwhile, all the European luxury brands have found their way to Russia, and Moscow's countless shopping malls are home to the likes of Zara, H&M, Gap and Uniqlo. The stores are just as airy and organized as anywhere else in the world and the window displays play an important part in attracting shoppers. The majority of the retail brands has been introduced to the Russian market through franchisees or agents, but an increasing number of companies choose to 'go it alone' after the first few years. The Spanish fashion conglomerate Inditex is a good example. Inditex (Zara) entered the Russian market in 2003 via the Finnish retail conglomerate Stockman, but established its own company in Russia after only a few years in order to roll out its retail activities and to organize its administration properly. Inditex now has over three hundred shops in Russia for its various brands and even launched a Russian web shop for its Zara formula in late August.
It is an interesting market for fashion companies, particularly in the mid segment. Russians spend between ten and fifteen percent of their income on clothes. That is over twice as much as, say, in Germany (5,6 percent). Besides that, Russians are very price conscious. Expensive brand bags and shoes are status symbols for which people are prepared to pay a lot of money, but with apparel the focus is less on luxury brands with Russians demanding more value for money. There is also a visible shift towards a more casual way of dressing. Russians used to dress extremely formally - according to Döpfer every Russian carried a comb - and Russian women still prefer skirts over trousers. With the arrival of a more informal dress style, a large market for the smart casual segment developed within a relatively short time. This edition of CPM - which took place in the first week of September - is only the third time that the trade fair has hosted a separate section for Style & Denim, with brands like Desigual, Scotch & Soda, Cheap Monday and Mavi. The Style Consulting Group - a local research firm - predicts that in the next five years the denim market share in Russia will increase by up to 40 percent.
Major growth Russian denim market
However, Russia is not a fantasy market with endless growth opportunities. It is a complex market where foreign brands and retail formulas can easily fail. "We do not advise fashion companies to come to Russia on their own, in other words, without an agent," says Christian Kasch, CPM's Project Director. There is a language barrier and the lack of industry jargon also presents a problem. Furthermore, Moscow is terribly expensive. Reinhard Döpfer explains that a retailer not only has to pay between 4.000 and 6.000 euros per square meter a year for a shop in one of the city's new malls, but that a key fee of about 50.000 euros to get a foot in the door as well as a percentage of the revenue is also demanded. Finding capable, commercial and customer-friendly staff is also an obstacle, communism's legacy. "Russians are not familiar with concepts like in-store marketing, visual merchandising, styling advice or after sales."
Moreover, in the past three years, entering the Russian market has become more difficult for foreign companies due to the establishment of the Eurasian Customs Union (EAC), a customs union between Russia, Belarus and Kazakhstan, and the first step to forming a broader economic collaboration of former Soviet states after the EU model, including protectionist agreements that regulate the import of apparel and textiles. Next year - officially per 1 July 2014, but already applicable to all deliveries of the spring collections - the rules for labeling are being expanded for the sake of consumer safety. A radical measure for which, according to Reinhard Döpfer, 98 percent of foreign fashion companies active in Russia are not yet prepared. "All vertically operational companies have already made the necessary arrangements, but small and mid-sized European brands in Russia which sell directly to stores; local agents and distributors who operate as intermediaries and have not established an 'OOO', and most of the independent stores and boutiques in Russia are going to feel the effects of this measure." The establishment of an OOO (a limited liability company) is expensive - according to Döpfer Hugo Boss recently paid 250,000 euros for one - but necessary if you want to acquire the mandatory EAC-labels and pay taxes. Quite similar in fact to the EU.
Customs union with protectionist measures
Text: Esmerij van Loon
Translation: Wendela van den Broek