HOW RUSSIA’S ISOLATIONISM IS IMPACTING FASHION ?

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As Vladimir Putin’s policies push Russia further away from the global community, new laws limiting foreign ownership of Russian media will force publications in the country to restructure. Russian president Vladimir Putin signed a law that will prohibit foreign individuals or companies from owning more than 20 percent of any Russian media company as of February 2017. According to another piece of legislation announced this month, from December 6th of this year, foreign companies will have to seek government permission before buying a stake of 25 percent or more in newspapers and magazines in Russia. The new laws are a bullet fired squarely at the country’s independent news outlets, which include Forbes and Vedomosti, a business newspaper part-owned by the Financial Times Group and Dow Jones, whose corruption exposés and investigations of businesspersons close to Mr Putin have long been a thorn in the Kremlin’s side. But fashion media is in the firing line as well. Russia’s largest fashion media holdings — Hearst Shkulev Media (which publishes the Russian editions of Elle and Marie Claire), Sanoma Independent Media (Grazia, Harper’s Bazaar, Cosmopolitan) and Condé Nast (Vogue, GQ, Glamour, Tatler) — are all fully or partially foreign-owned and must now contemplate changing their ownership structure, or selling off significant proportions of their Russian assets. As the restructuring of banks and energy companies in the country has already proved, ‘Russian-owned’ likely means owned by trusted friends of Mr Putin. “If you do big business, you’re 100 percent connected to the government,” said Ekaterina Petukhova, a partner who monitors fashion markets at international consultancy Texere Advisors. Aliona Doletskaya, editor-in-chief of Interview Magazine Russia and former editor-in-chief of Vogue Russia, told BoF that in her experience, while investors normally try not to influence editorial content, the implications for Russian-owned media are somewhat different. “This opinion of mine would not cover Russian brand magazines,” she said. If Russian ‘big business’ is to own fashion media brands operating in the country, magazines will face increased pressure to bring their content into line with the values of the Russian state. Indeed, going forward, their articles and photo shoots will be conceived with the knowledge that publication of political or otherwise controversial content could bring serious harm to the titles in which they appear.

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“Most Russian fashion magazines would never touch on political issues, but that is logical given the character of the magazine itself,” said Doletskaya. But this is not always true of modern fashion publications, such as Cosmopolitan, for example, whose editor identifies her reader as a woman “interested in mascara and the Middle East.” How the magazines will react to the legislation remains to be seen. Condé Nast declined to comment for this article. In an email to BoF, Dasha Veledeeva, editor-in-chief of Harper’s Bazaar Russia, wrote: “Of course, this will change everything and it’s really difficult to predict anything now.” “It makes publishers’ lives more difficult. It’s a nuisance,” said Doletskaya. “But we know countries that already function like that. And the law will give us two more years.” “I am sure there is a way out like in China, for example, where western glossy magazines are running very successful businesses,” agreed Olga Mikhailovskay, former fashion director at Elle Russia, who has contributed to publications including Vogue Russia and Kommersant, a newspaper covering business and politics in the country. “I do not think the new legislation will have any impact on the content and distribution [of glossy magazines]. I cannot see any reason for that!” According to Miroslava Duma, founder of culture website Buro 24/7, “The overall change in the ownership structure might lead to consolidation of fashion and business media.” Buro 24/7 intends to comply with the legislation, but “our editorial policy is not vulnerable to any of the legislation or political issues,” Duma wrote in an email to BoF. Indeed, all of the editors BoF spoke to disputed the idea that the new laws would result in increased political influence over the content of fashion magazines.

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Most said that, in practice, the new laws amount to little more than a cosmetic change: media companies will set up and register ownership under a company in Russia and carry on business as usual. But such comments euphemise the seriousness of the situation. If they are to comply with the law, these media companies have two years to secure a Russia-based partner that is suitable for their company — and suitable to the Russian government. For Mr Putin, shifting media ownership is certainly not a cosmetic change, but the latest step in a long campaign to tighten the state’s hold on Russia’s press, rolled out with urgency in recent months due to increased international media scrutiny of the Kremlin. This campaign includes the launch of Sputnik, a planned international network of state media hubs in 30 cities, unveiled in November. It is known that state agency Roskomnadzor blocks access to certain websites and, in August, launched a media blackout against a performance art project called Monstration.

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The government has also closed down or bought out Russia’s independent television networks. In May, comment moderators at the Guardian newspaper reported that, in the 40,000 comments they monitor per day, they were seeing an organised pro-Kremlin campaign in which people were paid to troll anyone criticising Russia or President Putin. Such a track record does not seem consistent with a media left to conduct business as usual. Compared to western glossies, the Russian fashion press is a babe in arms. Harper’s Bazaar Russia, which calls itself the country’s first fashion magazine, launched in 1996, followed by Vogue Russia in 1998 (US Vogue had celebrated its centenary before Russian Vogue had even launched). And in its early years, the Russian fashion media pushed boundaries more than one might expect. In 2005, Russian Vogue published an austere black and white series of photographs, shot by Hedi Slimane, featuring fresh-faced soldiers, caught in eerie documentary-style portraits, moving across a silent carpet of snow. “I almost got fired because I was defending it,” recalls Anna Dyulgerova, former executive fashion editor of Russian Vogue. “I think that it is brave that it happened. That was the time when maybe Russian media was considered cool and forward.” In recent years, however, the country’s fashion magazines have somewhat toned down their output. Advertising is harder to come by, especially in Russia, where alcohol advertising — something that previously supported many luxury and fashion publications — was banned in 2012. And after the fall of the Iron Curtain, Russia’s postal service fell into disrepair, making magazine subscriptions a challenge to fulfill and meaning circulation in the country is disproportionately low. “A lot of fashion magazines are getting more commercial and less, I would say, brave and creative,” said Doletskaya. “Yes, we are more conservative and not because of politics,” said Dasha Veledeeva, of Harper’s Bazaar Russia. “We’ve made numerous surveys that showed that our readers want to escape from everyday life while reading the glossies.” “It had to cater to what the market needs,” said Dyulgerova. “Because it’s a business. And the more money you make, the more successful the business is.” Would Russian Vogue publish Slimane’s bleakly moving images of soldiers today? “I just don’t think they would be interested,” she said. “They would say, that’s not ‘Vogue.’” Who’s to say what is ‘Vogue’?

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For now, it’s the editors. But by limiting foreign ownership of media, the state Duma aims to preserve Russia’s “informational sovereignty,” which could have serious implications for publications covering an industry like fashion, in which the vast majority of news comes out of Western cities. Indeed, Russia’s state media has already voiced its distrust of the relationship between fashion and the West: in October, government newspaper Rossiyskaya Gazeta lashed out at Russian fashion designers and figures including Miroslava Duma, accusing them of pandering to the western press and not doing enough to promote Russian designers in their engagements with international media. As such, the new media ownership laws may make the task of keeping the country’s fashion press relevant that much harder. “I always think, ‘Think global, act local.’ I’m trying to come up with a magazine that is internationally valuable,” said Doletskaya. “A purely local media, especially in fashion, in Russia, does not set a competitive level for me. I love putting all the issues on an international calibre and I think it’s very helpful and healthy for both my Russian readers and people checking us out abroad.”It appears that some working in Russia’s fashion media are willing to fight for their editorial independence to keep their publications relevant to their audiences and the international fashion industry at large. Come 2017, they might have to. At the beginning of the year, Russia was one of the world’s most promising fashion markets. But in the last ten months, isolationist policies combined with a fragile financial climate have seen the country’s economy plummet. In the second instalment of a two-part series, BoF explores the consequences for fashion retail in Russia.

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What happens if you ban fashion for 69 years? As with any denied pleasure, it becomes forbidden fruit. Following the collapse of the Soviet Union, Russia unleashed a desire for fashion that had been dormant for decades, suppressed by the USSR’s official distrust of commercialism, luxury and indulgence, and curbed by the regime’s restrictions on imported Western goods, including clothing. Over the 23 years since the fall of the USSR, Russia has grown to become one of the largest emerging markets for fashion in the world. In 2013, the country’s fashion market was worth 2448 billion rubles (about $53 billion), according to Fashion Consulting Group, a consulting firm with offices in Moscow and New York. But in the last nine months, exacerbated by the effects of president Vladimir Putin’s foreign and economic policies, Russia’s economy has tanked. The country has upped its tariffs on imported goods — and banned imports of certain products altogether — which, coupled with sanctions imposed by the international community in response to Russia’s military actions in Ukraine and Crimea, has helped to hike inflation in the country to above 8 percent. The ruble is at its weakest since 2008 and Russia’s billionaires are moving their money abroad as fast as possible, with capital flight forecast to hit a record $120 billion this year. How is the country’s fashion market faring? In the first six months of 2014, Russia’s fashion sales declined by 7 to 8 percent, compared to the same period in 2013, according to Fashion Consulting Group. But the firm forecasts that, all told, the Russian fashion market will dip by 20 percent, year-on-year, by the end of 2014. As Russia’s political and economic climates get frostier, some retailers are turning away. Earlier this month, high street retailer New Look announced it was exiting Russia, despite having previously planned to buy out its franchise partner and establish a joint venture with a new partner to accelerate expansion in the country. The reason? According to the brand, “political uncertainty” was the primary cause for the about face. Uniqlo has also halted its plans for expansion in Russia, revealed Maxim Karbasnikoff, head of retail real estate at Cushman & Wakefield, which had been engaged by the Japanese retailer, in The Moscow Times. And it’s not just the high street that has been affected.

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Russia’s market for personal luxury goods will contract by 18 percent this year, according to Bain & Company, a global consultancy. “Russia is becoming a more complicated and difficult market, therefore it becomes less attractive,” said Anna Lebsak-Kleimans, chief executive of Fashion Consulting Group. “A great problem is that international companies, international brands, really are reluctant about development in Russia. Because you don’t know what you will have tomorrow,” added Ekaterina Petukhova, a retail specialist at international consultancy Texere Advisors. Interestingly, in April, Prada announced a 30 percent surge in Russian sales for the first quarter of this year (right in the midst of the Crimean crisis), but the brand credited the rise to a reduction in Russians’ shopping trips abroad following the imposition of economic sanctions. Once big spenders on luxury fashion when travelling abroad, Russian tourists in Europe spent 13 percent less in June, according to Global Blue, a tourism shopping tax refund company, According to a report by consultancy FashionBi, in February 2014, Russian spending in the UK was down 17 percent compared to the same month the year before. Some are taking a long view on the current turmoil, however. “We look at Russia as a market with significant long term potential. Russian luxury consumers are some of our most knowledgeable and loyal customers,” said a spokesperson for Gucci, which unveiled a new flagship store in Moscow last week.

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Benneton also recently opened a flagship store in Moscow (on Tverskaya, the city’s equivalent to Oxford Street) and plans to open 40 stores in the country in the next three years. Zara, which entered the market in 2003, had major plans in Russia. In late 2012, the brand’s owner, Inditex, announced plans to open 50 to 60 shops in Russia each year. And while Inditex declined to comment for this article (“We prefer not to comment on political or macroeconomic issues,” said a spokesperson), the company confirmed that its “operations in Russia are business as usual.” Ultimately, major international chains, for whom revenue in Russia ultimately makes up only a minor part of their global business (five percent for Zara, one percent for H&M), are well positioned to absorb the current decline in sales and demand, as consumers curb their spending, nervous about the future of the economy.

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But the full impact of the recent shift in political and economic conditions remains to be seen. Based on growth over previous years, Russia has the largest mall development pipeline in Europe, with almost 100 new shopping centres planned to open in coming years, and this week overtook the United Kingdom, becoming the country with the second-most mall space in Europe, according to Cushman & Wakefield. Previously, the kind of retail space required to host big brands was in short supply, especially in the country’s far-eastern regions. But in September, with consumers in panic mode, mall traffic the week before schools opened had dropped by nearly 25 percent compared to the year before, reported The Moscow Times. Indeed, with some of the most desirable retail space in Russia performing poorly — watchmakers Omega and jewellers Pandora are amongst the international brand who have recently closed their shops on Moscow’s prestigious Tverskaya Street, where at least 18 properties are now vacant — the health of the country’s physical retail sector is shaky. As for e-commerce, much depends on how the geopolitical situation develops. In January, Putin increased the duty fees on international online orders to combat the advantage international brands have over Russian companies, which have to pay taxes and customs duties on all of the goods they import. “We had amazing conditions for these parcels. People bought loads from foreign e-commerce,” said Petukhova. “At the moment it’s really difficult to get something in, especially with this political situation.,, The problem with e-commerce is that too much money was invested into it. It had a bubble effect; I think in the future we will see these companies begin to shut down.” In the face of sanctions imposed by the international community, the Russian government has also imposed import bans on some western goods. Currently this only applies to food products, though president Putin — whose relations with his Western counterparts are frostier than ever — has threatened to expand these bans to apparel if Russia is dealt more sanctions, which would completely change the game for international fashion retailers operating in Russia.

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The last year has also shaken things up for Russia’s domestic fashion players. Most fashion designers in Russia import their materials and high import tariffs coupled with the weak ruble have seen the cost of doing so rocket. But if there is a curious silver lining to all of this, it would seem that the exposure Russia is currently receiving in the international media has done young Russian designers a favour, said some. “With all these sanctions and the political situation and the patriotic propaganda, what’s interesting is that Russian designers seem to be doing much better,” said Anna Dyulgerova, commercial director for Russian magazine Garage and a consultant to Russian designers. “This political situation I think is quite beneficial for young designers,” agreed Ekaterina Petukhova. “People are talking about Russia, they pay much interest to Russia, to Russian designers.” But she is quick to add: “It’s very difficult for them. The problem with Russian designers is that they have more PR than orders.” To be sure, the problems afflicting Russia’s retail sector are not all linked to the current political climate, which may simply be exacerbating deep rooted economic issues relating to the fallout from the 2008 crisis and declining oil revenues. Poor management may also be to blame. “Many brands try to say that it’s the wrong political situation and that’s where our problems come from. But really I think the situation is more complicated. It’s combined with mistakes of retailers in positioning and business strategy,” said Ekaterina Petukhova. “We have so many external and internal factors in play here that people are more or less waiting for the political situation to calm down. Not to get better, but just to calm down. Before that happens I think everything will be postponed.” (By Kate Abnett from Businessoffashion.com )