How is The Luxury Sector Bypassing Sanctions Imposed On Russia?

At the end of September, Italian cashmere specialist Brunello Cucinelli found itself at the center of an embarrassing scandal. Despite the sanctions imposed by the European Union on Russia following its invasion of Ukraine, the brand's products are reportedly still available on the Russian market. This was revealed in a Morpheus Research investigation published on September 25, entitled “From Moscow to TJ Maxx.”

The organization accuses cashmere king Cucinelli of concealing his business practices in Russia. However, the luxury house has responded firmly, explaining that its actions are in accordance with the law. Cucinelli stated that its Russian stores are closed, that its sales in Russia have fallen from 9% of total revenue in 2021 to just 2% today, and that its limited sales are in line with EU sanctions.

As the story unfolds, it is clear that Cucinelli is not the only luxury brand still available in Moscow. After Russia launched its offensive against its Ukrainian neighbor, the vast majority of European luxury groups, such as Chanel, LVMH, Kering, and Hermès, announced their intention to halt sales in Russia so as not to tarnish their international image. According to figures, more than a thousand Western companies have left Russia since the Kremlin launched the war in Ukraine. However, several of these luxury brands have kept their Moscow premises and boutiques, hoping to restart their activities once the conflict is resolved.

At the same time, although in-store sales have stopped, they continue partially via Russian online sites and in a few department stores. On the Tsoum app, you can find several luxury items coveted by Russian buyers. To compensate for the lack of choice, a kind of “nomadism” in luxury shopping has emerged. Destinations such as Turkey, Kazakhstan, and Dubai have benefited enormously from this.

In Turkey, Russians have boosted the luxury goods market. According to estimates by Bain & Company, growth has reached +25% since 2022. Oligarchs are investing heavily in Turkey and Dubai, thanks in part to the numerous air links with these countries. To transfer funds for the purchase of luxury goods and real estate, wealthy Russians often use cryptocurrency or gold transfers.

According to an investigation by the Italian daily Il Fatto Quotidiano, Kazakhstan is being used as an intermediary to ensure the arrival of luxury goods in Russia. The country is not currently under sanctions, and goods can be legally exported under current international trade laws. However, these goods are said to continue on their way to Russia via a parallel market.
If this trade is confirmed, those responsible could face fines of up to €250,000 and six years in prison. The newspaper did not mention the names of the brands involved.

A ceasefire with Ukraine still seems a long way off, but luxury brands are speculating on the post-war period, even though the market they will return to will be deeply impacted by much stronger competition from national brands and Chinese brands, which have filled the gaps, especially in the automotive sector.