It’s Time for Fashion Brands to Exit Russia

In the immediate aftermath of Russia’s invasion of Ukraine on Feb. 24, almost all Western fashion brands suspended operations in Russia. At first, the thinking was that the industry could pause sales to show solidarity with Western customers who overwhelmingly supported Ukraine in the conflict, while leaving the door open for a return once the war was over.

Nearly five months later, experts are giving up hope for a short-term peaceful resolution. This week, H&M said it would wind down its business in Russia, once the Swedish retailer’s sixth-biggest market. The decision means 170 stores will close, and some 6,000 employees will lose their jobs.

“After careful consideration, we see it as impossible given the current situation to continue our business in Russia,” chief executive Helena Helmersson said in a statement. “We are deeply saddened about the impact this will have on our colleagues.”

So far, H&M and Nike, which permanently closed its Russian operations in June, are the exceptions. They will soon be the rule.

When retailers like Zara parent Inditex, luxury giants LVMH and Kering, and online retailers Yoox Net-a-Porter and Farfetch suspended sales in Russia, they did so partly to avoid running afoul of Western sanctions, and partly to head off public outcry. It worked — photos of dark Zara and Dior stores inside Moscow shopping malls satisfied most consumers, even if some knew their owners could theoretically turn the lights back on anytime they wanted.

That middle ground is increasingly unviable, as the war drags on and atrocities such as the massacre in the Ukrainian town of Bucha come to light.

Brands now face a choice: they can shut their Russian operations entirely, as H&M and Nike have done. They can sell their Russian businesses, as off-price retailer T.J. Maxx did when it sold a 25 percent stake in the Russian retailer Familia. Or they can continue with a wait-and-see approach.

Leaving Russia entirely comes at a cost: H&M said closing its Russian business will cost 2 billion Swedish crowns ($191.3 million at current exchange rates). It also means permanently walking away from a market that provided 4 percent of the group’s sales in the fourth quarter of 2021.

Those figures are likely higher than at most other retailers, even large ones. Adidas operates 500 stores in Russia and other former Soviet states, but said pausing business there would cut 2022 revenue by just 1 percent. The goodwill generated with many consumers by taking a forceful step to cut ties with Russia is probably worth that, if not more, especially for brands that are early to take the leap.

For brands that operate in Russia via franchisees, selling their business to those partners may be the most practical way out. A former McDonald’s partner now operates the fast food chain’s former Russian locations under a new brand, Vkusno & tochka. However, this isn’t a fool-proof solution: Some of the McDonald’s Russian stores are still using its branding illegally, potentially hurting the company’s image if service and the quality of its food drops. In fashion, where grey market goods are a problem even in normal times, it’s not hard to imagine a future where “Versace” and “Adidas” stores sell fakes and illicitly sourced goods.

Meanwhile, as malls in Moscow sit half-empty, domestic brands are benefiting from the lack of foreign competitors. Reuters reported that sales levels for Russian apparel, shoe and accessory brands were 2.6 times higher in March and April 2022 versus 2021, according to Ozon, Russia’s second-largest e-commerce platform.

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Compiled by Joan Kennedy.